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HomeMy WebLinkAboutOPEB Valuation Date 06-30-2022GASB 74/75 ACTUARIAL VALUATION Fiscal Year Ending June 30, 2022 CITY OF NEWPORT BEACH CONTACT Sandy DeKalb ASA, EA, MAAA sandy.dekalb@nyhart.com ADDRESS Nyhart 530 B Street Suite 900 San Diego, CA 92101 PHONE General (619) 239-0831 Toll-Free (800) 428-7106 Fax (317) 845-3654 Table of Contents Page Certification 1 Executive Summary 3 GASB Disclosures Schedule of Changes in Net OPEB Liability and Related Ratios 5 Schedule of Employer Contributions 6 OPEB Expense 7 Deferred Outflows / (Inflows) of Resources 8 Sensitivity Results 10 Asset Information 11 Actuarially Determined Contributions 13 Projection of GASB Disclosures 14 Cash Flow Projections 15 Discussion of Discount Rates 16 Summary of Plan Participants 17 Substantive Plan Provisions 20 Actuarial Methods and Assumptions 24 Appendix 29 Comparison of Participant Demographic Information 30 Detailed Actuary's Notes 31 Valuation Results Summary 32 Glossary 33 Decrements Exhibit 34 Retirement Rates Exhibit 35 Definitions 36 April 6, 2022 Scott Catlett City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 This report summarizes the GASB actuarial valuation for the City of Newport Beach 2021/22 fiscal year. To the best of our knowledge, the report presents a fair position of the funded status of the plan in accordance with GASB Statement No. 74 (Financial Reporting for Post-Employment Benefit Plans Other Than Pension Plans) and GASB Statement No. 75 (Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions). This report may not be appropriate for other purposes. Please contact Nyhart prior to disclosing this report to any other party or relying on its content for any purpose other than that explained above. Failure to do so may result in misrepresentation or misinterpretation of this report. The information presented herein is based on the actuarial assumptions and substantive plan provisions summarized in this report and participant information furnished to us by the Plan Sponsor. We have reviewed the employee census provided by the Plan Sponsor for reasonableness when compared to the prior information provided but have not audited the information at the source, and therefore do not accept responsibility for the accuracy or the completeness of the data on which the information is based. When relevant data may be missing, we may have made assumptions we feel are neutral or conservative to the purpose of the measurement. We are not aware of any significant issues with and have relied on the data provided. The discount rate, other economic assumptions, and demographic assumptions have been selected by the Plan Sponsor with the concurrence of Nyhart. In our opinion, the actuarial assumptions are individually reasonable and in combination represent our estimate of anticipated experience of the Plan. All calculations have been made in accordance with generally accepted actuarial principles and practice. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: ·plan experience differing from that anticipated by the economic or demographic assumptions; ·changes in economic or demographic assumptions; ·increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period); and ·changes in plan provisions or applicable law. We did not perform an analysis of the potential range of future measurements due to the limited scope of our engagement. To our knowledge, there have been no significant events prior to the current year's measurement date or as of the date of this report that could materially affect the results contained herein. Page 1 Neither Nyhart nor any of its employees has any relationship with the plan or its sponsor that could impair or appear to impair the objectivity of this report. Our professional work is in full compliance with the American Academy of Actuaries “Code of Professional Conduct” Precept 7 regarding conflict of interest. The undersigned meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Should you have any questions please do not hesitate to contact us. John Mallows, FSA, MAAA Actuary Sandy DeKalb ASA, EA, MAAA Actuary Page 2 Executive Summary City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Summary of Results Presented below is the summary of GASB 75 results for the fiscal year ending June 30, 2022 compared to the prior fiscal year as shown in the City's Notes to Financial Statement. FYE June 30, 2022 FYE June 30, 2021 Total OPEB Liability 51,603,833 46,093,712 $$ Actuarial Value of Assets (25,796,272)(34,969,715)$$ Net OPEB Liability 16,634,118 20,297,440 $$ Funded Ratio 56.0% 67.8% FY 2021/22 FY 2020/21 OPEB Expense 1,588,845 2,206,286 $$ Annual Employer Contributions 5,785,342 4,674,814 $$ Actuarially Determined Contribution 4,124,923 4,108,719 $$ FYE June 30, 2022 FYE June 30, 2021 6.50%Discount Rate 6.50% 6.50%Expected Return on Assets 6.50% FYE June 30, 2022 821 Total Active Participants Total Retiree Participants 777 The active participants’ number above may include active employees who currently have no health care coverage. Refer to Summary of Participants section for an accurate breakdown of active employees with and without coverage. Page 3 Executive Summary City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Summary of Results Below is a breakdown of total GASB 75 liabilities allocated to past and current service compared to the prior year. The table below also provides a breakdown of the Total OPEB Liability allocated to pre- and post- Medicare eligibility. The liability shown below includes explicit (if any) and implicit subsidies. Refer to the Substantive Plan Provisions section for complete information on the Plan Sponsor’s GASB subsidies. 0M 10M 20M 30M 40M 50M 60M 6/30/2021 6/30/2022 11.0M 9.7M 35.0M 41.9M Retirees Active Changes In Total OPEB Liability Mi l l i o n s FYE June 30, 2022Present Value of Future Benefits FYE June 30, 2021 Active Employees 16,204,487 14,788,083 $$ Retired Employees 35,048,585 41,919,817 Total Present Value of Future Benefits 56,707,900 51,253,072 $$ FYE June 30, 2022Total OPEB Liability FYE June 30, 2021 Active Pre-Medicare 6,035,416 6,581,220 $$ Active Post-Medicare 4,463,907 3,648,600 Active Liability 9,684,016 11,045,127 $$ Retiree Pre-Medicare 10,974,637 7,978,541 Present Value of Future Benefits (PVFB) is the amount needed as of June 30, 2022 and June 30, 2021, to fully fund the City’s retiree health care subsidies for existing and future retirees and their dependents assuming all actuarial assumptions are met. Total OPEB Liability is the portion of PVFB considered to be accrued or earned as of June 30, 2022 and June 30, 2021. This amount is a required disclosure in the Required Supplementary Information section. $$ Retiree Post-Medicare 30,945,180 27,070,044 Retiree Liability 41,919,817 35,048,585 $$ Total OPEB Liability 51,603,833 46,093,712 $$ FYE June 30, 2022FYE June 30, 2021 Discount Rate 6.50% 6.50% Page 4 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Schedule of Changes in Net OPEB Liability and Related Ratios OPEB Liability FY 2021/22 FY 2020/21 FY 2019/20 FY 2018/19 FY 2017/18 Total OPEB Liability Total OPEB Liability - beginning of year 46,093,712 46,635,812 44,296,670 44,614,266 44,819,178 $$$$$ Service cost 529,600 521,285 524,717 509,434 478,341 Interest 2,909,400 2,944,050 2,795,490 2,814,685 2,830,153 Change of benefit terms 0 0 0 0 0 Changes in assumptions (302,512) 0 114,311 0 0 Differences between expected and actual experience 6,159,865 (219,772) 2,532,319 0 0 (3,786,232)Benefit payments (3,787,663)(3,627,695)(3,641,715)(3,513,406) Net change in total OPEB liability 5,510,121 (542,100) 2,339,142 (317,596)(204,912)$$$$$ Total OPEB Liability - end of year 51,603,833 46,093,712 46,635,812 44,296,670 44,614,266 $$$$$ Plan Fiduciary Net Position Plan fiduciary net position - beginning of year 25,796,272 24,021,071 21,696,948 19,094,690 16,147,240 $$$$$ Contributions - employer 5,785,342 4,674,814 4,460,937 4,675,193 4,594,772 Contributions - active employees 0 0 0 0 0 Net investment income 7,184,241 900,087 1,495,861 1,605,114 1,875,536 Benefit payments (3,786,232)(3,787,663)(3,627,695)(3,641,715)(3,513,406) Trust administrative expenses (9,908)(12,037)(4,980)(36,334)(9,452) Net change in plan fiduciary net position 9,173,443 1,775,201 2,324,123 2,602,258 2,947,450 $$$$$ Plan fiduciary net position - end of year 34,969,715 25,796,272 24,021,071 21,696,948 19,094,690 $$$$$ Net OPEB Liability - end of year 16,634,118 20,297,440 22,614,741 22,599,722 25,519,576 $$$$$ Plan fiduciary net position as % of total OPEB liability 67.8% 56.0% 51.5% 49.0% 42.8% Covered employee payroll 79,484,098 74,023,505 72,042,341 74,484,613 74,484,613 $$$$$ Net OPEB liability as % of covered payroll 20.9% 27.4% 31.4% 30.3% 34.3% Page 5 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Schedule of Employer Contributions The Actuarially Determined Contributions (ADC) shown below are based on the Annual Required Contribution (ARC) calculated in prior GASB 45 actuarial valuations as shown in the City's financial statements. FY 2021/22 FY 2020/21 FY 2019/20 FY 2018/19 FY 2017/18 Actuarially Determined Contribution (ADC) 4,124,923 4,108,719 3,834,916 3,827,337 4,497,835 $$$$$ Contributions in relation to the ADC 5,785,342 4,674,814 4,460,937 4,675,193 4,594,772 Contribution deficiency/(excess)(1,660,419)(566,095)(626,021)(847,856)(96,937)$$$$$ Covered employee payroll 79,484,098 72,042,341 74,484,613 74,484,613 74,023,505 $$$$$ Contribution as a % of covered payroll 7.3% 6.3% 6.2% 6.3% 6.2% Page 6 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 OPEB Expense OPEB Expense FY 2021/22 FY 2020/21 Discount Rate Beginning of year 6.50% 6.50% End of year 6.50% 6.50% Service cost 529,600 521,285 $$ Interest 2,909,400 2,944,050 Change of benefit terms 0 0 Projected earnings on OPEB plan investments (1,740,389)(1,589,363) Reduction for contributions from active employees 0 0 OPEB plan administrative expenses 9,908 12,037 Current period recognition of deferred outflows / (inflows) of resources Differences between expected and actual experience 1,082,063 397,634 $$ Changes in assumptions (14,560) 19,052 Net difference between projected and actual earnings on OPEB plan investments (1,187,177)(98,409) Total current period recognition 318,277 (119,674)$$ Total OPEB expense 2,206,286 1,588,845 $$ Page 7 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Deferred Outflows / (Inflows) of Resources Deferred Outflows / (Inflows) of Resources represents the following items that have not been recognized in the OPEB Expense: 1.Differences between expected and actual experience of the OPEB plan 2.Changes of assumptions 3.Differences between projected and actual earnings in OPEB plan investments (for funded plans only) The initial amortization period for the first two items noted above is based on expected future service lives while the difference between the projected and actual earnings in OPEB plan investment is amortized over five years. All balances are amortized linearly on a principal only basis and new bases will be created annually for each of the items above. Differences between expected and actual experience for FYE Initial Balance Initial Amortization Period Annual Recognition Unamortized Balance as of June 30, 2022 June 30, 2018 0 0 0 N/A$$$ June 30, 2019 0 0 0 N/A$$$ June 30, 2020 2,532,319 6 422,053 1,266,160 $$$ June 30, 2021 (219,772) 9 (24,419)(170,934)$$$ June 30, 2022 6,159,865 9 684,429 5,475,436 $$$ Changes in assumptions for FYE Initial Balance Initial Amortization Period Annual Recognition Unamortized Balance as of June 30, 2022 June 30, 2018 0 0 0 N/A$$$ June 30, 2019 0 0 0 N/A$$$ June 30, 2020 114,311 6 19,052 57,155 $$$ June 30, 2021 0 0 0 N/A$$$ June 30, 2022 (302,512) 9 (33,612)(268,900)$$$ Page 8 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Deferred Outflows / (Inflows) of Resources (Continued) Unamortized Balance as of June 30, 2022 Annual Recognition Initial Amortization PeriodInitial BalanceNet Difference between projected and actual earnings in OPEB plan investments for FYE June 30, 2018 (791,128) 5 (158,224) 0 $$$ June 30, 2019 (331,552) 5 (66,310)(66,312)$$$ June 30, 2020 (58,641) 5 (11,728)(23,457)$$$ June 30, 2021 689,276 5 137,855 413,566 $$$ June 30, 2022 (5,443,852) 5 (1,088,770)(4,355,082)$$$ Deferred Outflows Deferred InflowsAs of fiscal year ending June 30, 2022 Differences between expected and actual experience 6,741,596 (170,934)$$ Changes in assumptions 57,155 (268,900) Net difference between projected and actual earnings in OPEB plan investments 0 (4,031,285) N/A 4,359,593 Contributions subsequent to the measurement date 11,158,344 (4,471,119)Total $$ Annual Amortization of Deferred Outflows / (Inflows) The balances as of fiscal year ending June 30, 2022 of the deferred outflows / (inflows) of resources will be recognized in OPEB expense in the future fiscal years as noted below. Balances shown below do not include the recognition of any deferred outflows for contributions subsequent to the measurement date. FYE Balance 38,548 $ 2023 104,859 $ 2024 116,589 $ 2025 (462,374)$ 2026 626,398 $ 2027 1,903,612 Thereafter $ Page 9 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Sensitivity Results The following presents the Net OPEB Liability as of June 30, 2022, calculated using the discount rate assumed and what it would be using a 1% higher and 1% lower discount rate. ·The current discount rate is 6.50%. ·The 1% decrease in discount rate would be 5.50%. ·The 1% increase in discount rate would be 7.50%. The following presents the Net OPEB Liability as of June 30, 2022, using the health care trend rates assumed and what it would be using 1% higher and 1% lower health care trend rates. ·The current health care trend rate starts at an initial rate of 6.00%, decreasing to an ultimate rate of 4.50%. ·The 1% decrease in health care trend rates would assume an initial rate of 5.00%, decreasing to an ultimate rate of 3.50%. ·The 1% increase in health care trend rates would assume an initial rate of 7.00%, decreasing to an ultimate rate of 5.50%.As of June 30, 2022 Net OPEB Liability 1% Decrease Current Discount Rate 1% Increase As of June 30, 2022 Net OPEB Liability 1% Increase 1% Decrease Current Trend Rates 16,634,118 12,247,235 21,822,821 14,440,203 16,634,118 19,707,865 $ $ $$ $ $ Page 10 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Asset Information Asset Breakdown FY 2020/21 FY 2021/22 Assets 0 0 $$Cash and deposits 0 0 Securities lending cash collateral Total cash 0 0 $$ Receivables 0 0 $$Contributions 0 0 Accrued interest 0 0 $$Total receivables Investments 0 0 $$Fixed income 0 0 Equities 25,796,272 34,969,715 Mutual Funds Total investments 25,796,272 34,969,715 $$ Total Assets 25,796,272 34,969,715 $$ Liabilities Payables 0 0 $$Investment management fees 0 0 Securities lending expense Total liabilities 0 0 $$ Net Position Restricted to OPEB 25,796,272 34,969,715 $$ Page 11 GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Asset Information (Continued) Asset Reconciliation FY 2020/21 FY 2021/22 Additions Contributions Received 4,674,814 5,785,342 $$Employer 0 0 Active employees Total contributions 4,674,814 5,785,342 $$ Investment Income 900,087 7,184,241 $$Net increase in fair value of investments 0 0 Interest and dividends 0 0 Investment expense, other than from securities lending 0 0 Securities lending income Securities lending expense 0 0 Net investment income 7,184,241 $$ 900,087 Total additions 5,574,901 12,969,583 $$ Deductions 3,786,232 $$ 3,787,663 Benefit payments 12,037 9,908 Administrative expenses 0 0 Other Total deductions 3,799,700 3,796,140 $$ Net increase in net position 1,775,201 9,173,443 $$ Net position restricted to OPEB Beginning of year 24,021,071 25,796,272 $$ End of year 25,796,272 34,969,715 $$ Page 12 Actuarially Determined Contributions City of Newport Beach GASB 74/75 Valuation For Fiscal Year Ending June 30, 2022 FY 2022/23 Cash Vs Accrual AccountingFY 2021/22 Discount rate (Funding) 6.50% 6.50% 0.0M 0.5M 1.0M 1.5M 2.0M 2.5M 3.0M 3.5M 4.0M 4.5M 2021/22 2022/23 3.8M 4.4M4.1M 4.4M Sum ofCommand.PayGo Sum ofCommand.ADCFinal Mi l l i o n s Payroll growth factor used for amortization 3.00% 3.00% Actuarial cost method Entry Age Normal Level % of Salary Entry Age Normal Level % of Salary Amortization type Level DollarLevel Dollar Amortization period (years) 10 10 Actuarial Accrued Liability (AAL) - beginning of year 46,093,712 51,603,833 $$ Actuarial Value of Assets (AVA) - beginning of year (25,796,272)(34,969,715) Unfunded AAL - beginning of year 20,297,440 16,634,118 $$ Normal Cost 568,478 584,111 $$ Amortization of Unfunded AAL 3,304,689 2,676,984 Actuarially Determined Contribution (ADC) is the target or recommended contribution to a defined benefit OPEB plan, which if paid on an ongoing basis, will provide sufficient resources to fund future costs for services to be earned and liabilities attributed to past services. This is typically higher than the pay-as-you-go cost because it includes recognition of employer costs expected to be paid in future accounting periods. Total normal cost plus amortization 3,873,167 3,261,095 $$ Interest to end of year 251,756 211,971 Actuarially Determined Contribution - Preliminary 3,473,066 4,124,923 $$ Expected Benefit Payments 3,786,232 4,359,593 Actuarially Determined Contribution - Final 4,124,923 4,359,593 $$ * The ADC for FY 2021/22 is consistent with the June 30, 20219 Actuarial Valuation. Page 13 Projection of GASB Disclosures City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 The Total OPEB Liability (TOL) is expected to change on an annual basis as a result of expected and unexpected events. Under normal circumstances, it is generally expected to have a net increase each year. Below is a list of the most common events affecting the total OPEB liability and whether they increase or decrease the liability. Expected Events · Increases in TOL due to additional benefit accruals as employees continue to earn service each year · Increases in TOL due to interest as the employees and retirees age · Decreases in TOL due to benefit payments Unexpected Events · Increases in TOL when actual premium rates increase more than expected. A liability decrease occurs when the reverse happens. · Increases in TOL when more new retirements occur than expected or fewer terminations occur than anticipated. Liability decreases occur when the opposite outcomes happen. · Increases or decreases in TOL depending on whether benefits are improved or reduced. Projection of Total OPEB Liability (TOL)FY 2021/22 FY 2022/23 Projection of Actuarial Value of Assets (AVA)FY 2021/22 FY 2022/23 TOL as of beginning of year 46,093,712 51,603,833 AVA as of beginning of year 25,796,272 34,969,715 $$$$ Normal cost as of beginning of year 529,600 530,843 Exp. employer contributions during the year 3,786,232 4,359,593 Exp. benefit payments during the year (3,786,232)(4,359,593)Exp. benefit payments during the year (3,786,232)(4,359,593) Interest adjustment to end of year 2,909,400 3,249,298 Expected investment income 1,676,441 2,272,715 Exp. TOL as of end of year 45,746,480 51,024,381 Exp. Trust administrative expenses (9,908)(9,908)$$ Actuarial Loss / (Gain) 5,857,353 TBD Exp. AVA as of end of year 37,232,522 27,462,805 $$ Actual TOL as of end of year 51,603,833 TBD Differences between expected and actual experience 7,506,910 TBD$$ AVA as of end of year 34,969,715 TBD$$ Discount rate as of beginning of year Expected asset return as of beginning of year 6.50% 6.50% 6.50% 6.50% Discount rate as of end of year Expected asset return as of end of yearTBD 6.50% 6.50%TBD Page 14 Cash Flow Projections City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 The below projections show the actuarially estimated employer-paid contributions for retiree health benefits for the next thirty years. Results are shown separately for a closed group of current/future retirees. These projections include explicit and implicit subsidies. FYE Current Retirees Future Retirees*Total FYE Current Retirees Future Retirees*Total FYE Current Retirees Future Retirees*Total 2022 2032 2042 4,271,213 2,965,309 1,833,653 88,380 832,736 1,738,641 4,359,593 3,798,045 3,572,294 $$$$$$$$$ 2023 2033 2043 4,156,293 2,836,850 1,739,910 175,330 900,427 1,851,420 4,331,623 3,737,277 3,591,330 $$$$$$$$$ 2024 2034 2044 4,035,811 2,706,347 1,636,099 263,542 966,684 1,881,975 4,299,353 3,673,031 3,518,074 $$$$$$$$$ 2025 2035 2045 3,934,256 2,585,502 1,527,446 342,596 1,053,235 1,873,192 4,276,852 3,638,737 3,400,638 $$$$$$$$$ 2026 2036 2046 3,790,414 2,458,093 1,434,205 437,617 1,167,179 1,934,175 4,228,031 3,625,272 3,368,380 $$$$$$$$$ 2027 2037 2047 3,681,126 2,324,321 1,324,614 522,773 1,238,570 1,944,532 4,203,899 3,562,891 3,269,146 $$$$$$$$$ 2028 2038 2048 3,551,974 2,205,464 1,242,018 592,669 1,328,666 1,893,672 4,144,643 3,534,130 3,135,690 $$$$$$$$$ 2029 2039 2049 3,439,786 2,107,121 1,178,042 665,627 1,445,571 1,937,468 4,105,413 3,552,692 3,115,510 $$$$$$$$$ 2030 2040 2050 3,278,395 2,021,517 1,111,985 737,660 1,563,802 1,935,705 4,016,055 3,585,319 3,047,690 $$$$$$$$$ 2031 2041 2051 3,078,852 1,919,958 1,046,157 779,190 1,627,862 1,908,561 3,858,042 3,547,820 2,954,718 $$$$$$$$$ Projected Employer Pay-go Cost 0.0M 0.5M 1.0M 1.5M 2.0M 2.5M 3.0M 3.5M 4.0M 4.5M 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 Current Retirees Future Retirees Mi l l i o n s * Projections for future retirees do not take into account future new hires. Page 15 Page 16 Discussion of Discount Rates City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Under GASB 74, the discount rate used in valuing OPEB liabilities for funded plans as of the Measurement Date must be based on the long-term expected rate of return on OPEB plan investments that are expected to be used to finance future benefit payments to the extent that (a) they are sufficient to pay for the projected benefit payments and (b) the OPEB plan assets are invested using a strategy that will achieve that return. When the OPEB plan investments are insufficient to cover future benefit payments, a yield for 20-year tax-exempt general obligation municipal bonds with an average rating of AA /Aa or higher (or equivalent quality on another rating scale) must be used. For the current valuation: 1. The City participates in the CERBT investment strategy 3. The long- term expected rate of return on OPEB plan investment is assumed to be 6.50%. This was determined using a building block method in which expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These expected future real rates of return are then combined to produce the long-term expected rate of return by weighting them based on the target asset allocation percentage and adding in expected inflation (2.75%). The best estimates of arithmetic real rates of return for each major asset class included in the OPEB Plan’s target asset allocation as of June 30, 2021 are summarized in the following table. Asset Class - CERBT Strategy 1 Target Allocation L/T Expected Real ROR Global Equities 59.00% N/A Fixed Income 25.00% N/A TIPS 5.00% N/A REITS 8.00% N/A Commodities 3.00% N/A Total 100.00% 6.50% 2. The discount rate used when the OPEB plan investments are insufficient to pay for future benefit payments are selected from the range of indices as shown in the table below, where the range is given as the spread between the lowest and highest rate shown. Yield as of July 1, 2020 June 30, 2021 Bond Buyer Go 20-Bond Municipal Bond Index 2.21% 2.16% S&P Municipal Bond 20-Year High Grade Rate Index 2.66% 2.19% Fidelity 20-Year Go Municipal Bond Index 2.45% 1.94% Bond Index Range 2.21% – 2.66% 1.94% – 2.19% 3. The final equivalent single discount rate used for this year’s valuation is 6.50%. This discount rate assumes the City continues to fund for its retiree health benefits through the California Employers’ Retiree Benefits Trust (CERBT) under its investment allocation strategy 1. Page 17 Summary of Plan Participants City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Active Employees Actives Employees Total Avg. Age Avg. Svc Salary Hybrid Plan 37 59.2 30.4 $ 3,893,973 RHS Plan 630 42.0 11.9 $ 66,533,228 Part Time 154 39.0 7.9 $ 9,056,897 Total 821 42.2 11.9 $ 79,484,098 70% of part-time active employees meeting eligibility requirements are assumed to elect retiree health coverage at retirement. Enrollment information above is for full-time employees who are eligible for retiree health care benefits only. Page 18 Summary of Plan Participants City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Active Age-Service Distribution Years of Service Age < 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 5 20 3 28 25 to 29 9 51 24 4 88 30 to 34 11 54 34 18 4 121 35 to 39 8 18 36 38 23 5 128 40 to 44 5 12 17 33 58 13 5 143 45 to 49 3 13 13 14 32 21 6 2 104 50 to 54 4 12 9 14 18 22 8 8 1 96 55 to 59 3 10 5 4 12 12 12 9 6 73 60 to 64 1 1 1 3 6 2 4 4 1 23 65 to 69 3 3 2 1 3 1 13 70 & up 1 1 1 1 4 Total 49 195 146 131 155 78 36 23 8 0 821 Page 19 Summary of Plan Participants City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Retirees Retirees with coverage Single Non-Single Total Avg. Age Miscellaneous 135 93 228 71.9 Safety 59 119 178 68.9 MRC Only 44 61.9 Waives 327 68.1 Total retirees with coverage 194 212 777 69.1 Retiree Age Distribution Age Retirees < 45 10 45 to 49 8 50 to 54 38 55 to 59 88 60 to 64 129 65 to 69 149 70 to 74 154 75 to 79 85 80 to 84 62 85 to 89 31 90 & up 23 Total 777 Page 20 Substantive Plan Provisions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 This study analyzes the post-retirement health benefits provided by the City. Currently, eligible active employees are offered a choice of medical (including prescription drug coverage) plans through the CalPERS Health Program under the Public Employees’ Medical and Hospital Care Act (PEMHCA). The City offers the same medical plans to eligible retirees except once a retiree is eligible for Medicare, the retiree must join a Medicare HMO or Supplement Plan with Medicare being the primary payer. Prior to January 1, 2006, the City sponsored a defined benefit healthcare plan which provided a fixed dollar contribution towards the cost of medical coverage for eligible employees continuing medical coverage through PEMHCA at retirement. The City’s contribution varied by employee group (up to a maximum of $450 per month for Police employees and $400 for all other employees). Effective January 1, 2006, the City implemented a Retiree Health Savings program (RHS) for all new full-time employees (Category 1) and for full-time employees whose age plus service as of January 1, 2006 was less than 46 for public safety employees and 50 for all other employees (Category 2). Full-time active employees whose age plus service as of January 1, 2006 was 46 or more for public safety employees and 50 or more for all other employees (Category 3) continued to be eligible to receive the City’s fixed dollar contribution under the prior defined benefit plan at retirement but the contribution is paid into the employee’s RHS account. Employees already retired and eligible for a City contribution at January 1, 2006 (Category 4) continued to receive the City’s contribution under the prior defined benefit plan but instead of being applied towards medical coverage, the fixed dollar contribution amount less the minimum required employer PEMHCA contribution for those continuing coverage through PEMHCA is made to an RHS account established for the retiree. Employees in Category 3 could make a one-time election to be treated similarly to Category 2 employee with those not electing remaining in a Hybrid Plan (includes both the City’s fixed dollar contribution but also some components of the RHS Plan). A description of the funding components is outlined in the chart on the following page. The RHS is a Health Reimbursement Arrangement (HRA) sponsored by the City which reimburses a participant for post-employment medical (PEMHCA plan) dental, vision, long-term care, miscellaneous medical expenses, and the PEMHCA minimum. In general, the RHS is a defined contribution program sponsored by the City with several funding components as outlined in the table on the following page. Any balance in the employee’s RHS account after the death of the employee and eligible spouse and dependents will be forfeited. Part-time employees can continue medical coverage through PEMHCA and receive the PEMHCA minimum required contribution from the City which is scheduled to increase in the future based on the medical portion of CPI. A 10-year history of the increases and current amounts are as follows. Calendar Year Minimum Required Employer Contribution 2013 $115.00 2014 $119.00 2015 $122.00 2016 $125.00 2017 $128.00 2018 $133.00 2019 $136.00 2020 $139.00 2021 $143.00 2022 2023+ $149.00 Adjusted Annually to reflect Medical Portion of CPI Page 21 Substantive Plan Provisions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 In general, the RHS is a defined contribution program sponsored by the City with the following funding components: Category 1 Category 2 Category 3* Category 4 Part A – Pre- Retirement Employee Contributions o 1% of base pay mandatory contribution o effective immediately upon employment o 1% of base pay mandatory contribution o effective January 1, 2006 o 1% of base pay mandatory contribution o effective January 1, 2006 None Part B – Pre- Retirement City Contributions: o City contributes $2.50 per month for each year of age plus service during employment o effective upon 5 years of vesting service; immediate vesting for industrial disability o retroactively deposited; biweekly thereafter o City contributes $2.50 per month for each year of age plus service during employment o effective upon 5 years of vesting service; immediate vesting for industrial disability o retroactively deposited; biweekly thereafter None None Part C – Leave Conversion: o mandatory transfer of a portion of accumulated leave during any leave buyout o amount of leave conversion varies by bargaining unit & subject to negotiation o not payable in cash o mandatory transfer of a portion of accumulated leave during any leave buyout o amount of leave conversion varies by bargaining unit & subject to negotiation o not payable in cash o mandatory transfer of a portion of accumulated leave during any leave buyout o amount of leave conversion varies by bargaining unit & subject to negotiation o not payable in cash Part D – Conversion Contribution: None o For fully converted employees who retire from the plan only o City will make a one-time contribution of $100 per month the employee contributed to the plan prior to January 1, 2006 with a cap of $18,000 o City will make a one-time contribution of $75 per month the employee contributed to the plan January 1, 2006 with a cap of $13,500 Part E – Post Retirement Contribution o City will provide the PEMHCA minimum contribution when a retiree’s RHS account value has been exhausted o City will provide the PEMHCA minimum contribution when a retiree’s RHS account value has been exhausted o City will contribute $400 per month ($450 for Police employees retiring prior to January 1, 2006) o City will contribute $400 per month ($450 for Police employees) to retiree’s or surviving spouse’s RHS account Part F – Other Pre- Retirement Employee Contributions: None None o Active full-time employees are required to make a contribution of $100 per month None *Employees making a one-time election into the RHS Plan are treated as Category 2 employees. Page 22 Substantive Plan Provisions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Premium Rates The City participates in the CalPERS Health Program, a community-rated program, for medical coverage. The tables below summarize the calendar 2021 and 2022 monthly medical premiums for the primary medical plans in which the retirees are enrolled and used in this valuation. 2021 CalPERS Premiums - Region 2 Kaiser BS Access+ BS Trio PERS Care PERS Choice PERS Select Retiree Only $ 669.77 $ 938.96 $ 722.56 $ 1,115.68 $ 783.19 $ 476.92 Retiree plus Spouse $ 1,339.54 $ 1,877.92 $ 1,445.12 $ 2,231.36 $ 1,566.38 $ 953.84 Retiree Only – Medicare $ 324.48 N/A N/A $ 381.25 $ 349.97 $ 349.97 2021 CalPERS Premiums - Region 2 UHC HMO Anthem HMO Select Anthem HMO Traditional Health Net SmartCare Health Net Salud Retiree Only $ 723.84 $ 674.69 $ 1,046.04 $ 769.11 $ 458.66 Retiree plus Spouse $ 1,447.68 $ 1,349.38 $ 2,092.08 $ 1,538.22 $ 917.32 Retiree Only – Medicare $ 311.56 $ 383.37 $ 383.37 N/A N/A 2021 CalPERS Premiums - Region 3 Kaiser BS Access+ BS Trio PERS Care PERS Choice PERS Select Retiree Only $ 669.84 $ 834.88 $ 660.49 $ 1,036.07 $ 761.23 $ 459.94 Retiree plus Spouse $ 1,339.68 $ 1,669.76 $ 1,320.98 $ 2,072.14 $ 1,522.46 $ 919.88 Retiree Only – Medicare $ 324.48 N/A N/A $ 381.25 $ 349.97 $ 349.97 2021 CalPERS Premiums - Region 3 UHC HMO Anthem HMO Select Anthem HMO Traditional Health Net SmartCare Health Net Salud Retiree Only $ 720.89 $ 639.10 $ 984.21 $ 691.48 $ 412.88 Retiree plus Spouse $ 1,441.78 $ 1,278.20 $ 1,968.42 $ 1,382.96 $ 825.76 Retiree Only – Medicare $ 311.56 $ 383.37 $ 383.37 N/A N/A Page 23 Substantive Plan Provisions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Premium Rates Continued 2022 CalPERS Premiums - Region 3 UHC Alliance Anthem HMO Select Anthem HMO Traditional Health Net SmartCare Health Net Salud Retiree Only $ 771.85 $ 676.48 $ 935.57 $ 764.96 $ 463.87 Retiree plus Spouse $ 1,543.70 $ 1,352.96 $ 1,871.14 $ 1,529.92 $ 927.74 Retiree Only – Medicare $ 294.65 $ 360.19 $ 360.19 N/A N/A 2022 CalPERS Premiums - Region 2 Kaiser BS Access+ BS Trio PERS Gold PERS Platinum Sharp Retiree Only $ 706.02 $ 900.22 $ 742.70 $ 587.78 $ 882.18 $ 699.21 Retiree plus Spouse $ 1,412.04 $ 1,800.44 $ 1,485.40 $ 1,175.56 $ 1,764.36 $ 1,398.42 Retiree Only – Medicare $ 302.53 $ 353.11 $ 353.11 $ 377.41 $ 381.94 $ 263.85 2022 CalPERS Premiums - Region 2 UHC Alliance Anthem HMO Select Anthem HMO Traditional Health Net SmartCare Health Net Salud PORAC Retiree Only $ 775.09 $ 712.43 $ 1,007.13 $ 845.69 $ 548.26 $ 775.00 Retiree plus Spouse $ 1,550.18 $ 1,424.86 $ 2,014.26 $ 1,691.38 $ 1,096.52 $ 1,550.00 Retiree Only – Medicare $ 294.65 $ 360.19 $ 360.19 N/A N/A $ 461.00 2022 CalPERS Premiums - Region 3 Kaiser BS Access+ BS Trio PERS Gold PERS Platinum PORAC Retiree Only $ 719.78 $ 779.87 $ 668.13 $ 575.56 $ 863.37 $ 775.00 Retiree plus Spouse $ 1,439.56 $ 1,559.74 $ 1,336.26 $ 1,151.12 $ 1,726.74 $ 1,475.00 Retiree Only – Medicare $ 302.53 $ 353.11 $ 353.11 $ 377.41 $ 349.97 $ 461.00 Page 24 Actuarial Methods and Assumptions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 The actuarial assumptions used in this report represent a reasonable long-term expectation of future OPEB outcomes. As national economic and City experience change over time, the assumptions will be tested for ongoing reasonableness and, if necessary, updated. There are changes to the actuarial methods and assumptions since the last GASB valuation, which was for the fiscal year ending June 30, 2020. Refer to Actuary’s Notes section for complete information on these changes. For the current year GASB valuation, we have also updated the per capita costs. We expect to update discount rate, health care trend rates, mortality table, and per capita costs again in the next full GASB valuation, which will be for the fiscal year ending June 30, 2024. Measurement Date For the fiscal year ending June 30, 2022, a June 30, 2021 measurement date was used. Actuarial Valuation Date June 30, 2021 with no adjustments to get to the June 30, 2021 measurement date. Liabilities as of July 1, 2020 are based on an actuarial valuation date of June 30, 2019 projected to June 30, 2020 on a “no loss / no gain” basis. Benefit Payments OPEB plan benefit payments made subsequent the measurement date of June 30, 2021 are recognized as a deferred outflow of resources in the fiscal year ending June 30, 2022 financial reporting period. An offsetting cash credit adjustment for benefits paid during the fiscal year is made in the Plan Sponsor’s journal entries. This adjustment is not explicitly shown in the GASB 75 report. The OPEB benefit payments subsequent the measurement date of June 30, 2021 will be reflected in the Plan Sponsor’s Schedule of Changes in Net OPEB Liability disclosure in the FY 2022/23 reporting period. Discount Rate 6.50% as of July 1, 2020 and 6.50% June 30, 2021 for accounting disclosure purposes. Refer to the Discussion of Discount Rates section for more information on selection of the discount rate. Merit Increases Merit increases from the most recent CalPERS pension plan experiences study. The benefits are not payroll related but each individual’s projected cost is allocated over their lifetime as a level-percentage of pay. Inflation Rate 2.75% per year. Wage Inflation 3.00% per annum, in aggregate. Salary Increases For cost method purposes the merit increases from the CalPERS pension plan are used. Page 25 Actuarial Methods and Assumptions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Cost Method Allocation of Actuarial Present Value of Future Benefits for services prior and after the Measurement Date was determined using Entry Age Normal Level % of Salary method where:  Service Cost for each individual participant, payable from date of employment to date of retirement, is sufficient to pay for the participant’s benefit at retirement; and  Annual Service Cost is a constant percentage of the participant’s salary that is assumed to increase according to the Payroll Growth. Employer Funding Policy The actuarially determined contribution (ADC) assuming the City’s funding strategy is to fund the normal cost (current accrual for benefits being earned) plus an amortization of the net (unfunded accrued) OPEB liability over 10 years. Census Data Census information was provided by the City as of June 30, 2021. We have reviewed it for reasonableness and no material modifications were made to the census data. Participation Rate 100% of eligible full-time employees under the Hybrid Plan are assumed to participate at retirement with 65% assumed to continue coverage through PEMHCA. 18% of eligible part-time employees are assumed to elect to continue coverage under PEMHCA at retirement. For employees in the RHS Plan, the City is responsible for the PEMHCA minimum required contribution but may be eligible for reimbursement by the retiree from their individual RHS account. For purposes of the valuation, 35% of employees in the RHS Plan are assumed to continue coverage under PEMHCA at retirement with the City paying the full PEMHCA minimum required contribution. Spousal Coverage 60% of future retirees are assumed to cover their spouse. Male spouses are assumed to be 3 years older than female spouses. Actual spouse coverage and spouse ages are used for current retirees. Waived Retiree Re-election 20% of the current retiree population currently under 65 re-elect PEMHCA plan at age 65; 0% of those currently over age 65 re-elect. Medicare Participation Assume 100% participation. Mortality Employees and retirees: SOA Pub-2010 General Headcount Weighted Mortality Table fully generational using Scale MP-2021. Surviving Spouses: SOA Pub-2010 Continuing Survivor Headcount Weighted Mortality Table fully generational using Scale MP-2021. Page 26 Actuarial Methods and Assumptions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Mortality Continued Disabled Retirees: SOA Pub-2010 Safety Headcount Weighted Mortality Table fully generational using Scale MP-2021. Disability According to the disability rates under the 2017 experience study for the CalPERS pension plan. Turnover Rate According to the termination rates under the 2017 experience study for the CalPERS pension plan. Retirement Rate According to the retirement rates under the 2017 experience study for the CalPERS pension plan: Miscellaneous Employees Tier 1 – 2.5%@ Age 55 Tier 2 – 2.0%@ Age 60 Tier 3 – 2.0%@ Age 62 Fire Employees Tier 1 – 3.0%@ Age 50 Tier 2 – 2.0%@ Age 50 Tier 3 – 2.7%@ Age 57 Safety Employees Tier 1 – 3.0%@ Age 50 Tier 2 – 3.0%@ Age 55 Tier 3 – 2.7%@ Age 57 Amortization of Unfunded Actuarial Liability A new unfunded amortization bases is established each year, reflecting the updated unfunded liability, reduced by the balances of the prior amortization bases, and then amortized over a 10 year period. Page 27 Actuarial Methods and Assumptions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Health Care Trend Rates FYE Medical/Rx FYE Medical/Rx 2023 6.50% 2028 5.25% 2024 6.25% 2029 5.00% 2025 6.00% 2030 4.75% 2026 5.75% 2031+ 4.50% 2027 5.50% Minimum Contribution The CalPERS minimum required contribution is assumed to increase 4% per year. Fixed Dollar Contribution Assumed to remain constant in future years. Per Capita Costs Annual per capita costs were calculated based on the 2021 funding rates, actuarially increased using health index factors and current enrollment. The costs are assumed to increase with health care trend rates. Annual per capita costs are as shown below: Age PERS Choice PERS Select PERSCare Anthem HMO Select Anthem HMO Trad. Blue Shield Access+ <45 $ 6,400 $ 4,500 $ 8,400 $ 5,900 $ 8,700 $ 7,800 45 – 49 $ 8,000 $ 5,600 $10,600 $ 7,300 $10,900 $ 9,700 50 – 54 $ 9,700 $ 6,800 $12,800 $ 8,900 $13,100 $11,800 55 – 59 $11,800 $ 8,300 $15,500 $10,800 $16,000 $14,300 60 – 64 $14,600 $10,200 $19,200 $13,300 $19,900 $17,700 Age Kaiser UHC Health Net Salud Health Net SmartCare PORAC <45 $ 5,800 $ 6,300 $ 4,300 $ 6,800 $ 6,400 45 – 49 $ 7,300 $ 7,900 $ 5,300 $ 8,600 $ 8,100 50 – 54 $ 8,800 $ 9,600 $ 6,400 $10,300 $ 9,700 55 – 59 $10,700 $11,600 $ 7,800 $12,600 $11,800 60 – 64 $13,200 $14,400 $ 9,700 $15,500 $14,700 The initial trend rate was based on a combination of employer history, national trend surveys, and professional judgment. The ultimate trend rate was selected based on historical medical CPI information. The per capita costs represent the cost of coverage for a retiree- only population. Actuarial standards require the recognition of higher inherent costs for a retired population versus an active population. Page 28 All employers that utilize premium rates based on blended active/retiree claims experience will have an implicit subsidy. There is an exception for Medicare plans using a true community-rated premium rate. $0 $400 $800 $1,200 Retiree Spouse $270 $670 $400 $0 $430 $430 GASB Subsidy Breakdown Retiree contribution Explicit subsidyImplicit subsidy Actuarial Methods and Assumptions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Explicit Subsidy The difference between (a) the premium rate and (b) the retiree contribution. Below is an example of the monthly explicit subsidies for a category 3 retiree who is enrolled in Kaiser Region 2 in 2021. Premium Rate Retiree Contribution Explicit Subsidy A B C = A – B Retiree $ 669.77 $ 269.77 $ 400.00 Spouse $ 669.77 $ 669.77 $ 0.00 Implicit Subsidy The difference between (a) the per capita cost and (b) the premium rate. Below is an example of the monthly implicit subsidies for a category 3 retiree age 60 with a same age spouse enrolled in Kaiser Region 2 in 2021. Per Capita Cost Premium Rate Implicit Subsidy A B C = A – B Retiree $ 1,100.00 $ 669.77 $ 430.23 Spouse $ 1,100.00 $ 669.77 $ 430.23 GASB Subsidy Breakdown Below is a breakdown of the GASB 75 monthly total cost for a category 3 retiree age 60 with a same age spouse enrolled in Kaiser Region 2 in 2021. Retiree Spouse Retiree contribution $ 269.77 $ 669.77 Explicit subsidy $ 400.00 $ 0.00 Implicit subsidy $ 430.23 $ 430.23 Total monthly cost $ 1,100.00 $ 1,100.00 Page 16 APPENDIX Page 30 Appendix City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Comparison of Participant Demographic Information The active participants’ number below may include active employees who currently have no health care coverage. Refer to Summary of Participants section for an accurate breakdown of active employees with and without coverage. As of July 1, 2019 As of July 1, 2021 Active Participants 790 821 Retired Participants 730 777 Averages for Active Age 42.1 42.2 Service 12.1 11.9 Averages for Inactive Age 68.1 69.1 Page 31 Appendix City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Detailed Actuary’s Notes There have been no substantive plan provision changes since the last full valuation, which was for the fiscal year ending June 30, 2020. The following assumptions have been updated in accordance with GASB 75: 1. The mortality table has been updated from the 2017 CalPERS Public Agency Misc. Mortality to the following: a. Employees and retirees: SOA Pub-2010 General Headcount Weighted Mortality Table fully generational using Scale MP-2021 b. Surviving Spouses: SOA Pub-2010 Continuing Survivor Headcount Weighted Mortality Table fully generational using Scale MP-2021 c. Disabled Retirees: SOA Pub-2010 Safety Headcount Weighted Mortality Table fully generational using Scale MP-2021 This change caused a decrease in liabilities. 2. Health care trend rates have been reset to an initial rate of 6.50% decreasing by 0.50% annually to an ultimate rate of 4.50% as shown below. This change caused an increase in liabilities. FYE Prior Current FYE Prior Current 2023 5.50% 6.50% 2028 5.00% 5.25% 2024 5.00% 6.25% 2029 5.00% 5.00% 2025 5.00% 6.00% 2030 5.00% 4.75% 2026 5.00% 5.75% 2031+ 5.00% 4.50% 2027 5.00% 5.50% Page 32 Appendix City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 Valuation Results Summary Below is the summary of the GASB results for fiscal year ending June 30, 2022 based on the Entry Age Normal Level % of Pay cost method with a discount rate of 6.50%. Present Value of Employer Contributions Explicit Implicit Total Active $ 7,466,362 $ 7,321,721 $ 14,788,083 Retirees $ 36,158,023 $ 5,761,794 $ 41,919,817 Total $ 43,624,385 $ 13,083,515 $ 56,707,900 Total (Accrued) OPEB Liability Explicit Implicit Total Active $ 5,054,852 $ 4,629,164 $ 9,684,016 Retirees $ 36,158,023 $ 5,761,794 $ 41,919,817 Total $ 41,212,875 $ 10,390,958 $ 51,603,833 Projected Employer Contributions Explicit Implicit Total 2022 $ 3,372,124 $ 987,469 $ 4,359,593 2023 $ 3,364,487 $ 967,136 $ 4,331,623 2024 $ 3,348,295 $ 951,059 $ 4,299,354 2025 $ 3,324,617 $ 952,236 $ 4,276,853 2026 $ 3,293,587 $ 934,445 $ 4,228,032 2027 $ 3,259,004 $ 944,895 $ 4,203,899 2028 $ 3,219,964 $ 924,679 $ 4,144,643 2029 $ 3,177,800 $ 927,613 $ 4,105,413 2030 $ 3,133,144 $ 882,911 $ 4,016,055 2031 $ 3,086,501 $ 771,541 $ 3,858,042 Page 16 GLOSSARY Page 34 Glossary – Decrements Exhibit City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 The table below illustrates how actuarial assumptions can affect a long-term projection of future liabilities. Starting with 100 employees at age 35, the illustrated actuarial assumptions show that 44.43 employees out of the original 100 are expected to retire and could elect retiree health benefits at age 55. Age # Remaining Employees # of Terminations per Year1 # of Retirements per Year Total Decrements Age # Remaining Employees # of Terminations per Year # of Retirements per Year Total Decrements 35 100.000 6.276 0.000 6.276 46 55.938 2.085 0.000 2.085 36 93.724 5.677 0.000 5.677 47 53.853 1.866 0.000 1.866 37 88.047 5.136 0.000 5.136 48 51.987 1.656 0.000 1.656 38 82.911 4.648 0.000 4.648 49 50.331 1.452 0.000 1.452 39 78.262 4.209 0.000 4.209 50 48.880 1.253 0.000 1.253 40 74.053 3.814 0.000 3.814 51 47.627 1.060 0.000 1.060 41 70.239 3.456 0.000 3.456 52 46.567 0.877 0.000 0.877 42 66.783 3.131 0.000 3.131 53 45.690 0.707 0.000 0.707 43 63.652 2.835 0.000 2.835 54 44.983 0.553 0.000 0.553 44 60.817 2.564 0.000 2.564 55 44.430 0.000 44.430 44.430 45 58.253 2.316 0.000 2.316 1 The above rates are illustrative rates and are not used in our GASB calculations. 0 20 40 60 80 100 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 Decrements Exhibit Actives Total Terminations Total Retirements Page 35 Glossary – Retirement Rates Exhibit City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 The table below illustrates how actuarial assumptions can affect a long-term projection of future liabilities. The illustrated retirement rates show the number of employees who are assumed to retire annually based on 100 employees age 55 who are eligible for retiree health care coverage. The average age at retirement is 62.0. Age Active Employees BOY Annual Retirement Rates* # Retirements per Year Active Employees EOY 55 100.000 5.0% 5.000 95.000 56 95.000 5.0% 4.750 90.250 57 90.250 5.0% 4.513 85.738 58 85.738 5.0% 4.287 81.451 59 81.451 5.0% 4.073 77.378 60 77.378 5.0% 3.869 73.509 61 73.509 5.0% 3.675 69.834 62 69.834 30.0% 20.950 48.884 63 48.884 15.0% 7.333 41.551 64 41.551 15.0% 6.233 35.318 65 35.318 100.0% 35.318 0.000 * The above rates are illustrative rates and are not used in our GASB calculations. 0 20 40 60 80 100 55 56 57 58 59 60 61 62 63 64 65 Retirement Rates Exhibit Actives Total Retirements Page 36 Glossary – Definitions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 GASB 75 defines several unique terms not commonly employed in the funding of pension and retiree health plans. The definitions of the terms used in the GASB actuarial valuations are noted below. 1. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting health care costs, such as: mortality, withdrawal, disablement and retirement; changes in compensation and Government provided health care benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items. 2. Actuarial Cost Method – A procedure for determining the Actuarial Present Value of Future Benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Service Cost and a Total OPEB Liability. 3. Actuarially Determined Contribution - A target or recommended contribution to a defined benefit OPEB plan for the reporting period, determined in accordance with the parameters and in conformity with Actuarial Standards of Practice. 4. Actuarial Present Value – The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of Actuarial Assumptions. For purposes of this standard, each such amount or series of amounts is: a. adjusted for the probable financial effect of certain intervening events (such as changes in compensation levels, Social Security, marital status, etc.); b. multiplied by the probability of the occurrence of an event (such as survival, death, disability, termination of employment, etc.) on which the payment is conditioned; and c. discounted according to an assumed rate (or rates) of return to reflect the time value of money. 5. Deferred Outflow / (Inflow) of Resources – represents the following items that have not been recognized in the OPEB Expense: a. Differences between expected and actual experience of the OPEB plan b. Changes in assumptions c. Differences between projected and actual earnings in OPEB plan investments (for funded plans only) 6. Explicit Subsidy – The difference between (a) the amounts required to be contributed by the retirees based on the premium rates and (b) actual cash contribution made by the employer. 7. Funded Ratio – The actuarial value of assets expressed as a percentage of the Total OPEB Liability. Page 37 Glossary – Definitions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 8. Healthcare Cost Trend Rate – The rate of change in the per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. 9. Implicit Subsidy – In an experience-rated healthcare plan that includes both active employees and retirees with blended premium rates for all plan members, the difference between (a) the age-adjusted premiums approximating claim costs for retirees in the group (which, because of the effect of age on claim costs, generally will be higher than the blended premium rates for all group members) and (b) the amounts required to be contributed by the retirees. 10. OPEB – Benefits (such as death benefits, life insurance, disability, and long-term care) that are paid in the period after employment and that are provided separately from a pension plan, as well as healthcare benefits paid in the period after employment, regardless of the manner in which they are provided. OPEB does not include termination benefits or termination payments for sick leave. 11. OPEB Expense – Changes in the Net OPEB Liability in the current reporting period, which includes Service Cost, interest cost, changes of benefit terms, expected earnings on OPEB Plan investments, reduction of active employees’ contributions, OPEB plan administrative expenses, and current period recognition of Deferred Outflows / (Inflows) of Resources. 12. Pay-as-you-go – A method of financing a benefit plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. 13. Per Capita Costs – The current cost of providing postretirement health care benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan. 14. Present Value of Future Benefits – Total projected benefits include all benefits estimated to be payable to plan members (retirees and beneficiaries, terminated employees entitled to benefits but not yet receiving them, and current active members) as a result of their service through the valuation date and their expected future service. The actuarial present value of total projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Expressed another way, it is the amount that would have to be invested on the valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay total projected benefits when due. 15. Real Rate of Return – the rate of return on an investment after adjustment to eliminate inflation. Page 38 Glossary – Definitions City of Newport Beach GASB 74/75 Valuation for Fiscal Year Ending June 30, 2022 16. Select and Ultimate Rates – Actuarial assumptions that contemplate different rates for successive years. Instead of a single assumed rate with respect to, for example, the investment return assumption, the actuary may apply different rates for the early years of a projection and a single rate for all subsequent years. For example, if an actuary applies an assumed investment return of 8% for year 20W0, then 7.5% for 20W1, and 7% for 20W2 and thereafter, then 8% and 7.5% select rates, and 7% is the ultimate rate. 17. Service Cost – The portion of the Actuarial Present Value of projected benefit payments that are attributed to a valuation year by the Actuarial Cost Method. 18. Substantive Plan – The terms of an OPEB plan as understood by the employer(s) and plan members. 19. Total OPEB Liability – That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of Future Benefits which is attributed to past periods of employee service (or not provided for by the future Service Costs).