Loading...
HomeMy WebLinkAboutOPEB Valuation Date 06-30-2020GASB No. 75 ACTUARIAL VALUATION Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Nyhart Actuary & Employee Benefits 530 B Street, Ste. 900, San Diego, CA 92101 (619) 239-0831 – www.nyhart.com City of Newport Beach Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Table of Contents Certification 1 Valuation Results Summary 3 GASB 75 Summary 4 Statement of Fiduciary Net Position 5 Statement of Changes in Fiduciary Net Position 6 Schedule of Changes in Net OPEB Liability and Related Ratios 7 OPEB Expense 8 Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB 9 Rate of Return 10 Net OPEB Liability Sensitivity 11 Schedule of Contributions 12 Valuation Data 13 Benefit Plan Provisions 16 Actuarial Assumptions and Methods 21 Glossary 24 Ms. Shannon Espinoza 1/3/2020 City of Newport Beach One Civic Center Drive Newport Beach, CA 92660 This report summarizes the GASB actuarial valuation for the City of Newport Beach's Other Post Employment Benefit (OPEB) for the fiscal year ending June 30, 2020 (measured at June 30, 2019). Nyhart prepared this report to meet employer financial accounting requirements under Governmental Accounting Standards Board (GASB) Statement No. 75 (Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions). 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. 75. 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 roll-forward techniques); 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. 1 | Page 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. Luis Murillo, ASA, MAAA Randy Gomez, FSA, MAAA Consulting Actuary Consulting Actuary 2 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Valuation Results Summary Explicit Implicit Total Present Value of Employer Contributions Actives 8,082,180$ 6,716,767$ 14,798,947$ Retirees 31,308,647 5,212,500 36,521,147 Total 39,390,827$ 11,929,267$ 51,320,094$ Total (Accrued) OPEB Liability Actives 5,782,519$ 4,332,146$ 10,114,665$ Retirees 31,308,647 5,212,500 36,521,147 Total 37,091,166$ 9,544,646$ 46,635,812$ Projected Employer Contributions Explicit Implicit Total 2020 2,891,768$ 822,563$ 3,714,331$ 2021 2,916,368 861,179 3,777,547 2022 2,932,837 885,672 3,818,509 2023 2,938,531 866,172 3,804,703 2024 2,936,406 870,908 3,807,314 2025 2,927,765 885,735 3,813,500 2026 2,910,430 847,309 3,757,739 2027 2,891,004 863,403 3,754,407 2028 2,866,060 846,026 3,712,086 2029 2,836,572 825,539 3,662,111 Actuarial Assumptions as of Valuation Date Inflation 2.50% Salary increases 2.75% Discount rate 6.50% Plan Membership Inactive plan members or beneficiaries currently receiving benefits 605 Inactive plan members entitled to but not yet receiving benefits 54 Active plan members 790 1,449 As of Valuation Date: June 30, 2019 3 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) GASB 75 Summary Net OPEB Liability The components of the Net OPEB Liability at June 30,2019 2018 2017 Total OPEB Liability 46,635,812$ 44,296,670$ 44,614,266$ Plan fiduciary net position (23,185,035) (21,696,948) (19,094,690) Net OPEB Liability 23,450,777$ 22,599,722$ 25,519,576$ Plan fiduciary net position as a % of the Total OPEB Liability 49.72%48.98%42.80% OPEB Expense for the Fiscal Year Ended June 30,2,149,035$ 1,862,355$ 2,075,312$ Actuarial Assumptions The Total OPEB Liability was determined using the following actuarial assumptions. Inflation 2.50%2.75%2.75% Salary increases 2.75% plus Merit 3% plus Merit 3% plus Merit Investment rate of return 6.50%6.50%6.50% Discount rate 6.50%6.50%6.50% Plan Membership The Total OPEB Liability was determined based on the plan membership as of June 30,2019 2017 2017 Inactive plan members or beneficiaries currently receiving benefits 605 692 692 Inactive plan members entitled to but not yet receiving benefits 54 0 0 Active plan members 790 782 782 1,449 1,474 1,474 4 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Statement of Fiduciary Net Position June 30, 2019 Assets Cash and deposits N/A Securities lending cash collateral N/A Total cash N/A Receivables: Contributions N/A Due from broker for investments sold N/A Investment income N/A Accrued Income N/A Total receivables N/A Investments: Fixed income obligations and mutual funds N/A Domestic equities N/A International equities N/A Alternative assets/private equity N/A Total investments N/A Total assets N/A LiabilitiesPayables: Investment management fees N/ADue to broker for investments purchased N/ACollateral payable for securities lending N/A Other N/A Total liabilities N/A Net position restricted for OPEB 23,185,035$ Note: This information will be provided separately from the CERBT GASB 74 Information. 5 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Statement of Changes in Fiduciary Net Position June 30, 2016 Additions June 30, 2019 June 30, 2018 June 30, 2017 Contributions: Employer 3,834,916$ 4,675,193$ 4,594,772$ Member 0 0 0 Nonemployer Contributing Entity 0 0 0 Total contributions 3,834,916$ 4,675,193$ 4,594,772$ Investment income: Net increase in fair value of investments 1,507,148$ 1,605,114$ 1,875,536$ Interest and dividends 0 0 0 Less investment expense, other than from securities lending 0 0 0 Net income other than from securities lending 1,507,148$ 1,605,114$ 1,875,536$ Securities lending income 0 0 0 Less securities lending expense 0 0 0 Net income from securities lending 0$ 0$ 0$ Net investment income 1,507,148$ 1,605,114$ 1,875,536$ Other 0 0 0 Total additions 5,342,064$ 6,280,307$ 6,470,308$ Deductions Benefit payments 3,842,531$ 3,641,715$ 3,513,406$ Administrative expense 11,446 11,076 9,452 Other expense 0 25,258 0 Total deductions 3,853,977$ 3,678,049$ 3,522,858$ Net increase in net position 1,488,087$ 2,602,258$ 2,947,450$ Net position restricted for OPEB Beginning of year 21,696,948$ 19,094,690$ 16,147,240$ End of year 23,185,035$ 21,696,948$ 19,094,690$ Note: The employer contributions include retiree benefit payments inclusive of subsidy not reimbursed from the trust. 6 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Schedule of Changes in Net OPEB Liability and Related Ratios Total OPEB Liability 2019 2018 2017 Service cost 524,717$ 509,434$ 478,341$ Interest 2,788,508 2,814,685 2,830,153 Changes of benefit terms 0 0 0 Differences between expected and actual experience 2,754,137 0 0 Changes of assumptions 114,311 0 0 Benefit payments, including refunds of member contributions (3,842,531) (3,641,715) (3,513,406) Net change in Total OPEB Liability 2,339,142 (317,596) (204,912) Total OPEB Liability - beginning 44,296,670 44,614,266 44,819,178 Total OPEB Liability - ending (a)46,635,812$ 44,296,670$ 44,614,266$ Plan fiduciary net position Contributions - employer 3,834,916$ 4,675,193$ 4,594,772$ Contributions - member 0 0 0 Contributions - nonemployer contributing member 0 0 0 Net investment income 1,507,148 1,605,114 1,875,536 Benefit payments, including refunds of member contributions (3,842,531) (3,641,715) (3,513,406) Administrative expenses (11,446) (11,076) (9,452) Other expense 0 (25,258) 0 Net change in plan fiduciary net position 1,488,087$ 2,602,258 2,947,450$ Plan fiduciary net position - beginning 21,696,948 19,094,690 16,147,240 Plan fiduciary net position - ending (b)23,185,035$ 21,696,948$ 19,094,690$ Net OPEB Liability - ending (a) - (b)23,450,777$ 22,599,722$ 25,519,576$ Plan fiduciary net position as a percentage of the total 49.7%49.0%42.8% OPEB liability Covered - employee payroll 72,042,341$ 74,484,613$ 74,484,613$ Net OPEB Liability as percentage of covered- employee payroll 32.6%30.3%34.3% 7 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) OPEB Expense 2019 2018 2017 Service cost 524,717$ 509,434$ 478,341$ Interest on Total OPEB Liability 2,788,508 2,814,685 2,830,153 Projected earnings on OPEB plan investments (1,409,682) (1,273,562) (1,084,408) Reduction for contributions from active employees 0 0 0 OPEB plan administrative expense 11,446 36,334 9,452 Changes of benefit terms 0 0 0 Other changes 0 0 0 Current period recognition of deferred outflows/(inflows) of resources Differences between Expected & Actual Experience in measurement of the Total OPEB Liability 459,023 0 0 Changes of assumptions 19,052 0 0 Differences between Projected & Actual Earnings on OPEB Plan Investments (244,029) (224,536) (158,226) Annual OPEB Expense 2,149,035$ 1,862,355$ 2,075,312$ 8 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB Initial Differences between expected and actuarial experience in Initial Amortization Annual 06/30/2019 measurement of the Total OPEB Liability for the period ending:Balance Period Recognition Balance June 30, 2019 2,754,137$ 6 459,023$ 2,295,114$ Total 459,023$ 2,295,114$ Initial Initial Amortization Annual 06/30/2019 Changes of assumptions for the period ending:Balance Period Recognition Balance June 30, 2019 114,311$ 6 19,052$ 95,259$ Total 19,052$ 95,259$ Initial Differences between projected and actual earnings on OPEB Initial Amortization Annual 06/30/2019 plan investments for the period ending:Balance Period Recognition Balance June 30, 2019 (97,466)$ 5 (19,493)$ (77,973)$ June 30, 2018 (331,552) 5 (66,310) (198,932) June 30, 2017 (791,128) 5 (158,226) (316,450) Total (244,029)$ (593,355)$ The balances as of June 30, 2019 of the deferred outflows/(inflows) of resources will be recognized in OPEB expense for the period ending June 30, 2020 234,046$ 2021 234,048$ 2022 392,270$ 2023 458,581$ 2024 478,073$ Thereafter 0$ 9 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Rate of Return The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 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, 2019 are summarized in the following table: Asset class Target allocation Long-term expected real rate of return CERBT Global Equity 59.0%5.50% Global Debt Securities 25.0%2.35% Inflation Assets 5.0%1.50% Commodities 3.0%1.75% REITs 8.0%3.65% Total 100.0% Long-term expected rate of return is 6.50%. 10 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Net OPEB Liability Sensitivity Discount rate The discount rate used to measure the Total OPEB Liability is 6.50%. Sensitivity of the Net OPEB Liability to changes in the discount rate The following presents the Net OPEB Liability, calculated using the discount rate of 6.50%, as well as what the Net OPEB Liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.50%) or 1-percentage-point higher (7.50%) than the current rate: Net OPEB Liability 28,135,160$ 23,450,777$ 19,475,161$ Sensitivity of the Net OPEB Liability to changes in healthcare cost trend rates 1% Decrease Current Healthcare Cost Trend Rates 1% Increase Net OPEB Liability 21,701,918$ 23,450,777$ 25,875,167$ 1% Decrease (5.50%) Current Discount Rate (6.50%) 1% Increase (7.50%) (5.50%HMO/5.50%PPO decreasing to 4.00%HMO/4.00%PPO) (6.50%HMO/6.50%PPO decreasing to 5.00%HMO/5.00%PPO) (7.50%HMO/7.50%PPO decreasing to 6.00%HMO/6.00%PPO) 11 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Schedule of Contributions 2019 2018 2017 ## Actuarially determined contribution 3,834,916$ 3,827,337$ 3,925,087$ # Contributions in relation to the actuarially determined contribution 3,834,916 4,675,193 4,594,772 0 Contribution deficiency (excess)0$ (847,856)$ (669,685)$ # Covered-employee payroll 72,042,341$ 74,484,613$ 74,484,613$ # Contributions as a percentage of covered-employee payroll 5.32%6.28%6.17%N/A #REF!#REF!## Actuarially determined contribution 0$ 0$ # Contributions in relation to the actuarially determined contribution 0 0 0 Contribution deficiency (excess)0$ 0$ # Covered-employee payroll 0$ 0$ # Contributions as a percentage of covered-employee payroll N/A N/A N/A 12 | Page Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Valuation Data 13 | Page The valuation was based on the census furnished to us by the City. A reconciliation and summary data statistics as of the Valuation Date are provided in the following tables: Age Distribution of Eligible Retired Participants & Beneficiaries Age Miscellaneous Safety Total* MRC Only Waives Grand Total <50 0 0 0 6 12 18 50-54 3 11 14 12 15 41 55-59 29 32 61 11 11 83 60-64 56 50 106 9 15 130 65-69 62 65 127 6 14 147 70-74 64 46 110 4 15 129 75-79 38 30 68 3 8 79 80-84 32 15 47 1 14 62 85+15 5 20 0 21 41 Total:299 254 553 52 125 730 Average Age: 70.1 67.6 69.0 59.3 67.7 68.1 Average Retirement Age: 58.1 52.0 55.3 54.2 50.7 54.4 *Note: Currently receiving the $400 or $450 per month contribution. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Valuation Data 14 | Page Age/Service Distribution of All Active Benefit Eligible Employees Age/Service 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 Total Hybrid Plan RHS Plan Part Time 20-24 26 26 0 13 13 25-29 77 14 3 94 0 61 33 30-34 42 34 28 2 106 0 85 21 35-39 22 24 52 25 3 126 0 117 9 40-44 23 9 31 43 7 113 0 106 7 45-49 11 9 22 38 18 6 2 106 0 99 7 50-54 15 9 14 20 16 20 15 3 0 112 21 78 13 55-59 5 1 7 11 12 11 11 2 0 60 22 32 6 60-64 2 3 6 3 4 4 5 1 0 28 12 12 4 65-69 4 0 4 2 2 1 0 0 0 13 3 4 6 70+ 2 1 0 1 0 0 2 0 0 6 2 0 4 Total: 229 104 167 145 62 42 35 6 0 790 60 607 123 Average Age: 42.1 58.1 41.7 38.7 Average Service: 12.3 28.6 11.8 7.2 Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Valuation Data 15 | Page Age/Service Distribution of Benefit Eligible Miscellaneous Employees Age/Service 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 Total Hybrid Plan RHS Plan Part Time 20-24 19 19 0 6 13 25-29 56 8 1 65 0 35 30 30-34 27 12 14 1 54 0 34 20 35-39 16 12 31 12 71 0 63 8 40-44 22 4 14 21 4 65 0 58 7 45-49 11 8 7 25 10 3 64 0 58 6 50-54 15 8 13 13 12 14 10 1 86 12 61 13 55-59 5 1 7 11 9 8 10 2 53 17 30 6 60-64 2 2 6 3 4 4 4 1 26 11 11 4 65-69 4 0 4 2 2 1 0 0 0 13 3 4 6 70+ 2 1 0 1 0 0 2 0 0 6 2 0 4 Total: 179 56 97 89 41 30 26 4 0 522 45 360 117 Average Age 43.5 59.1 43.5 39.0 Average Service 12.0 28.3 11.7 6.9 Age/Service Distribution of Benefit Eligible Safety Employees Age/Service 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 Total Hybrid Plan RHS Plan Part Time 20-24 7 7 0 7 0 25-29 21 6 2 29 0 26 3 30-34 15 22 14 1 52 0 51 1 35-39 6 12 21 13 3 55 0 54 1 40-44 1 5 17 22 3 48 0 48 1 45-49 0 1 15 13 8 3 2 42 0 41 0 50-54 0 1 1 7 4 6 5 2 26 9 17 0 55-59 0 0 0 0 3 3 1 0 7 5 2 0 60-64 0 1 0 0 0 0 1 0 2 1 1 0 65-69 0 0 0 0 0 0 0 0 0 0 0 0 0 70+ 0 0 0 0 0 0 0 0 0 0 0 0 0 Total: 50 48 70 56 21 12 9 2 0 268 15 247 6 Average Age 39.3 55.1 38.9 34.7 Average Service 13.0 29.4 11.9 14.4 Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Benefit Plan Provisions 16 | Page 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 history of the increases in past years and current amounts are as follows: Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Benefit Plan Provisions 17 | Page Calendar Year Minimum Required Employer Contribution 2011 $108.00 2012 $112.00 2013 $115.00 2014 $119.00 2015 $122.00 2016 $125.00 2017 $128.00 2018 $133.00 2019 $136.00 2020 2021+ $139.00 Adjusted Annually to reflect Medical Portion of CPI Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Benefit Plan Provisions 18 | Page 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. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Benefit Plan Provisions 19 | Page Premium Rates The City participates in the CalPERS Health Program, a community-rated program, for medical coverage. The tables below summarize the calendar 2019 and 2020 monthly medical premiums for the primary medical plans in which the retirees are enrolled. 2019 Other So. Cal. Region Kaiser BS HMO PERS Care PERS Choice PERS Select Retiree Only $ 628.63 $ 760.04 $ 907.29 $ 721.11 $ 462.71 Retiree Plus Spouse $1,257.26 $1,520.08 $1,814.58 $1,442.22 $ 925.42 Retiree Plus Family $1,634.44 $1,976.10 $2,358.95 $1,874.89 $1,203.05 Retiree Only- Medicare $ 323.74 N/A $ 394.83 $ 360.41 $ 360.41 Retiree Plus Spouse – Medicare $ 647.48 N/A $ 789.66 $ 720.82 $ 720.82 2019 Other So. Cal. Region (Continued) Sharp HMO UHC HMO Anthem HMO Select Anthem HMO Traditional Health Net Salud Health Net Smart Care Retiree Only $ 593.66 $ 646.65 $ 625.07 $ 830.89 $ 427.81 $ 642.71 Retiree Plus Spouse $1,187.32 $1,293.30 $1,250.14 $1,661.78 $ 855.62 $1,285.42 Retiree Plus Family $1,543.52 $1,681.29 $1,625.18 $2,160.31 $1,112.31 $1,671.05 Retiree Only- Medicare N/A $ 299.37 N/A $ 357.44 N/A N/A Retiree Plus Spouse – Medicare N/A $ 598.74 N/A $ 714.88 N/A N/A 2020 Region 2 Kaiser BS HMO PERS Care PERS Choice PERS Select Retiree Only $ 645.24 $ 909.87 $ 986.66 $ 736.28 $ 451.54 Retiree Plus Spouse $1,290.48 $1,819.74 $1,973.32 $1,472.56 $ 903.08 Retiree Plus Family $1,677.62 $2,365.66 $2,565.32 $1,914.33 $1,174.00 Retiree Only- Medicare $ 339.43 N/A $ 384.78 $ 351.39 $ 351.39 Retiree Plus Spouse – Medicare $ 678.86 N/A $ 769.56 $ 702.78 $ 702.78 Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Benefit Plan Provisions 20 | Page 2020 Region 2 (Continued) Sharp UHC HMO Anthem HMO Select Anthem HMO Traditional Health Net Smart Care Health Net Salud Retiree Only $ 606.02 $ 671.60 $ 654.04 $ 934.95 $ 719.26 $ 435.14 Retiree Plus Spouse $1,212.04 $1,343.20 $1,308.08 $1,869.90 $1,438.52 $ 870.28 Retiree Plus Family $1,575.65 $1,746.16 $1,700.50 $2,430.87 $1,870.08 $1,131.36 Retiree Only- Medicare N/A $ 327.03 $ 388.15 $ 388.15 N/A N/A Retiree Plus Spouse – Medicare N/A $ 654.06 $ 766.30 $ 766.30 N/A N/A Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Actuarial Assumptions and Methods 21 | Page The liabilities set forth in this report are based on the actuarial assumptions described in this section. Fiscal Year: July 1st to June 30th Valuation Date: June 30, 2019 Measurement Date: June 30, 2019 for FYE6/30/2020 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. Expected Rate of Return: 6.5% per annum. This discount rate assumes the City continues to fully fund for its retiree health benefits through the California Employers’ Retiree Benefit Trust (CERBT) under its investment allocation strategy 1. The rate reflects the CERBT published median interest rate for strategy 1 of 7.28% with an additional margin for adverse deviation. Discount Rate: 6.5% per annum. Inflation: 2.5% per annum 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. [Updated from the 2014 CALPERS experience study rates] Wage Inflation: 2.75% per annum, in aggregate. [Updated from the 2014 CALPERS experience study rate of 3.0%] Salary Increases: For cost method purposes the merit increases from the CalPERS pension plan are used. Pre-retirement Turnover: According to the termination rates under the 2017 experience study for the CalPERS pension plan [Updated from the 2014 CALPERS experience study rates] Mortality: According to the mortality rates under the 2017 experience study for the CalPERS pension plan. [Updated from the 2014 CALPERS experience study rates] Disability Rates: According to the disability rates under the 2017 experience study for the CalPERS pension plan. [Updated from the 2014 CALPERS experience study rates] Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Actuarial Assumptions and Methods 22 | Page Retirement Rates: 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 [Updated from the 2014 CALPERS experience study rates] Participation Rates: 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. Spouse 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. Claim Cost Development: The valuation claim costs are based on the premiums paid for medical insurance coverage. The City participates in CalPERS, a community rated plan. An implicit rate subsidy can exist when the non-Medicare rates for retirees are the same as for active employees. Since non-Medicare eligible retirees are typically much older than active employees, their actual medical costs are typically higher than for active employees. The current valuation contains an estimate of the implicit rate subsidy. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Actuarial Assumptions and Methods 23 | Page Medical Trend Rates: Medical costs are adjusted in future years by the following trends: FYE Trend 2020 6.5% 2021 6.0% 2022 5.5% 2023+ 5.0% [Reflects a 0.5% increase in HMO trend rates from the FYE6/30/2019 valuation.] Minimum Contribution: The PEMHCA minimum required contribution is assumed to increase 4.0% per year. Fixed Dollar Contribution: Assumed to remain constant in future years. Medicare Participation: Assume 100% participation. Actuarial Cost Method: The actuarial cost method used to determine the allocation of the retiree health actuarial liability to the past (accrued), current and future periods is the Entry Age Normal (EAN) cost method. The EAN cost method is a projected benefit cost method which means the “cost” is based on the projected benefit expected to be paid at retirement. The EAN normal cost equals the level annual amount of contribution from the employee’s date of hire (entry date) to their retirement date that is sufficient to fund the projected benefit. As required by GASB 75, the normal cost is calculated to remain level as a percentage of pay. The EAN actuarial accrued liability equals the present value of all future benefits for retired and current employees and their beneficiaries less the portion expected to be funded by future normal costs. All employees eligible as of the measurement date in accordance with the provisions of the Plan listed in the data provided by the City were included in the valuation. Actuarial Value of Assets: Any assets of the plan will be valued on a market value basis. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Glossary 24 | Page 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. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Glossary 25 | Page 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. Retiree Health Plan GASB 75 Report Fiscal Year Ending June 30, 2020 (Measured at June 30, 2019) Glossary 26 | Page 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% are the select rates, and 7% is the ultimate rate. 17. Service Cost – The portion of the Actuarial Present Value of projected benefit payments that is 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).