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12/14/2009 4 PENSION TRUSTEES AGENDA Location: Council Chambers - City Hall Date: 12/14/2009- 1:00 PM 1. Call to Order 2. Approval of Minutes 2.1 Approve the minutes of the October 19, 2009 Pension Trustees Meeting as submitted in written summation by the City Clerk. Attachments 3. Pension Trustee Items 3.1 Employees listed below be accepted into membership in the City of Clearwaters' Employees' Pension Plan as approved by the Pension Advisory Committee. Attachments 3.2 James Quinlan, Police Department, be granted a regular pension under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. Attachments 3.3 Nathaniel McAbee, Public Services Department, and Christopher Hall, Public Communications Department, be allowed to vest their pensions under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. Attachments 3.4 Award a contract for actuarial services for the Pension Plan for the five year period ending December 31, 2014, to Gabriel, Roeder, Smith and Company, authorize a not to exceed amount for the Pension Plan over the 5 year period of $210,000 and authorize the appropriate officials to execute same. Attachments 3.5 Accept the 2009 Asset Allocation Review and authorize staff to implement the recommendations. Attachments 3.6 Discuss and provide direction re pursuing a second tier pension plan. Attachments 4. Other Business 5. Adjourn Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Approve the minutes of the October 19, 2009 Pension Trustees Meeting as submitted in written summation by the City Clerk. SUMMARY: Review Approval: 1) Clerk Cover Memo Item # 1 Attachment number 1 Page 1 of 2 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES CITY OF CLEARWATER October 19, 2009 Unapproved Present: Frank Hibbard Carlen Petersen John Doran George N. Cretekos Paul Gibson Chair Trustee Trustee Trustee Trustee Also Present: William B. Horne, II Jill S. Silverboard Rod Irwin Pamela K. Akin Rosemarie Call Karen Vaughan City Manager Assistant City Manager Assistant City Manager City Attorney Management Analyst Senior Staff Assistant The Chair called the meeting to order at 9:08 a.m. at City Hall. To provide continuity for research, items are in agenda order although not necessarily discussed in that order. 2 - Approval of Minutes 2.1 - Approve the minutes of the September 14, 2009 Pension Trustees meeting as submitted in written summation by the City Clerk. Trustee Carlen Petersen moved to approve the minutes of the Pension Trustees meeting of September 14, 2009 as recorded and submitted in written summation by the City Clerk to each Trustee. The motion was duly seconded and carried unanimously. 3 - Pension Trustee items 3.1 - Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan as recommended by the Pension Advisory Committee. Name, Job Classification, and Department/Division Hire Date Pension Elig. Date Chris Thorn, Gas Sales Representative/Gas 6/13/94 8/3/09 * Steven Sorrelss, Senior Accountant/Solid Waste Gen. Ser. 8/17/09 8/17/09 * originally employed as an unclassified employee on 6113194; demoted and pension eligible as of 8/3/09 Trustee John Doran moved to accept the listed employees in the City of Clearwater's Employees' Pension Plan as recommended by the Pension Advisory Committee. The motion was duly seconded and carried unanimously. Pension Trustees 2009-10-19 Item # 1 Attachment number 1 Page 2 of 2 3.2 Alfred Schaerffer, Solid Waste/General Services Department, be granted a regular pension under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. Alfred Schaerffer, Container Maintenance Worker, Solid Waste/General Services Department, was employed by the City on July 22, 1981, and his pension service credit is effective on that date. His pension will be effective November 1, 2009. Based on an average salary of approximately $40,871 per year over the past five years, the formula for computing regular pensions and Mr. Schaerffer's selection of the Joint & Survivor Annuity, this pension will approximate $31,780 annually. This pension was approved by the Pension Advisory Committee on September 10, 2009. Section 2.393 provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed thirty years of credited service, or has reached age 65 and completed ten years of credited service. Mr. Schaerffer qualifies under the age 55 and 20 years of service criteria. Trustee George N. Cretekos moved to grant Alfred Schaerffer, Solid Waste/General Services Department, a regular pension under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. The motion was duly seconded and carried unanimously. 4 - Other Business - None. 5 - Adjourn The meeting adjourned at 9:09 a.m. Chair Employee's Pension Plan Trustees Attest: City Clerk Pension Trustees 2009-10-19 Item # 1 Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Employees listed below be accepted into membership in the City of Clearwaters' Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Name, Job. Class, & Dept./Div. Hire Date Elig Date Mary Beth Setter, Sr. Acct./Economic Dev. 8/31/09 8/31/09 Dominick Briganti, Firefighter/Fire 10/13/09 10/13/09 Aaron Campbell, Firefighter/Fire 10/13/09 10/13/09 Robert Finke, Firefighter/Fire 10/13/09 10/13/09 Jarett Hood, Firefighter/Fire 10/13/09 10/13/09 Christopher Johnson, Firefighter/Fire 10/13/09 10/13/09 Douglas Kellin, Firefighter/Fire 10/13/09 10/13/09 Casey Matz, Firefighter/Fire 10/13/09 10/13/09 Christian Miller, Firefighter/Fire 10/13/09 10/13/09 Kyle Mueller, Firefighter/Fire 10/13/09 10/13/09 Steven Peters, Firefighter/Fire 10/13/09 10/13/09 Alan Ryan, Firefighter/Fire 10/13/09 10/13/09 David Sowers, Firefighter/Fire 10/13/09 10/13/09 Hieu Tran, Firefighter/Fire 10/13/09 10/13/09 James Ingram, Solid Waste Worker/Solid Waste 10/13/09 10/13/09 Reginald Jackson, Solid Waste Worker/Solid Waste 9/14/09 9/14/09 Timothy Jones, Solid Waste Worker/Solid Waste 9/14/09 9/14/09 Albert Alexander, Parks Service Tech. I/Parks & Rec. 9/14/09 9/14/09 Terrance Scott, Solid Waste Worker/Solid Waste 9/14/09 9/14/09 Ian Shollenberger, Parks Service Tech. I/Parks & Rec. 9/28/09 9/28/09 Charles Lawrence, Solid Waste Worker/Solid Waste 9/28/09 9/28/09 Leroy Bostick, SolidWaste Worker/Solid Waste 9/28/09 9/28/09 Jacqueline Lewis, Service Dispatcher/Gas 9/28/09 9/28/09 Daniel Hardesty, Parks Service Tech. I/Parks & Rec. 9/28/09 9/28/09 Timothy Jennings, Parks Service Tech. I/Parks & Rec. 9/28/09 9/28/09 John Hunter, Field Service Rep. I/Customer Service 9/28/09 9/28/09 Deborah Cruz, Service Dispatcher/Gas 10/12/09 10/12/09 Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Clerk Cover Memo Item # 2 Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: James Quinlan, Police Department, be granted a regular pension under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: James Quinlan, Police Sergeant, Police Department, was employed by the City on November 9, 1987, and his pension service credit is effective on that date. His pension will be effective November 1, 2009. Based on an average salary of approximately $88,083 per year over the past five years, the formula for computing regular pensions, and Mr. Quinlan's selection of the Life Annuity, this pension will approximate $54,675 annually. This pension was approved by the Pension Advisory Committee on November 12, 2009. Section 2.393 provides for normal retirement eligibility when a participant has completed twenty years of credited service or has reached age 55 and completed ten years of credited service in a type of employment described as "hazardous duty" and further defines service as a Police Sergeant as meeting the hazardous duty criteria. Mr. Quinlan qualifies under the hazardous duty criteria. Review Approval: 1) Clerk Cover Memo Item # 3 Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Nathaniel McAbee, Public Services Department, and Christopher Hall, Public Communications Department, be allowed to vest their pensions under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Nathaniel McAbee, Public Services Coordinator, Public Services Department, was employed by the City on December 10, 1984, and began participating in the Pension Plan on that date. Mr. McAbee terminated from City employment on September 25, 2009. Christopher Hall, Graphics Supervisor, Public Communications Department, was employed by the City on January 29, 1990, and began participating in the Pension Plan on that date. Mr. Hall terminated from City employment on September 25, 2009. The Employees' Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full-time to part-time after completing ten or more years of creditable service (pension participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed 30 years of credited service, or has reached age 65 and completed ten years of credited service. Mr. McAbee would have completed 20 years of service and reached age 55 on September 15, 2012. His pension will be effective October 1, 2012. Mr. Hall would have completed 30 years of service on January 29, 2020. His pension will be effective February 1, 2020. These pensions were approved by the Pension Advisory Committee on November 12, 2009. Review Approval: 1) Clerk Cover Memo Item # 4 Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Award a contract for actuarial services for the Pension Plan for the five year period ending December 31, 2014, to Gabriel, Roeder, Smith and Company,authorize a not to exceed amount for the Pension Plan over the 5 year period of $210,000 and authorize the appropriate officials to execute same. SUMMARY: Annually, the General Employees' Retirement Plan requires an actuarial valuation of the plan to determine the City's contribution. Annually, as issues arise, the City seeks consultation from its actuary on issues concerning the retirement plan. In addition, as the City contemplates changes to the retirement plan, various costing studies will be required. Gabriel, Roeder, Smith and Company was selected from a group of twelve (12) national firms responding to the City's RFP 21-09. All twelve firms responding were deemed responsible proposals and were differentiated primarily by firm and staff experience with similar Florida plans and proposed fees. GRS was selected by the selection committee as submitting the most desirable combination of experience and fee structure and maintains an office in Ft. Lauderdale, FL. First year fee for the actuarial valuation of the General Employee's retirement Plan will be $16,000 and paid by the Plan. Subsequent year fees will be adjusted for inflation by changes in the 12/31 CPI-U index annually during the remaining term of the agreement. We have estimated an annual amount of consultation at $5,000 per year and costing studies of potential pension plan changes at $75,000. Any increases in these amounts will come back to the Trustees for approval. The total not to exceed amount is calculated as follows: $16,000 First year fee $16,480 Estimated second year fee (increased by estimated CPI of 3%) $17,000 Estimated third year fee (increased by estimated CPI of 3%) $17,500 Estimated forth year fee (increased by estimated CPI of 3%) $18,020 Estimated fifth year fee (increased by estimated CPI of 3%) $25,000 Estimated annual consulting of $5,000/year for 5 years $100,000 Estimated consulting on pension plan changes $210,000 Estimated total Included in this contract is the periodic actuarial valuation for the City's OPEB (Other Post Employment Benefits) liability which is a City expense, unrelated to the Pension Plan. This liability is related to the State requirement that the City allow retirees to participate in the City's health insurance plan at the same cost. The City Council will be considering this part of the contract as part of the Council agenda this week and this cost will be paid from City funds. Type: Operating Expenditure Current Year Budget?: None Budget Adjustment: None Budget Adjustment Comments: The Pension Fund is not a budgeted fund. Current Year Cost: Not to Exceed: $210,000 Annual Operating Cost: Total Cost: Cover Memo Item # 5 For Fiscal Year: to Appropration Code Amount Appropriation Comment 0646-07410-530100-585- $210,000 non budgeted fund 000-0000 Bid Required?: Yes Bid Number: FRP 21-09 Other Bid / Contract: Bid Exceptions: None Review 1) Office of Management and Budget 2) Financial Services 3) Office of Management and Approval: Budget 4) Legal 5) Clerk 6) Assistant City Manager 7) Clerk 8) City Manager 9) Clerk Cover Memo Item # 5 Attachment number 1 Page 1 of 81 EXHIBIT A GRS Gabriel Roeder Smith & Company • CITY OF CLEARWATER, FLORIDA RFP #21-09: PROPOSAL FOR ACTUARIAL AND OTHER SERVICES SEPTEMBER 28, 2009 Gabriel, Roeder, Smith & Company ? One E. Broward Blvd., Ste. 505 ? Ft. Lauderdale, FL 33301 Contacts: J. Stephen Palmquist (Pension) / James J. Rizzo (OPEB) Phone Number: (954) 527-1616 ? Fax: (954) 525-0083 E-mail: steve.palmquist@gabrielroeder.com / jim.rizzo@gabrielroeder.com Item # 5 Attachment number 1 Page 2 of 81 G RS Gabriel Roeder Smith & Company One East Broward Blvd. 954.527.1616 phone Consultants & Actuaries Suite 505 954.525.0083 fax Ft. Lauderdale, FL 33301-1872 www.gabriefroeder.com -0 September 23, 2009 City of Clearwater c/o Mr. George McKibben, Purchasing Manager 100 South Myrtle Avenue Clearwater, FL 33756-5520 Re: Response to RFP #21-09: Actuarial and Other Services Dear Mr. McKibben: We are pleased to have the opportunity to submit a proposal for actuarial consulting and other related services to the City of Clearwater ("the City") Employees' Pension Plan ("the Plan") and other post-employment benefits plan (OPEB). The attached proposal sets forth our understanding of the work to be performed and the overall qualifications and capabilities of the consultants and resources of Gabriel, Roeder, Smith & Company (GRS). • GRS offers the City an actuarial firm, uniquely specializing in public sector retirement systems, with a nationally recognized reputation; an excellent research center focused on public employer retirement issues; and a clear understanding of the national, state, and local political and legislative environments and processes. Our proposed client service team is highly capable and experienced in the public sector arena. We believe there are four key qualification areas that you want to look for in your actuarial firm. Our proposal demonstrates GRS' qualifications in these areas: KNOWLEDGE OF THE ISSUES AND THE SERVICES - GRS has provided actuarial and consulting services to public retirement systems since 1938. We have clearly and proficiently demonstrated our knowledge, expertise, timeliness, and capabilities over the years with our clients. More specifically, our Lead Actuaries have reviewed some of the recent documents prepared by your attorney and actuary. We are knowledgeable on the issues that you are currently addressing. We are currently helping many of our clients through the same issues. • COMMUNICATION - Not only do we need to be able to effectively communicate to City of Clearwater staff, we have found that our work often requires us to speak in front of plan trustees, elected officials and state legislative committees, as well as labor and other employee groups. We communicate our results and recommendations in clear, jargon-free • terms to maximize understanding for all concerned parties. Item # 5 Attachment number 1 Page 3 of 81 Mr. George McKibben September 23, 2009 • Page 3 • DEPTH IN THE ISSUES - The City will want the benefit of knowing what other governmental entities are doing-and how they are examining all the possible areas of future risk, confronting unfunded liabilities, and preparing themselves to be responsive to both the financial and employee benefit-related risks that will emerge. As our nation's leading consultant to public sector retirement systems, GRS offers the City time-tested technical resources designed to effectively and efficiently administer public sector employee benefit plans. • SOUND AND INTEGRATED APPROACH - Our consulting team has tremendous depth of experience in retirement and retiree health consulting and actuarial science. The team selected for the City of Clearwater is also well versed in government finance and will work with the Plan to bring forward solutions that respect the interests of the members and the City. If selected as the City of Clearwater Employees' Pension Plan's actuary, GRS will perform all requested work in a timely and efficient manner. We trust that the City will find our proposal worthwhile, and we look forward to further discussion. Thank you for considering how we may be of service. • Respectfully submitted, Gabriel, Roeder, Smith & Company Mark Randall, E.A. ,per, Executive Vice President J ? 009 Enclosures NOTARY FIJBLIC-STATE OF FLORIDA Virginia Eleanor Zagari •' Commission #DD759786 ", • Expires; MAY 11, 2012 BONDED MU ATLANTIC BONDING CO., INC. • Gabriel Roeder Smith & Company Item # 5 Attachment number 1 Page 4 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services • TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY 1-3 FIRM QUALIFICATIONS 4-19 FAMILIARITY WITH GASB STATEMENT REQUIREMENTS 20-21 QUALIFICATIONS OF PERSONNEL TO BE ASSIGNED 22-29 COSTS TO PROVIDE THE VARIOUS SERVICES 30-38 APPENDICES A. LICENSE TO DO BUSINESS IN THE STATE OF FLORIDA B. FORT LAUDERDALE OFFICE PUBLIC PENSION CLIENTS C. FORT LAUDERDALE OFFICE OPEB CLIENTS D. SAMPLE PENSION ACTUARIAL VALUATION REPORT • E. SAMPLE OPEB ACTUARIAL VALUATION REPORT F. SAMPLE EMPLOYEE BENEFIT STATEMENT G. GRS INSIGHT (MAY 2009: "THE GASB'S INVITATION TO COMMENT ON PENSION ACCOUNTING AND REPORTING STANDARDS" • Item # 5 Attachment number 1 Page 5 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services EXECUTIVE SUMMARY MAKING THE BEST CHOICE It is not every day that you are called upon to select an Actuary. A selection committee might even feel at a loss to know what really matters. There are significant differences, even among leading national actuarial firms. The City of Clearwater can have confidence that it will receive great value and benefit from a relationship with Gabriel, Roeder, Smith & Company as its actuary. GRS excels in providing actuarial and consulting services to the public sector over its competitors, both large and small. We have highlighted key reasons why GRS is the best choice for the City of Clearwater: 1. The City of Clearwater can have confidence in a large, stable national firm with a highly respected reputation in public sector actuarial consulting. GRS is a premier consulting and actuarial firm and provides services to many satisfied Florida governmental pension plans. GRS is known on the national scene as the leading public sector actuarial advisor for pension, health, and OPEB plans, yet with a local perspective. Our clients take pride and comfort in knowing that GRS is their actuary. In choosing GRS, Clearwater will choose an actuary that will not exit public sector work and will always dedicate its resources toward helping public sector plans. • 2. GRS (and the Lead Actuaries assigned to the City of Clearwater) has substantial experience in the public sector environment. We are unique in the consulting field because we derive over 95% of our revenue from services provided to public sector pension, OPEB, and health clients. At GRS, public sector pension and health plan work is not just a unit within a large diversified organization; it is virtually our whole firm. It's all we do. And we do more public sector retirement plan actuarial work than any other firm, both nationally and in Florida. Our exposure to so many pension and OPEB plans has taught us how to handle some very complex benefit structures, involving break-dates, grandfatherings, component units, every sort of DROP provision imaginable, and a wide range of other unique and complex plan and governance structures. This exposure also brings to the table many of the techniques for cost containment. Often we are engaged to assist clients in managing pension and OPEB costs and liabilities. With GRS as its actuary, Clearwater will be able to tap into proven, fiscally responsible techniques that will optimize value without reducing quality. We have reviewed some of the recent documents prepared by your attorney and actuary and are knowledgeable on the issues that you are currently addressing. We are currently helping many of our clients through the same issues. • Item # GRS Attachment number 1 Page 6 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Executive Summary 3. The City of Clearwater needs a firm with depth so that there are resources for back-up, for double-checking, for collaboration and second opinions, and for research. All GRS offices have experienced Actuarial Teams, serving over 600 public sector pension and OPEB clients nationally. GRS has more actuaries solely dedicated to providing services to the public sector than any other firm in the nation. In the Fort Lauderdale office alone, we have eight (8) full-time experienced Pension Actuaries, five (5) of whom also have experience with OPEBs. The Fort Lauderdale Office also employs numerous Actuarial Analysts, computer specialists, and support staff experienced in Florida public sector Pension and OPEB Plans. Clearwater will always have easy access to broad based, in-house public sector pension and OPEB expertise, no matter the time constraints or other technical nature of the actuarial need. 4. The City of Clearwater will want to know how its benefit levels and liabilities compare with other Florida governments (especially cities). We are currently engaged by well over 100 governmental clients in Florida for pension work and over 100 for OPEB work. So no guesswork will be involved when GRS benchmarks Clearwater benefits, costs, and liabilities against those of a number of other comparable Florida cities. GRS offers decades of experience in actuarial projections of the costs and liabilities of pension and OPEB plans for public sector employers. We see it all. The City of Clearwater will have access to detailed and high-level comparative information for benchmarking. • 5. The City of Clearwater needs an actuarial advisor who knows industry trends in benefits, techniques, assumptions and accounting, particularly among cities in Florida (and nationally). GRS serves more pension and OPEB plans in Florida than any other firm. We have the largest public sector actuarial practice nationally, as well. This client base gives us access to all trends and movements in the industry, particularly in Florida. Through GRS' policy of regular interaction and information sharing between its actuarial consultants, at all levels and locales, the City of Clearwater can be assured that the valuations and advice it receives will be cutting edge. 6. The City of Clearwater needs a firm with a good working relationship with the Florida Division of Retirement. The Florida Division of Retirement and the Bureau of Local Retirement Systems are important regulatory players in the life of the City's Plan. Having a mutually respectful relationship with the Staff at the Division and Bureau should prove beneficial to the City. GRS Consultants are on a first name basis with the regulators, including the Bureau Chief, Division Director, and other executives. Recently, we were hired as a subcontractor to review the actuarial valuations and impact statements for roughly half of the Florida governmental pension plans on behalf of the Division/Bureau. This speaks to the confidence which the Division and Bureau have in GRS. This positions GRS in good standing with the Division/Bureau-for the benefit of our clients, including the City of Clearwater. "ef # GRS Attachment number 1 Page 7 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services • Executive Summary 7. The City of Clearwater can be assured that its actuarial valuations will be fully compliant with State requirements and actuarial and accounting standards and will withstand auditing and other scrutiny. Your Lead Actuaries' backgrounds and actuarial integrity have garnered them excellent reputations with State officials and with auditors. GRS' internal quality assurance and peer review programs give our clients a high level of confidence in our internal processes and end product. The actuarial procedures and models used by GRS are fully compliant with all relevant Actuarial Standards of Practice and all Government Accounting Standards. Further, we serve on numerous professional committees of the American Academy of Actuaries, national and Florida Governmental Finance Officers Associations, and other trade associations. Clearwater can rest assured that the valuations and advice it receives from GRS meet or exceed all industry standards and expectations. 8. The City of Clearwater needs to stay on top of the latest regulatory developments affecting its Pension Plan. The two Lead Actuaries and our home-office research unit will provide up-to-date information on Federal and state legislation and regulations, as well as actuarial and accounting standards affecting the Plan. In conjunction with the City's pension counsel, GRS offers the services of its Research Group, led by Paul Zorn, GRS Director of Governmental Research, for expertise on plan design, federal and state legislation, accounting rules, and other regulatory issues. As an example, several GRS actuaries have been engaged at the national level in the debate on the market value of pension liabilities (MVL). We have been participating in several venues, drafting responses to the GASB's Invitation to Comment for its major project revisiting pension and OPEB accounting standards, with the hope of influencing GASB's thinking away from MVL as it deliberates these matters. As another example, GRS (including the City's two Lead Actuaries) was at the forefront of the resistance to last year's attempt to rewrite the Florida government pension rules. We sent notices to all our clients on the substance of the draft rules and our responses, as well as attending and testifying at the hearings. GRS is an active and respected participant in shaping current actuarial and accounting standards and processes at the national level, meaning Clearwater will have immediate access to expert knowledge of the latest applicable information. 9. The City of Clearwater wants a cooperative relationship with its actuarial firm. GRS retains its clients for a long time. We will work hard to build and maintain a cooperative and mutually respectful relationship with the City of Clearwater staff and officials. Our emphasis on respect and partnership has enabled us to retain our clients for a very long time. Both your Lead Actuaries have current client relationships for over 30 years. The City of Clearwater will be a very important client to GRS, the Fort Lauderdale office, and, in particular, to your Lead Actuaries. We are a firm you can work with. THANK YOU Thank you for the opportunity to submit this proposal. We are excited about the opportunity to serve the City of Clearwater Employees' Pension Plan. I LCI I I tF GRS Attachment number 1 Page 8 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services FIRM QUALIFICATIONS A. Indicate size of firm, organizational structure, location of management and charter authorization and licenses to do business in the State of Florida. OUR PEOPLE E We have 121 employees, including 40 credentialed actuaries and 38 actuarial analysts. All of our employees are involved in serving public sector agencies, from consultants to administrative staff. Our Employees Can Be Categorized Approximately as Follows: Pension & OPEB Consulting Practice 74 Administrative Support 15 Benefits Consulting Practice 10 Corporate Support 9 Technology Services 6 DB Administration Practice 5 IT Department 2 Total 121 HISTORY OF FIRM, STRUCTURE AND OWNERSHIP Gabriel, Roeder, Smith & Company (GRS) was incorporated in 1962 from a merger of A.G. Gabriel & Company, a sole proprietorship established in 1938, and another younger sole proprietorship, Roeder & Company. GRS is a private Michigan corporation that is 94% employee owned. Our client base is national in scope, and the firm's growth tends to be steady and constant. In 1995, GRS merged with Kruse, O'Connor & Ling-a Florida-based consulting firm with similar high standards of quality and service-expanding the scope of our services. In 2001, GRS entered into an alliance with Watson Wyatt through which both firms have agreed to explore joint consulting opportunities. As part of the alliance, GRS acquired Watson Wyatt's U.S.-based public sector retirement practice and a group of Watson Wyatt's consultants and actuaries joined GRS. Watson Wyatt retains a small equity stake in GRS as part of this alliance. GRS is headquartered in Southfield, Michigan, and maintains full-service offices in Fort Lauderdale, Chicago, Dallas, and Denver. "ern # GRS Attachment number 1 Page 9 of 81 0 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: A ORGANIZATIONAL CHART Gabriel, Roeder, Smith & Company Organizational Chart Rw.d ai lb-b .s T .-Brarmlaptr. KRa Dm*- Mam J.- Judy K? 8- Uw0w, Stove P4-q.rst, Mt Ft. d ad. gb_ M ier. l.- W ed 6.e.: Raeds._. Saah i Casyi.y ft-o 'm - B.e.a w" y YidaatRy® fu.tl. Y. RIM fa+dlu!a?Ne?m faW.BidAClicayo D.Ab ffl...Q Fat La.Adit Caryaraie S.iV?-Ad aa.. K%V R.O. ai DW-1- S11Y Rep-M Ureabr i EW SE Repo..) D_ t . COFO Judy Ks..oss M.&R-di Th-Drae b p.e Ken D-ie C-ft.g Teas I I Cwsab.g Seizes I I Ca,s.rd,a a? I I Acad. h g r HR I M LOCATION • While GRS is headquartered in Southfield, Michigan, the full-service office assigned to the City of Clearwater is located in Fort Lauderdale. Additionally, every member of the Team assigned to Clearwater also works out of the Fort Lauderdale office. Your Lead Actuaries have been serving Florida public sector clients for more than 30 years. Regardless of location, GRS actuaries and consultants make a practice of being easily and readily available to their clients. GRS' license to do business in the State of Florida is provided in Appendix A. GRS #$5 Attachment number 1 Page 10 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: B B. Describe in general your firm's national, statewide and local service capabilities to perform the required services as stated in Section B of this RFP. Gabriel, Roeder, Smith & Company as a whole, and the Team assigned to the City of Clearwater, specifically, have a great deal of experience providing the professional actuarial and consulting services described in Section B of this RFP. GRS is ready and able to perform all of these services upon contract initiation. RELEVANT PUBLIC SECTOR SERVICE CAPABILITIES GRS is our nation's largest provider of actuarial and consulting services to the public sector retirement community. We employ more actuaries who are dedicated to public sector Pension and OPEB work than any other firm. We provide actuarial and consulting services, which encourage sound financing, sensible benefit design, efficient administration, and effective communication in employee benefit plans. What makes GRS unique among actuarial consulting firms is its commitment to public employee retirement systems. . Some key characteristics of our client base offer an insightful overview of our experience: rt We provide actuarial and benefit consulting services to over 700 public and private clients; u Our client base is comprised of post-retirement benefit systems and employers at city, public authority, state, county, hospital, private-sector, and not-for-profit organizations; u Over 95% of our revenue is derived from services to the public sector; tt Our services are provided on a fee-for-service basis only. We sell no products, so our consulting is provided solely in the best interests of our clients; X1 Our services are offered through full-service offices. The local office selected for the City of Clearwater is in Fort Lauderdale; ?t We currently serve as actuary to 21 statewide retirement plans with 50,000 or more participants; tt Concurrently, we serve as valuation actuary and consultant to 30 statewide retirement plans with assets averaging $17 billion each; and u Most GRS clients have multiple retirement structures. In many cases, our clients have multiple plans because of multiple classes of employees, such as police, fire, teachers, general, and utilities. Often, different groups of employees are subject to . different pension provisions because of different collective bargaining agreements. Item GRS #? Attachment number 1 Page 11 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: B The far-ranging locations of our clients, and the long associations we have enjoyed with them, attest to the quality of our services. We have been associated with more than half of our clients for at least 10 years, many for more than 40 years, and some for 60 years. Our first client, the City of Detroit, continues to be our client today, after 70 years! Our broad experience in diverse geographical and political environments is a substantial asset to our clients. Our commitment to public employee retirement systems is highlighted by the fact that all of our actuaries have experience in benefit design, plan administration, and legislative issues-as well as valuation-related services. GRS also retains other professional staff to provide expertise and support to clients in executing the various facets of retirement plan administration. Additionally, GRS has more actuaries and consultants devoted to governmental retirement systems than any other firm in the country. Because all of our actuaries and consultants have extensive public plan experience, the back-up needed to deal with unforeseen circumstances is always available. Our employees are affiliated with numerous governmental groups, from the national Government Finance Officers Association (GFOA) and the National Association of State Retirement Administrators (NASRA) to the Florida GFOA and Florida Public Pension Trustees Association (FPPTA), and many others. GRS' long history of supporting and educating public sector professionals, governing bodies, and other stakeholders on actuarial and benefits consulting topics dates back to the 1930s, when our founders helped governments design their first defined benefit pension plans by providing consulting support, knowledge, and actuarial services. Today we support hundreds of benefit plans by providing pension, OPEB, health, retirement technology, and plan administration services. GRS Itern # Location of Clients Who Receive Services from GRS Attachment number 1 Page 12 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: B GRS continues to support the public sector, not only through its provision of services, but by dedicating its resources to the public sector benefits industry in the form of published articles, conference presentations, surveys, legislative testimony, and membership on committees of public sector organizations. We are committed to supporting your plan and participants. LOCAL AND STATEWIDE SERVICE CAPABILITIES GRS has three Teams providing consulting services to Florida public sector clients. The Fort Lauderdale Team assigned to the City of Clearwater is called FLP 1 and has approximately 12 full-time equivalent employees. Of that total, six are credentialed actuaries, including two Senior Consultants, and six are Actuarial Analysts. FLP 1 serves over 160 Florida governmental entities with Pension and OPEB actuarial advisory services. In addition to FLP1, there are two other Teams serving Florida governmental entities with Pension and OPEB actuarial advisory services. The Fort Lauderdale Teams are supported by computer professionals and administrative personnel, some located in Fort Lauderdale and some in the Michigan office. As a national firm, GRS is organized in such a manner that if one office anticipates having a temporarily full capacity of work, another office can absorb some of that work, as needed. All five GRS offices have credentialed and experienced public sector Actuaries and Analysts to • perform pension and OPEB valuations. This ensures a smooth flow of results to clients. Adding the City of Clearwater's actuarial valuations will not present any capacity issues for FLP 1. • Item GRS # Attachment number 1 Page 13 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: C C. Describe resources available to your firm such as computer capability, personnel with specialized knowledge, and expertise in the governmental field. GRS supports its consultants and analysts through various GRS actuarial and research resources. These resources help them deliver the highest quality services to clients. In addition, GRS encourages its consultants to participate in activities that support public sector benefit plans. We believe that our professional development support creates an environment for service excellence, which has resulted in GRS' low employee turnover compared to other firms. A few examples of this support are provided: GRS' Internal Software and Programming Group supports our internally written and maintained actuarial software and provides ongoing training for all actuarial employees on its use. Our consultants know that the work they produce uses methods that comply with the latest actuarial standards, methods, assumptions, and tables required for public sector work. Many of our competitors do not place emphasis on software and training for public sector plans. rt GRS' Research Group provides clients and GRS with in-depth analysis of public sector benefit plan issues covering plan design, Internal Revenue Code, and other legislative and . regulatory issues. In addition, our consultants are able to access this very valuable resource for client-specific inquiries. M Our consultants remain updated on benefit issues using our internal company portal that provides them with GRS Research group publications, benefits-related publications from external sources, and discussion boards for information sharing. u GRS supports consultants' activities as speakers, committee members, and as authors of articles for industry and public sector associations such as the National Association of Retirement Administrators (NASRA), National Council on Teacher Retirement (NCTR), National Conference of Public Employee Retirement System (NCPERS), International Foundation of Employee Benefit Plans (IFEBP), American Academy of Actuaries (AAA), and Government Finance Officers Association (GFOA). ?X GRS' Chief Actuary, Norman Jones, F.S.A., E.A., M.A.A.A., has worked with public sector retirement systems since 1964 and monitors the firm's adherence to established actuarial standards, provides oversight and interpretations for the firm's actuarial methodologies, and serves as the GRS spokesperson for the company's perspectives and positions on actuarial issues. COMPUTER & SOFTWARE RESOURCES GRS' Internal Software and Programming Group supports and updates GRS' proprietary core calculation software and supports GRS client services teams. The team consists of three full- time employees with almost 40 years of combined experience in the public pension field. Item # ?5 GRS Attachment number 1 Page 14 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services • Firm Qualifications: C Our valuation program distinguishes us from all of our competitors in that it was designed for the public sector. Many of our competitors use commercial software that, for the most part, is private-sector based. It has been our experience that private sector software does not deal well with the many complex features that are typical in governmental plans. Typically, commercial software source code can only be modified by the companies who own it-not by the firms using it. Some larger competitors, for the most part, use software that they have written. Once again, their software tends to be private-sector based and does not do well with level percent of payroll financing or contributory plans, which are fundamental to governmental plans. Actuarial Valuation Software The GRS core calculation software used for the actuarial valuation of defined benefit and hybrid pension plans and other post-employment benefit (OPEB) plans has evolved over 30 years of internal use and is a very stable platform. Because our specialty is public pension and retiree medical plans, our software is uniquely designed to handle those cases. GRS valuation software is geared to develop the most level funding possible. Our software design guarantees that the assumptions and methods used in the pension valuation are fully compatible with those used in the retiree health valuation- eliminating double handling of data. The actuarial valuation of a pension plan's provisions is usually handled by assigning values to at least five hundred standard valuation parameters. Our experience is most benefit plans have some unique features which cannot be handled by standard valuation parameters. To ensure reasonable and accurate valuation of these features, our valuation software can be customized for all pension plans. Technologically, we are distinguished from many of our competitors in that our valuation software can handle eight separate decrements corresponding to the following benefit events: normal retirement, early retirement, tt vested termination, refund of member contribution, pre-retirement death (duty and non-duty), and pre-retirement disability (duty and non-duty). GRS software handles both the inflation-based and merit-and-seniority-based elements of salary increase assumptions, which may be a function of tt age, rt service, it or both age and service. Our software automatically produces a multi-year projection. GRS has also developed unique • methods that explicitly value gain-loss analyses and decrement experience studies by source. tens 10 GRS Attachment number 1 Page 15 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: C GRS' software package allows our actuaries to examine the annual reconciliation of data with unmatched efficiency and truly understand how the liabilities of an actuarial valuation are affected by the methodologies used to set the assumptions. Our software package allows the actuary to examine the data for several parameters, giving the actuary the ability to set the assumptions based on the most appropriate methodologies for the client. A distinguishing feature of our system, which has been used to research termination and retirement assumptions for clients of all sizes, relates to the methodology of basing termination expectations on years of retirement eligibility, instead of solely on age. The results of our research are being utilized in the valuations for GRS clients today. The process was specifically created by our flexible software. Unlike many of our competitors, we can develop innovative valuation techniques needed by public sector plans, such as this feature, because we own our software. GOVERNMENTAL EXPERTISE RESOURCES GRS utilizes its Research Group, led by Paul Zorn, GRS Director of Governmental Research, for expertise on plan design, federal and state legislation, accounting rules and other regulatory issues. In addition to internal research, GRS subscribes to legal and regulatory research from a • variety of external sources, including: u Commerce Clearing House Pension Plan Guide On-Line - Provides instant access to the most current IRS provisions related to employee benefits, updated daily by the staff of Commerce Clearing House. This package of services includes daily notices of changes or additions to IRS documents, current text of relevant federal benefit laws and regulations and detailed explanations by attorneys and other knowledgeable benefit professionals of how federal laws affect benefit practice. • Research Institute of America's Checkpoint Database - Provides instant access to detailed information about the federal laws and regulations governing pension and benefit plans, including published private letter rulings and all federal court cases related to employee benefits. In addition, Checkpoint provides access to all of the GASB's statements, guidelines, and pronouncements. Bureau of National Affairs Pension & Benefits Reporter - Provides on-line access to current (as well as previous) issues of the premier journal covering retirement and benefits news across the U.S. "C'I'D C IP Attachment number 1 Page 16 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: D D. Describe your firm's experience in serving as an actuary and consultant to local governmental units including your most recent clients within the State of Florida, including the names, addresses, and phone numbers of contact persons; briefly describe the services performed for these clients. THE GRS TEAM FOR THE CITY OF CLEARWATER J. Stephen Palmquist will serve as Lead Consultant and Actuary to the City of Clearwater Employees' Pension Plan. Mr. Palmquist has over 35 years of pension benefit consulting experience for Florida public pension retirement systems. He has more experience over more years with more plans throughout Florida than any other Actuary. His responsibilities have included valuations for funding and accounting purposes, cost analyses of proposed plan changes, experience studies, and City Commission and Board presentations. Mr. Palmquist has served as the actuarial advisor to pension boards of large, small, and mid-size cities, utilities, and other governmental entities. He currently serves as a Team Leader in the Fort Lauderdale office. We are confident that when Mr. Palmquist's experience and knowledge regarding pension consulting for governmental plans is compared with that of actuaries from competing firms, he will clearly be deemed the most qualified to provide the City of Clearwater with pension consulting services. 0 James J. Rizzo will serve as the Lead Consulting Actuary assigned to the City of Clearwater's other post-employment benefits plan (OPEB). He will also serve as Peer Review Actuary for the City's Employees' Pension Plan. Mr. Rizzo serves on various national committees, including as an advisor to GASB itself. Mr. Rizzo has over 30 years of experience in all aspects of public and private sector pension, health, and OPEB plan operations, including consulting to pension boards, cities, counties, school districts, hospitals, and utilities throughout Florida-and one statewide plan outside Florida. His expertise extends beyond the basic actuarial valuation of pension, health, and OPEB plans to consulting, assistance with collective bargaining issues, long-range planning, actuarial implications of investment decisions, and pension and OPEB cost- containment strategies. Mr. Rizzo has a national reputation as an OPEB expert, writing and speaking on the topic for various state and national organizations. We are confident that when Mr. Rizzo's experience and knowledge regarding pension / OPEB consulting for governmental plans is compared with that of actuaries from competing firms, he will clearly be deemed the most qualified to provide the City of Clearwater with OPEB consulting services. Duane Howison will serve as Managing Actuary to the City's Pension Plan and will be directly involved in the preparation of your valuations and actuarial impact statements. He is also assigned as Peer Review Actuary for the City's other post-employment benefits plan, a capacity in which he has served your assigned Team for nearly two years. Duane has over 15 years of experience in actuarial, administrative, and consulting services for employee retirement systems and post- retirement health care plans. • GRS #1L Attachment number 1 Page 17 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: D Piotr Krekora is an Actuary who is involved in the preparation of actuarial valuations, OPEB studies, cost analyses of proposed plan changes, population projection, asset simulations and cash flow studies, present value calculations, retirement benefit calculations, and annual benefit statements for system members. As such, he will serve as Managing Actuary for the City of Clearwater's other post-employment benefits plan. Trisha Amrose and Emma Shi will serve as Actuarial Analysts to the City. Every member of the City of Clearwater Team is located in GRS' Fort Lauderdale office. Virtually all of our professional staff has in-depth experience with public employee retirement plans. We believe our knowledgeable, responsive approach permits us to offer the highest level of prompt, informed service and personnel back-up. Our consultants routinely communicate with Retirement Boards and staff in the normal course of providing services. Such communications occur as a result of meetings, phone calls, email, and letter communications between the City and GRS. In addition, client needs are communicated seamlessly within GRS, since we provide services using a team-based approach. Team members keep each other, their Team Leader, and their Regional Director apprised of client needs and satisfaction levels. Using these methods, we are • able to ensure our clients remain satisfied. We find that these methods produce timely solutions to client needs. REFERENCES We provide actuarial and benefit consulting services to over 700 public and private clients in about 30 states. The GRS client base spans the broad universe of public employee retirement systems. Unlike other actuarial firms, GRS is committed to the public plan market. Actuarial and consulting services for public plans have been our specialty since we were founded in 1938. Our clients continue to select GRS because of our commitment and delivery of the highest level of quality services to our public plan clients. GRS also does more governmental pension actuarial work nationally (and more in Florida) than any other firm. Appendices B and C include a partial listing of the public pension clients and a complete list of OPEB clients served from our Fort Lauderdale office by your Team. We are providing the name, title, address, and telephone number for our contact person for five clients, similar in scope and size to the City of Clearwater, recently served out of our Fort Lauderdale office by members of the Team assigned to the City. We would be pleased to provide • contact information for additional clients, at your request. ten 1 -9 - T1 31 GRS Attachment number 1 Page 18 of 81 r1 U City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: D Miami Beach Employees Retirement System Contact: Mr. Rick Rivera, Pension Administrator Address: 1700 Convention Center Drive Miami Beach, FL 33139 Phone Number: (305) 673-7437 Services Performed: M Annual Actuarial Valuations >I Actuarial Studies rz General Consulting Plantation General Employees Retirement Fund and OPEB C] Contact: Ms. Beth Haines, Pension Administrator Address: 400 Northwest 73rd Avenue Plantation, FL 33317 Phone Number: (954) 797-2298 Services Performed: >I Annual Pension Actuarial Valuations TI OPEB Actuarial Valuations M Actuarial Studies rl Retirement Benefit Calculations M Annual Employee Benefit Statements rX Service Buy Back Calculations M General Consulting City of Orlando General Employees Pension Plan and OPEB Current Contact: Mr. Christopher McCullion, City Treasurer Address: 400 S. Orange Avenue Orlando, FL Phone Number: (407) 246-2121 Or Previous Contact: [Mickey Miller, now with City of Jacksonville, (904) 630-0656] Services Performed: tl Annual Pension Actuarial Valuations • OPEB Actuarial Valuations • Actuarial Studies • General Consulting n U GRS V Attachment number 1 Page 19 of 81 17-? City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: D City of Miami OPEB Contact: Mr. Larry Spring, Chief Financial Officer Address: 444 S.W. 2nd Avenue Miami, FL 33130-1010 Phone Number: (305) 416-1011 Services Performed: M OPEB Actuarial Valuations n Actuarial Studies u General Consulting M Health Benefits Consulting City of Sarasota General Employees Pension Plan • • Contacts: Ms. Benita Saldutti and Mr. Chris Lyons Address: 111 South Orange Avenue, Room 204 Sarasota, FL 34230 Phone Number: (941) 954-4185 Services Performed: ?t Annual Pension Actuarial Valuations rt OPEB Actuarial Valuations u Actuarial Studies M Annual Employee Benefit Statements u General Consulting GRS I P Attachment number 1 Page 20 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: E E. Describe your firm's experience specific to health & welfare actuarial valuations related to other post-employment benefits. Other Post Employment Benefits (OPEB), particularly retiree medical benefits, have gained a lot of attention lately among employers, labor, retirees, accountants, actuaries and investment vendors, government legislators and regulators at all levels and, of course, the media. There are several factors that have contributed to this newfound interest in OPEB. 1. The ever-increasing cost of medical coverage in general. 2. The increasing number of retirees (with their higher costs) covered by employer- sponsored medical plans. 3. A new awareness of the long-term liability (and its magnitude) associated with the promise of retiree medical coverage. 4. In June 2004, a new accounting standard was adopted by the Governmental Accounting Standards Board (GASB), requiring the recognition and disclosure of long-term costs for OPEB on the financial statements of governmental employers. • 5. An interest by collective bargaining representatives, legislators, investment vendors, and consultants for the advance-funding of retiree medical benefits to mitigate the long-term costs and give employees and retirees some level of security that the funds will indeed be there to pay for the benefits. Even if it is just the "implicit subsidy," it is very important for the City of Clearwater to understand the nature of the promise it has made to its retirees and active employees. Only with useful information about the long-term costs can employers manage their programs adequately. GRS OPEB RESOURCES GRS has developed resources and services to respond to health care plan sponsors' needs in the areas of GASB No. 43 and No. 45 compliance, OPEB funding, health care cost management, and benefit design. rt GRS has health care actuaries, health care actuarial analysts, and health care consultants who analyze OPEB benefits promised, health care claims experience, and health care trend assumptions. This in-depth analysis provides the premium rates used in the valuation. Rates are critical components in projecting OPEB liabilities. Our expertise in this area ensures that premium rates and the underlying health care assumptions are reasonable. GRS has actuaries and consultants with an average of 20 years of experience developing • long-term actuarial projections. They are experts in analyzing eligibility requirements, pre-funding arrangements, cost-sharing arrangements, and actuarial assumptions, which GRS T1 61 Attachment number 1 Page 21 of 81 r? LJ City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: E impact the direction and size of actuarial liabilities, the Annual Required Contribution (ARC), and Net OPEB Obligation. rt GRS has a peer review process for its OPEB valuations. This ensures that our work meets actuarial standards of practice and professionalism. • GRS has a research group that focuses on benefits research for the public sector. • Several persons on our staff have participated in the Governmental Accounting Standards Board's (GASB) OPEB-related work. n GRS has a group of actuaries dedicated to analyzing OPEB implementation and technical issues. GRS can offer clients a web-based OPEB valuation process. This is a premium service option for public sector clients with multiple employers, benefit tiers, and employee groups. GRS has a health care consulting practice comprised of actuaries and consultants. We specialize in data and financial analysis to assist plan sponsors in the management of their health programs. GRS' health care consulting service areas include Plan Design, Financial Analysis, and Vendor Management. • We are currently engaged by well over 100 governmental clients in Florida for pension work and over 100 for OPEB work. So no guesswork will be involved when GRS benchmarks Clearwater benefits, costs, and liabilities against those of a number of other comparable Florida cities. GRS offers decades of experience in actuarial projections of the costs and liabilities of pension and OPEB plans for public sector employers. We see it all. The City of Clearwater will have access to detailed and high-level comparative information for benchmarking. • GRS serves more pension and OPEB plans in Florida than any other firm. We have the largest public sector actuarial practice nationally, as well. This client base gives us access to all trends and movements in the industry, particularly in Florida. GRS 9 Attachment number 1 Page 22 of 81 • • • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: F F. Indicate whether your firm qualifies as an "Enrolled Actuary" as defined in Chapter 60T-1.002(6) of the Florida Administrative Guide. Your two Lead Actuaries, Steve Palmquist and Jim Rizzo, and your Managing Actuary (for Pension), Duane Howison, are all Enrolled Actuaries under ERISA. GRS '1S Attachment number 1 Page 23 of 81 • • • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Firm Qualifications: G G. Please provide information on litigation your firm has been a party to during the past three (3) years GRS is not currently involved in any lawsuits and has had no lawsuits filed against it during the past three years. GRS 10 Attachment number 1 Page 24 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services • FAMILIARITY WITH GASB STATEMENT REQUIREMENTS Please indicate your familiarity with GASB Statement reporting and disclosure requirements relating to pension plans and other post-employment benefits by providing a brief summary of current and proposed requirements and your experience in providing required disclosures. CURRENT REQUIREMENTS Actuarial valuations must be performed to determine the cost and liabilities of the pension funding obligation. The Annual Required Contribution is determined and used to calculate the Annual Pension (or OPEB) Cost. This is the expense charged to the books of the employer and offset by the Employer Contribution (Pension or OPEB), resulting in the Net Pension (or OPEB) Obligation, which appears on the employer's Statement of Net Assets. The Actuarial Accrued Liability, Funded Ratio, and other disclosures are included in the Notes to Financial Statements and the Required Supplementary Information (RSI). PROPOSED REQUIREMENTS Exposure Draft-GASB has issued an Exposure Draft titled, "OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans." This exposure draft extends the headcount test down to the individual employer in certain circumstances. While it does not affect many, if any at all, employers in Florida, it is a welcome proposal for other situations. It addresses employers which participate in an Agent Multiple Employer OPEB Plan. The frequency of fully compliant valuations for these employers had originally been tied to the number of plan members in the Agent Plan, as a whole. This Exposure Draft proposes to permit the headcount rules for determining the frequency to be based upon the headcount of the individual employer. Invitation To Comment-This document was not actually a proposal. However, it was a critical part of GASB's current agenda project on accounting for Post-Employment Benefits (Pensions and OPEBs). It described various controversial issues relating to accounting and financial reporting for Pensions and presented various pros and cons on each issue; then it asked readers nine broad questions to give us an opportunity to comment and make our arguments. The three most important issues were (a) whether the proper measure of the pension obligation should be based on the pattern of benefits accruing in exchange for the employee's service or the pattern of funding requirements demanded by the pension fund, (b) whether this pension obligation satisfies the definition of a liability (per GASB Concept 4) for inclusion on the Statement of Net Assets as the full amount of the liability or just the annual shortfall in contributions, and (c) what discount rate and actuarial cost methods should be used to measure the pension obligation. For more information on GRS' understanding and response to this Invitation, please see Appendix G. GRS Attachment number 1 Page 25 of 81 r? U City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Familiarity with GASB Statement Requirements EXPERIENCE IN PROVIDING REQUIRED DISCLOSURES GRS has been providing pension recognition and disclosure information pursuant to GASB Statement Nos. 5/25/27/43/45/47/50 for many years. Mr. Rizzo, your Lead OPEB Actuary (and Peer Review and Backup Pension Actuary), has been very actively involved in the development and usage of GASB standards for OPEB: OPEB u Worked on American Academy of Actuaries (AAA) committees to respond to GASB 43/45 Exposure Drafts u Assisted GASB staff in developing Statements No. 43 and 45 Member of GASB Advisory Committee for drafting the first Implementation Guide for Statements No. 43 and 45 Numerous speaking engagements for national and Florida GFOA, national AICPA, FICPA, and various other national and state organizations u Wrote articles for Florida GFOA newsletter Pension Member of GASB Advisory Committee for Pension research project, culminating in the Post-Employment Benefits Project currently on GASB's Agenda Authored a Five-Part Series of Papers (with two colleagues) for the Society of Actuaries Pension Finance Symposium (May 2009) on measurement methods for Pension and OPEB costs and liabilities for various purposes, including financial reporting u Assisted in drafting responses to GASB's Invitation to Comment (on Post-Employment Benefits) on behalf of five different groups: the American Academy of Actuaries, national GFOA, Florida GFOA, 43 practicing public sector actuaries (comment letter), and GRS u Testified at GASB Hearing (August 2009) in Norwalk, Connecticut, on the Invitation to Comment n Testified at GASB Hearing (November 2006) on the Exposure Draft of what became Concept Statement 4 u Wrote article for national Government Finance Review magazine (published August 2009) • GRS ? Attachment number 1 Page 26 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services 0 QUALIFICATIONS OF PERSONNEL TO BE ASSIGNED Provide resumes of the personnel who would be directly involved in performing actuarial and consulting services for the City, including but not limited to: (i) Formal and supplemental education; (ii) Experience in performing pension and health & welfare actuarial services and consultation regarding employee benefit programs including governmental client names where possible; (iii) Knowledge of State of Florida regulatory requirements applying to municipal pension plans; (iv) Experience, if any, in performing valuations in compliance with GASB Statements. (v) Memberships in professional organizations; and (vi) Professional recognition and awards. THE GRS TEAM FOR THE CITY OF CLEARWATER J. Stephen Palmquist will serve as Lead Consultant and Actuary to the City of Clearwater Employees' Pension Plan. Mr. Palmquist is an Associate of the Society of Actuaries (ASA), a . Member of the American Academy of Actuaries (MAAA), a Fellow of the Conference of Consulting Actuaries (FCA), and an Enrolled Actuary under ERISA (EA). James J. Rizzo will serve as the Lead Consulting Actuary assigned to the City of Clearwater's other post-employment benefits plan (OPEB). He will also serve as Peer Review Actuary for the City's Employees' Pension Plan. Mr. Rizzo is an Associate of the Society of Actuaries (ASA) and Member of its Investment, Pension, and Health sections; a Member of the American Academy of Actuaries (MAAA); an Enrolled Actuary under ERISA (EA); a fellow of the Conference of Consulting Actuaries (FCA); and a Member of the Florida Government Finance Officers Association. Duane Howison will serve as Managing Actuary to the City's Pension Plan and will be directly involved in the preparation of your valuations and actuarial impact statements. He is also assigned as Peer Review Actuary for the City's other post-employment benefits plan. Duane is a Fellow of the Society of Actuaries (FSA) and an Enrolled Actuary under ERISA (EA). Piotr Krekora will serve as Managing Actuary for the City of Clearwater's other post- employment benefits plan. Mr. Krekora is an Associate of the Society of Actuaries (ASA) and holds a Ph.D. in theoretical and computational physics. E ?? ... Z GRS Attachment number 1 Page 27 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned Trisha Amrose will serve as the primary Actuarial Analyst to the City's Pension Plan. She has over nine years of professional actuarial experience. Trisha will be directly involved in the preparation of your valuation, benefit statements, and benefit calculations. Ms. Amrose received her Bachelor of Science degree in mathematics from the State University of New York at Stony Brook. She is currently pursuing designation from the Society of Actuaries. Emma Shi will serve as the primary Actuarial Analyst to the City's other post-employment benefits plan. She is involved in the preparation of actuarial valuations, OPEB studies, cost analyses of proposed plan changes, present value calculations, retirement benefit calculations, and annual benefit statements for system members. Emma has one year of experience working with public sector plans. Ms. Shi received her Bachelor of Science degree in management from Beijing Institute of Technology, China, and a Master of Science degree in mathematics from Illinois State University. She is currently pursuing designation from the Society of Actuaries, soon to attain her actuarial credentials. Each of these professionals is a highly qualified actuarial technician. What sets them apart, however, is that they are also high quality consultants who are sensitive enough to listen, experienced enough to provide real alternatives, and articulate enough to make themselves understood by any audience on any topic in the retirement area-from actuarial concepts to benefit administration. • Resumes including all required information follow. GRS ?3 Attachment number 1 Page 28 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned J. STEPHEN PALMQUIST Steve Palmquist, Senior Consultant and Actuary, joined the firm in 1973. He was a Principal and Vice President of Kruse, O'Connor & Ling before its merger with GRS. Prior to that, he was a member of the pension department of a major insurance company. His GRS team is responsible for delivering quality actuarial services to over 60 public retirement systems. EXPERIENCE Steve has over 35 years of experience in the actuarial profession. He provides actuarial, administrative, and consulting services to municipal retirement systems, where he offers a high level of expertise. PROFESSIONAL ASSOCIATIONS Steve is an Associate of the Society of Actuaries (ASA), a Member of the American Academy of Actuaries (MAAA), a Fellow of the Conference of Consulting Actuaries (FCA), and an Enrolled Actuary under ERISA (EA). PROFESSIONAL ACTIVITIES Steve has been a speaker at programs, schools, and seminars sponsored by the Florida Public Pension Trustees Association, the Florida Institute of CPAs, and the Florida Division of Retirement. EDUCATION • Steve holds a Bachelor's degree in mathematics, with a minor in statistics, from Florida State University. GRS Attachment number 1 Page 29 of 81 0 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned JAMES J. RIZZO James J. Rizzo joined Gabriel, Roeder, Smith & Company in 1995 as a Senior Consultant and Actuary. Prior to joining GRS, he was a Principal and Vice President of Kruse, O'Connor & Ling. EXPERIENCE Mr. Rizzo has over 30 years of experience in all aspects of public and private sector pension, health, and OPEB plan operations. Mr. Rizzo's expertise extends beyond the basic actuarial valuation of pension, health, and OPEB plans to consulting, long-range planning, and actuarial implications of investment decisions. Mr. Rizzo has a national reputation in the field of GASB 43/45 and Other Post-Employment Benefit Plans sponsored by public sector employers. PROFESSIONAL ASSOCIATIONS He is an Associate of the Society of Actuaries (ASA) and Member of its Investment, Pension, and Health sections; a Member of the American Academy of Actuaries (MAAA); an Enrolled Actuary under ERISA (EA); a Fellow in the Conference of Consulting Actuaries (FCA); and a Member of the Florida Government Finance Officers Association. PROFESSIONAL ACTIVITIES Mr. Rizzo has authored articles, delivered addresses, and conducted seminars for the National Enrolled Actuaries Meeting; national Government Finance Officers Association; Society of Actuaries; Florida Government Finance Officers Association; and other state and local trade associations. He serves on Committees of the Florida Government Finance Officers Association and served on the Response Committee for the American Academy of Actuaries' response to the GASB Exposure Draft on accounting for Other Post-Employment Benefits (OPEB), which became GASB Statements No. 43 and 45. Most important to this engagement, he served on the GASB's Advisory Committee for the Implementation Guide for Statements No. 43 and 45. EDUCATION Jim holds a Bachelor of Arts (with honors) degree in mathematics from the University of South Florida and completed actuarial course studies at Georgia State University. GRS Attachment number 1 Page 30 of 81 • • • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned DUANE HOWISON Duane Howison is a Consultant with Gabriel, Roeder, Smith & Company. Prior to joining GRS, he worked for two other major employee benefits consulting firms in Dallas and St. Louis. EXPERIENCE Mr. Howison has over 15 years of experience including actuarial, administrative, and consulting services for public and private employee retirement systems. During his career he has handled a wide variety of consulting assignments, including actuarial valuations, plan design studies, plan terminations, experience studies, early retirement windows, and cash flow projections. For the last two years, Mr. Howison has served as Peer Review for all the OPEB Valuations of Mr. Rizzo's Team. He has provided valuable insight and assistance in producing Actuarial Valuation Reports and consulting services featuring high quality and high client-usefulness. Duane has two years' experience with governmental pension and OPEB plans, including the cities of Sarasota, Marco Island, and West Melbourne, along with numerous Florida school districts. Through this work, he has developed extensive knowledge of Chapters 112, 175, and 185 under the Florida Statutes. His experience includes performing valuations in compliance with GASB 25, 27, and 45. PROFESSIONAL ASSOCIATIONS Duane is an Enrolled Actuary per ERISA (EA) and a Fellow of the Society of Actuaries (FSA). EDUCATION Duane holds a Bachelor of Arts degree in accounting from Ohio Wesleyan University. GRS G Attachment number 1 Page 31 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned PIOTR KREKORA Piotr Krekora joined Gabriel, Roeder, Smith & Company in 2005. Piotr holds a Ph.D. in theoretical and computational physics, with which he taught university-level physics for several years. With a career change behind him, he has become an Associate of the Society of Actuaries. EXPERIENCE Piotr is involved in the preparation of actuarial pension and OPEB valuations, pension and OPEB studies, cost analyses of proposed plan changes, population projections, asset simulation and cash flow studies, present value calculations, retirement benefit calculations, and annual benefit statements for system members. His public sector experience involves many municipalities, including Bal Harbour Village; the cities of Sarasota, Miami, and Cape Coral; and other governmental entities. Through this work, he has developed a working knowledge of Chapters 40 112, 175, and 185 under the Florida Statutes. His experience includes performing valuations in compliance with GASB 25, 27 and 45. PROFESSIONAL ASSOCIATIONS • Piotr is an Associate of the Society of Actuaries (ASA) and a Member of the American Academy of Actuaries (MAAA). With Mr. Rizzo, he co-authored a series of scientific papers for the Society of Actuaries under a common title: Revisiting Pension Actuarial Science. EDUCATION Piotr holds an earned Ph.D. in physics from the Polish Academy of Sciences and served as a research scientist at two American universities. While employed at Illinois State University, he attended several courses offered by its Actuarial Program. GRS 9 Attachment number 1 Page 32 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned TRISHA AMROSE Trisha Amrose is a Senior Analyst with Gabriel, Roeder, Smith & Company. She has nine years of actuarial experience. Her public sector experience involves multiple local public plan retirement systems including the Pension Boards for the cities of Fort Lauderdale, Lakeland, and Kissimmee. EXPERIENCE She is involved in the preparation of actuarial valuations (including GASB reporting), experience studies, health care valuations, cost analysis of proposed plan changes, present value calculations, retirement benefit calculations, and annual benefit statements for system members. Her expertise extends to buy-back calculations, DROP accounting, and preparation of Summary Plan Descriptions. She is also responsible for checking the work prepared by the analysts before • review by the actuaries. Trisha has knowledge of Florida Statutes, including Chapters 175 and 185, as they apply to municipal pension plans. Her experience includes performing pension valuations in compliance with GASB Statements 25 and 27 and health & welfare valuations in compliance with GASB Statements 43 and 45. PROFESSIONAL ASSOCIATIONS Trisha is currently working toward associateship in the Society of Actuaries. She has completed several actuarial exams: SOA Exam P and Enrolled Actuaries Exam EA-2B. EDUCATION Trisha holds a Bachelor of Science degree in mathematics from the State University of New York at Stony Brook. She has continued her actuarial education through audiocasts and webcasts • given by the Conference of Consulting Actuaries and the American Academy of Actuaries. Item -9 72 8? GRS Attachment number 1 Page 33 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Qualifications of Personnel to be Assigned EMMA SHI Emma Shi joined Gabriel, Roeder, Smith & Company in 2008 as an Analyst. She has more than one (1) year of experience working with both public and private sector pension and OPEB plans. Her experience also includes work for another national actuarial firm in its health care division. EXPERIENCE Emma has more than one (1) year of experience with governmental OPEB plans, including the City of Sarasota, School District of Lake County, and Marion County. She is involved in the preparation of employee and retiree data, running the actuarial modeling software, actuarial valuations, OPEB studies, cost analyses of proposed plan changes, present value calculations, retirement benefit calculations, and annual benefit statements for system members. • As an actuarial analyst, Emma performs actuarial valuations of Other Post Employment Benefits in compliance with GASB 45 for governmental clients, conducts data analysis regarding health care provided to retiring governmental employees, and calculates benefits for retiring and terminating members, as well as the present value of those benefits. PROFESSIONAL ASSOCIATIONS E Emma is currently working toward associateship in the Society of Actuaries. She has completed six Society of Actuaries' exams: Exam P/1, Exam FM/2, Exam MLC, MFE, Exam C/4, and FAP 1. EDUCATION Emma holds a Bachelor of Science degree in management from Beijing Institute of Technology, China, and a Master of Science degree in mathematics from The Illinois State University. GRS Attachment number 1 Page 34 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services • COSTS TO PROVIDE THE VARIOUS SERVICES A. Provide full information on the cost for each of the required services identified in Section B of the RFP including whether the fee is on a project basis or hourly basis, the estimated number of hours and total cost, and any other costs which would be reasonable expected to be incurred as a result of the performance of the service. If applicable, please provide any project or hourly cost increases for years two thru five of the anticipated five year contract. Costs should be quoted on each service as follows: it Annual Pension Actuarial Review (project basis) Annual and / or Biennial Health & Welfare Actuarial Review-OPEB (project basis) i1 Annual Employee Benefit Statements (project basis) Advise to City Staff on Tax and Plan Issues (hourly basis) Actuarial Reviews Pension and Health & Welfare (1) The valuations must be performed in accordance with accepted actuarial principles including the use of appropriate actuarial assumptions. The financial information produced must be in accordance with generally accepted accounting principles, including full compliance with is Governmental Accounting Standards Board (GASB) statements. The actuarial reports must provide sufficient information to enable the City to make all financial statement note disclosures required by applicable GASB statements. (2) The techniques and assumptions used and the content of the reports issued must conform to the requirements of all applicable laws and rules including Florida Statutes and Chapter 60 of the Florida Administrative Code, and the fee quoted is to include responses by the actuary to inquiries of the State Board of Administration as necessary. (3) Pension and Health & Welfare (OPEB) actuarial studies must be completed on a timely basis in order to meet fiscal year financial reporting requirements, no later than December Isr annually. Please recommend a strategy to implement biennial OPEB liability calculations if appropriate to minimize fees. ANNUAL PENSION ACTUARIAL REVIEW The preparation of annual Actuarial Valuation Reports is one of the main services requested in the RFP. Our annual Service Plan is described in the table below. The first year might vary from this schedule. Please see Appendix D for a copy of a Sample Actuarial Valuation Report for a Pension Plan. GRS Attachment number 1 Page 35 of 81 • • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services ACTIVITY TASKS PHASE 1: Gather and Send out data request for January 1, 2010. Edit Data City of Clearwater submits data. Analyze data and provide City of Clearwater staff with data questions. City of Clearwater responds with answers to data questions. Prepare final census database. Analyze demographics and salary trends. Produce statistical tables. PHASE 2: Analyze legislative changes. Incorporate Benefit Incorporate changes into valuation procedures and programs. and/or Assumption Evaluate actuarial assumptions and methods for use in current valuation. Changes PHASE 3: Calculate Value current-year census data based on prior-year assumptions and Plan(s) Actuarial Liabilities provisions. Analyze liability gains and losses. Revise programs for assumption changes and value liabilities on new assumption basis, if applicable. Measure impact of assumption changes, if applicable. Review programs for changes in plan(s) provisions and value liabilities on new plan(s) basis, if applicable. Measure impact of changes in plan(s) provisions. PHASE 4: Determine City of Clearwater sends financial report. Valuation Assets Determine market value. Analyze change in assets. Calculate market value investment return. Calculate actuarial value of assets. Calculate actuarial value investment return. Determine asset gain (loss). PHASE 5: Prepare Import liability based on actuarial information into financing worksheets. Cost Summaries Input asset values into financing worksheets. Develop cost calculations and summary tables. Determine actuarial gain or loss. PHASE 6: Analyze Review of cost calculations performed by support actuaries and peer review actuary. and Review Results Provide liabilities, assets and summary tables for review b City of Clearwater. PHASE 7: Prepare Peer-review by the Lead Actuary for quality assurance and additional insights. Actuarial Valuation Review preliminary results with City of Clearwater staff. Report Finalize actuarial and statistical tables. Draft discussion sections. PHASE 8: Present the Forward draft report to City of Clearwater staff. Actuarial Valuation Produce final report. Report Present repo rt to City of Clearwater staff/Boards. Typical turnaround time for an actuarial valuation is four (4) to eight (8) weeks upon receipt of complete and accurate asset information and census data. GRS P Attachment number 1 Page 36 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services Each actuarial valuation report will contain, but not be limited to: n An executive summary of the highlights of the report; rt A discussion of the ability of the required contribution rate to support the current benefits of the system; rl Plan assets, liabilities, and value of benefits; rX Tables and schedules required for compliance with Governmental Accounting Standards Board Statements No. 25 and No. 27 (and any successor GASB requirements); M Clear explanations of the actuarial assumptions and cost methods; rX Displays showing the age groups and service matrices for active members, and age groups and types of benefits for retired members; and rt A clear summary of the plan. Of course, all of our work will be conducted in accordance with generally accepted actuarial procedures, as promulgated by the Actuarial Standards Board. BIENNIAL OPEB ACTUARIAL VALUATIONS We propose biennial OPEB liability calculations at a significant savings to the City of Clearwater. The fully compliant Actuarial Valuation applies to the next fiscal reporting year end. The following fiscal reporting year is the "off-year." Another fully compliant Actuarial Valuation is not required. However, the same numbers cannot simply be reproduced for the off-year. A "roll-forward Valuation" is required for the off-year. In a roll-forward Valuation, we use the basic results of the previous fully compliant Valuation and make various adjustments to apply the results to the next following fiscal year, the off-year. This is permitted as long as there are not any "significant changes" (as described in Paragraph 12 of GASB Statement No. 45) between the valuation date and the reporting year end. In the event that "significant changes" occur, usually we can merely redo the previous fully compliant Valuation, recognizing the changes, and make the various adjustments necessary to apply to the off-year end. This would qualify as a "new valuation," as Paragraph 12 would require. A simple Letter Report would suffice to communicate the results of a roll-forward Valuation. Other times, we might actually need to perform another fully compliant Valuation. If a fully compliant valuation were requested by the City of Clearwater in an intermediate year, the cost would be developed by increasing the previous fully compliant Valuation Report fee for inflation. Having completed hundreds of OPEB actuarial valuations under GASB 43/45, we have a well-established plan for the process. GRS Attachment number 1 Page 37 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services Prior to completing Step 1, the process starts with a detailed telephone conference including representative(s) from Benefits, Financial Reporting, and possibly from IT, which results in a detailed data request letter to the client. We then draft a Summary of Substantive Plan Provisions, which is reviewed by the client with sign-off. ACTIVITY TASKS STEP 1: Draft and Send out data request for documentation describing all benefits provided. Approve Substantive City of Clearwater submits data. Plan Provisions Identify employer-provided other post-employment benefits and their eligibilities and conditions. Draft a written version of the substantive plan. City of Clearwater signs off on substantive plan. STEP 2: Collect Prepare complete and detailed Data Request Letter, including templates for use in Employee and Retiree the City's collection of census data. Census Data City of Clearwater requests census date from Pension Plans and from insurance company(ies). City of Clearwater screens and reviews the data obtained, forwards to GRS and certifies completeness and accuracy. STEP 3: Collect Request loss ratios, renewal reports, experience ratings, worksheets, rate charts, etc., Benefit Plan Data from respective insurance companies. STEP 4: Develop Develop initial per capita costs for the benefit types. Initial Per Capita Costs Convert initial composite per capita costs to a table of age-sex specific initial per ca ita costs for each benefit type. STEP 5: Calculate All Project future years' expected costs for all those currently covered based on health Projected Benefits and care trend assumptions for each benefit type. Present Values Set up long-term actuarial modeling system. Advise City of Clearwater staff concerning assumptions and methods. Calculate actuarial present values of expected benefits payable. City of Clearwater adopts chosen assumptions and methods. STEP 6: Calculate Calculate expense and liability disclosures under a few relevant cost methods. Expense and Liabilities Discuss (with City of Clearwater) client objectives for final selection of actuarial cost method. STEP 7: Prepare a Draft report and submit to City of Clearwater for initial review and comments. Draft Report Telephone conference with City staff to review report before final. STEP 8: Finalize Produce final report. Report Present repo rt to City of Clearwater staff/Boards, as necessary. The completion of Steps 1, 2, 3, and 7 depends on the response time and scheduling of the City and its vendors. The City will be required to collect data from various sources, such as pension boards and insurance vendors. This process usually takes our clients between two (2) and ten (10) weeks. However, we anticipate that Steps 4, 5, 6, and 7 (which are generally under our control) would be completed within four (4) to six (6) weeks of the time we have all the data collected and verified for completeness and accuracy. A final report will follow a few days after the City agrees to the draft report and any changes requested. This Proposal is contingent on receiving complete and accurate data in the format requested. 0 A sample OPEB Actuarial Valuation Report is provided in Appendix E. GRS item Attachment number 1 Page 38 of 81 • City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services Employee Benefit Statements Individual employee benefit statements will be prepared and delivered to the Cityfor distribution to employees. The benefit statements will include such information as projected plan benefits, employee contributions, accrued plan benefits, date of 100% vesting, etc. The statements will be delivered to the City annually by July I't for distribution to employees. ANNUAL EMPLOYEE BENEFIT STATEMENTS Our standard employee benefit statements include: n A summary of all relevant data, n Accrued and projected benefits, it Vested status, and tt Accrued contributions. The statements can also be modified to address any special situation that may arise. Additionally, we include a detailed listing summarizing the information on the employee benefit statements for your records. A sample Employee Benefit Statement is provided in Appendix F. Advice to City Staff on Tax and Plan Issues The firm will be available to advise City staff on issues pertaining to tax and plan considerations such as plan design, estimated funding requirements of various alternative plan designs, and detailed actuarial reports and impact statements related to the Employees' Pension Plan. Recognizing that service providers and clients have an on going need for communications, the service provider will advise the City, in advance, when discussions are such that a billing will occur. Fees will typically be based on a fee per hour, however, for large projects a project fee will be negotiated. ADVICE TO CITY STAFF ON TAX AND PLAN ISSUES Routine consulting includes, but is not limited to, the following items: rt Response to the auditor's confirmation request and coordination with other service providers, tt Technical advice and consultation, rt Keeping the City informed of the effects of technical changes, u Conversations on pending or anticipated issues that may affect your plan, or it Other services that do not result in a work assignment. GRS Attachment number 1 Page 39 of 81 LJ City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services APPROACH 1. Our approach to providing general services is: A service is requested by phone, letter, or at a meeting. tt A discussion with the appropriate party results in authorization of the work, followed by direction on prioritizing the request among other current requests of the City. u The request is assigned to one or more persons at GRS. M The project is completed and reviewed by a GRS Senior Consultant. u The finished product is provided to the requestor. 2. GRS has strict quality control procedures to ensure that our clients receive reports and advice which is reliable. All actuarial valuation reports and studies must have a doer, a checker, a reviewing Actuary, and a Peer Review Actuary-and must have detailed checklists completed. Other services, such has benefit calculations or verifications, also have such procedures. This gives our clients a high level of confidence in the final work product. 3. Recommendations for changes in benefit design, administrative policy, or retirement law may originate a number of ways: ?X We are asked to comment on specific issues that have come up at a meeting of the Board of Trustees or are the result of the City's staff research. u We periodically review the benefit structure to determine if there are any obvious issues that need to be addressed (usually due to changes in federal or state law). • Our recommendations are generally in the form of a letter, although sometimes an in-depth report is appropriate and other times a telephone call is sufficient. 4. Our publications, GRS Insight, News Scan, and various research memoranda, are our primary way of communicating changes in federal or state law or accounting standards which may affect the Plans. These publications can be found at www.gabrielroeder.com. A sample of GRS Insight is provided in Appendix G. 5. We are readily available, by telephone or in person, on very short notice. In the unlikely event that one of your primary consultants is unavailable, the depth of our staff provides that an experienced back-up is always available. GRS Attachment number 1 Page 40 of 81 0 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services SPECIAL PROJECTS We perform many supplemental valuations, or actuarial impact statements, for our clients. When our clients are considering the financial effects of proposed plan or assumption changes, we prepare a supplemental actuarial valuation report. This report shows the actuarial impact of such changes. Your proposed team members work on at least 50 supplemental valuation reports per year for our Fort Lauderdale office clients. Typical plan changes include: it Raising the benefit multiplier, rt Adding a Deferred Retirement Option Plan (DROP), Changing normal or early retirement eligibility, Providing a COLA, Liberalizing vesting requirements, it Reducing the number of averaging years in average final compensation, and M Providing service buy-backs. Due to the recent severe economic problems, we have been preparing many studies to determine the feasibility of: rX Starting a second tier of lower benefits for new hires; u Covering new hires and/or current employees under the Florida Retirement System; rt Covering new hires and/or current employees under a defined contribution plan; tt Cutting back the future accrual of benefits for current employees; and • Changing actuarial assumptions/methods not reflective of anticipated future experience. FEE STRUCTURE GRS is compensated solely by fees for services performed directly for our clients. We propose separate fee bases for different services: Retainer We propose to perform a specific set of services for a fixed fee each year during this contract. The services covered by the retainer are: M Annual Pension Actuarial Valuation Report, rt Fully compliant OPEB Actuarial Valuation Report, rt One on-site meeting to review the Annual Pension Actuarial Valuation Report, 0 rt Annual Employee Benefit Statements for the Pension Plan, Itern -797 '-36 GRS Attachment number 1 Page 41 of 81 City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services • rt Responses to routine inquiries from the State related to our Pension Report, tX Preparation of information requested by auditors each year, and n Routine calls and correspondence. Program First Year Retainer Fee Employees' Pension Plan $16,000 Other Post-Employment $16,000 Benefits Plan The fees above are charged on a project basis. Fees After the First Year The retainer fee and hourly rates for the Pension work will be increased in the second and subsequent years by the change in the CPI from December of one year to December of the next J year. We often recommend that fully compliant Actuarial Valuations for OPEBs be performed annually, similar to Pensions, because of the many changes that can happen from one year to the next. However, in the interest of keeping professional fees down, many employers have indeed opted for performing fully compliant Actuarial Valuations for OPEBs on a biennial basis. In this case, an abbreviated roll-forward of the previous fully compliant Valuation is prepared for the off-year. We do not disagree with this approach, especially for the first few years of this new Accounting Standard, and especially because the City provided only the implicit subsidy. The fee for the first such roll-forward in the first off-year (following our first fully compliant Actuarial Valuation) will be $4,000. Thereafter, a two-year cycle will be in play. The fees for each subsequent two-year cycle will be increased by the change in the CPI from December of one year to December of the second following year. In the event that "significant changes (as described in Paragraph 12 of GASB Statement No. 45) have occurred, a new or modified Valuation would be required. Fees in such cases would depend on the nature of the changes, but would be agreed upon in advance. The same method of CPI increases would apply to the hourly rates presented for Additional Services below. Additional Services • While the breadth of fixed fee services is quite comprehensive, additional services of a non- recurring nature will be based upon our hourly rates. These rates would apply to any special actuarial analysis services, such as estimating the contributions necessary to fund alternative item GRS ? Attachment number 1 Page 42 of 81 J City of Clearwater RFP #21-09: Proposal for Actuarial and Other Services Costs to Provide the Various Services benefit structures, estimating the costs associated with plan changes, actuarial impact statements, or quarterly DROP accounting, revisions in actuarial calculations or report formats required by changes in state requirements or changes in actuarial or accounting standards, assistance with regulatory compliance matters, plan design consulting, surveys, benchmark comparisons, experience reviews, or other services. We have the practice of assigning components of all projects to the lowest time-rated employee who is still capable of performing the work accurately and efficiently. This keeps our fees down and quality up. In all cases, whenever possible, we will provide fee quotes in advance for any supplemental work requested. Our hourly rates are determined based upon the experience and abilities of our employees. The following are our current hourly rates: Title Rate Range Senior Consultant $316-$420 Consultant $236-$298 Senior Analyst $ 190 - $ 232 Analyst $ 148 - $ 176 ??] Administrative Assistant $ 110 - $ 124 Our hourly rates are competitive in the industry, considering the level of experience and competence on an apples-to-apples basis. Unlike some other firms, our hourly rates include our overhead. We do not load our fees for technical and administrative services. LIMITATION OF LIABILITY If GRS is retained, our contract with the City of Clearwater should include the following terms: 1. Both parties agree to arbitration in the event of a dispute over performance. 2. Both parties agree to a waiver of jury in the event of a trial. 3. GRS liability to client (except for gross negligence or willful misconduct) is less than or equal to $1,000,000. 4. GRS is indemnified by client for third party claims (except for gross negligence or willful misconduct) above $1,000,000. Section V.13.4 of the RFP sets forth a broad indemnification. We cannot agree to indemnify the City and/or Plans for claims and costs "of any kind and nature arising or growing out of or in any way connected with the performance of the contract," nor for claims and costs which arise "due to the mere existence of the Contract between the parties." Itern 41 GRS Attachment number 1 Page 43 of 81 is APPENDIX A LICENSE TO DO BUSINESS IN THE STATE OF FLORIDA • u Item # 5 Attachment number 1 Page 44 of 81 • i ate, Of Or iDa I certify from the records of this office that GABRIEL, ROEDER, SMITH & COMPANY is a corporation authorized to transact business in the State of Florida, qualified on March 3, 1988. The document number of this corporation is P18229. I further certify that said corporation has paid all fees due this office through December 31, 1989, and its status is active. CR2EO22 Oiben unber nip hanb aub the Great &eat of the state of f'toriba, at Tallahagzee, the Capital, this the 1st bap Of March, 1989. Item # 5 Orpartment of -0tatr Attachment number 1 Page 45 of 81 C7 APPENDIX B FORT LAUDERDALE OFFICE PUBLIC PENSION CLIENTS • 0 Item # 5 Attachment number 1 Page 46 of 81 PARTIAL LIST OF PUBLIC SECTOR ORGANIZATIONS THAT GRS' FORT LAUDERDALE OFFICE PROVIDED PENSION ACTUARIAL AND BENEFIT • CONSULTING SERVICES TO DURING FISCAL YEAR 2008 Plan Years Retained Boynton Beach General Employees Pension Plan 16 Boynton Beach Municipal Firefighters' Pension Trust Fund 27 Boynton Beach Municipal Police Officers Retirement Fund 27 Bradenton Police Officer's Retirement System 12 Cooper City Firefighters Retirement Plan 6 Cooper City General Employees Retirement Plan 26 Cooper City Police Officers Retirement Plan 6 Dania Beach Police and Firefighters Retirement System 27 Dania Beach Retirement Plan for General Employees 24 Delray Beach General Employees Retirement Plan 16 Eustis Police Officers Retirement System 19 Ft. Lauderdale General Employees Retirement System 13 Fort Meade Employees Pension 6 Ft. Pierce Police Officers' Retirement System 46 • Greater Orlando Aviation Authority Retirement Plan 6 Hallandale Beach Police and Fire Personnel Retirement Plan 2 Hialeah Gardens Police Pension Trust Fund 12 Homestead Firefighters Retirement System 9 Key Biscayne Police & Firefighters Retirement Plan 7 Kissimmee Firefighters Pension Plan 4 Kissimmee General Employees' Pension Plan 6 Lake Worth Firefighters Retirement System 39 Lake Worth General Employees Retirement System 39 Lake Worth Police Officers Retirement System 39 Lantana Police Officers Retirement System 19 Largo Police Officers & Firefighters Retirement System 13 Lauderdale-by-the-Sea Volunteer Firefighters Retirement System 14 Maitland Police & Firefighters Retirement System 19 Marco Island Firefighters Pension Plan 9 Miami Beach Employees Retirement System 12 Miami Shores General Employees Pension Plan 19 Miami Shores Police Officers Pension Plan 5 Item # 5 Attachment number 1 Page 47 of 81 0 • E PARTIAL LIST OF PUBLIC SECTOR ORGANIZATIONS THAT GRS' FORT LAUDERDALE OFFICE PROVIDED PENSION ACTUARIAL AND BENEFIT CONSULTING SERVICES TO DURING FISCAL YEAR 2008 Miami Springs General Employees Retirement System 22 Miami Springs Police and Firefighters Retirement System 29 Miramar General Employees Retirement System 24 Miramar Management Retirement Plan 4 Mount Dora Firefighters' Pension and Retirement Fund 19 Mount Dora General Employees Pension Plan 5 Mount Dora Police Officers' Retirement Fund 19 North Miami Clair T. Singerman Employees Retirement System 19 North Miami Police Pension Plan 19 North Palm Beach General Retirement Fund 14 Orlando Utilities Commission Pension Plan 12 Palmetto General Employees Retirement Plan 10 Palmetto Police Officers' Retirement Plan 10 Palm Beach Gardens Municipal Police Officers' Retirement Trust Fund 12 Plantation Firefighters Retirement System 23 Plantation General Employees Retirement Fund 35 Plantation Police Officers Retirement System 35 Pompano Beach Police & Firefighters' Retirement System 32 Riviera Beach General Employees Retirement System 31 Riviera Beach Municipal Firefighters' Pension Trust Fund 29 St. Lucie County Fire Control District Firefighters Pension Trust Fund 14 St. Lucie County General Employees Fire District Retirement Plan 2 Sarasota General Employees' Pension Plan 14 Sarasota Police Officers Retirement System 14 Sebring Police Officers Relief and Pension Fund 30 Sunrise Police Officers' Retirement Plan 19 Sweetwater Police Retirement Plan 19 Tequesta General Employees Pension Trust Fund 5 Tequesta Public Safety Employees Pension Trust Fund 9 Vero Beach Firefighters Relief and Pension Fund 24 Vero Beach Police Officers Retirement Plan 2 West Melbourne Police Officers Retirement Plan 9 Item # 5 Attachment number 1 Page 48 of 81 • APPENDIX C FORT LAUDERDALE OFFICE OPEB CLIENTS 0 • Item # 5 Attachment number 1 Page 49 of 81 FLORIDA GASB 45 OPEB CLIENT LIST 1 City of Atlantic Beach 48 Marion County Public Schools 2 Atlantic Beach Police Department 49 Martin County 3 Bal Harbour Village 50 Martin County School District 4 Boynton Beach Fire and Rescue 51 Martin County Sheriff's Office 5 City of Bradenton 52 City of Miami 6 Brevard County School Board 53 Miami Dade College 7 Broward Community College 54 City of Miami Gardens 8 Broward County 55 Miami Shores Village 9 Broward County Professional Firefighters and Paramedics 56 City of Miami Springs 10 Broward County Public Schools 57 Miami-Dade County Public Schools 11 Broward County Sheriffs Office 58 City of Miramar 12 Calhoun County School District 59 Nassau County 13 City of Cape Coral 60 Nassau County School District 14 Charlotte County & Sheriffs Office 61 City of Ocala 15 Charlotte County Schools 62 Okaloosa County Sheriffs Office 16 Charlotte County Firefighters 63 Okeechobee County School District 17 Citrus County School District 64 Orange County Library System 18 City of Deerfield Beach 65 Orange County Public Schools 19 City of Delray Beach 66 City of Orlando 20 City of Delray Beach Fire-Rescue Department 67 Orlando Utilities Commission 21 Desoto County School District 68 Osceola County 22 Florida Keys Aqueduct Authority 69 City of Palm Bay 23 City of Fort Meade 70 Palm Beach County Fire Rescue • 24 City of Fort Pierce 71 Panhandle Area Educational Consortium 25 Fort Pierce Utilities Authority 72 Parrish Medical Center 26 Franklin County Schools 73 Pasco County 27 Gadsden County School District 74 Pasco County School District 28 Gulf County School District 75 City of Plant City 29 Hendry County School District 76 City of Plantation 30 Highlands County Schools 77 Polk County School District 31 Indian River County 78 Pompano Beach Firefighters Local 1549 VEBA 32 Jackson County School District 79 City of Sarasota 33 City of Jacksonville Beach 80 Sarasota County Fire Department 34 Jefferson County School District 81 Seacoast Utility Authority 35 Key West Utility Board 82 Seminole County 36 City of Kissimmee 83 South Florida Water Management District 37 Lake County Board of County Commissioners 84 St. Johns County 38 Lake County Schools 85 St. Johns County School District 39 Lake County Sheriff's Office 86 St. Lucie County Fire District 40 City of Lake Worth 87 St. Lucie County Sheriff s Office 41 Lee County School District 88 Sumter County 42 Lee County Sheriffs Office 89 Sumter County District Schools 43 Leon County Schools 90 Suwannee County District Schools 44 Liberty County School District 91 Taylor County School District 45 Madison County School District 92 U.S. Virgin Islands Water and Power Authority 46 Manatee County School District 93 Volusia County Clerk of Circuit Court 47 Marion County 94 VISIT FLORIDA Item # 5 Attachment number 1 Page 50 of 81 FLORIDA GASB 45 OPEB CLIENT LIST . 95 Wakula County District Schools 96 Walton County School District 97 Washington County School District 98 Village of Wellington 99 City of West Palm Beach 100 West Palm Beach Fire Rescue 101 West Palm Beach Police Officers' Retiree Health Trust 102 City of Winter Garden NOTE: A total of 25 GASB 45 OPEB Engagements for Florida Cities are highlighted above in blue. r L-A C] Item # 5 Attachment number 1 Page 51 of 81 • APPENDIX D SAMPLE PENSION ACTUARIAL VALUATION REPORT 0 0 Item # 5 Attachment number 1 Page 52 of 81 • ??C Gabriel Roeder Smith & Company J Consultants & Actuaries SAMPLE GENERAL EMPLOYEES' PENSION FIJND ACTUARIAL VALUATION REPORT MM/DD/YY E Item # 5 Attachment number 1 Page 53 of 81 Gabriel Roeder Smith & Company One Towne Square 248.799.9000 phone GRS Consultants & Actuaries Suite 800 248.799.9020 fax Southfield, I4]I 48076-3723 www.gabrielroedencom Date The Pension Committee Sample General Employees' Pension Fund City, State, Zip Code Submitted in this report are the results of an actuarial valuation of the funded status and contribution requirements associated with benefits provided by the City of Sample General Employees' Pension Fund. The date of the valuation was MM/DD/YY. Actuarial valuation highlights and our Statement by Enrolled Actuary immediately follow this cover letter. Valuation results are contained in Section B. The valuation was based upon information, furnished by the City, concerning Pension Fund benefits, financial transactions, and individual members, terminated members, retired members and beneficiaries. Data was checked for reasonableness and missing information but was not otherwise audited. This information is summarized in Section C. A description of the actuarial valuation process, actuarial assumptions, and definitions of technical terms are contained in Section D. Governmental Accounting Standards Board Statements No. 25 and No. 27 information is contained in Section E. To the best of our knowledge, this report is complete and accurate and was made in accordance with actuarial methods recognized by the Actuarial Standards Board of the American Academy of Actuaries. The actuarial assumptions used for the valuation produce results which, individually and in the aggregate, are reasonable. The undersigned are members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Respectfully submitted, Lead Actuary • XX:XX Supporting Actuary Item # 5 Attachment number 1 Page 54 of 81 • OUTLINE OF CONTENTS REPORT OF MM/DD/YY ACTUARIAL VALUATION Pages A-1 A-1/2 A-3 A-4 A-5 A-6 A-7/8 B-1/2 B-3/4 B-5 • B-6 B-7 B-8 Items Valuation Highlights and Statement by Enrolled Actuary Funding Objective Funding Progress Indicators Contribution Requirement Historical Comparisons Funding Obligations and Sources of Funding Expected Development of Present Active Population Comments, Conclusion, and Statement by Enrolled Actuary Detailed Valuation Results Contribution Requirement Funding Progress Indicators Experience Gain (Loss) Contribution History Actuarial Balance Sheet Actuarial Present Value of Future Benefit Payments and Compensation Benefit Provisions and Data C-1/4 Benefit Provisions C-5 Financial Data C-6 Actuarial Value of Assets C-7/16 Participant Data Actuarial Cost Method, Assumptions and Definitions of Technical Terms D-1 Actuarial Cost Method D-2/8 Assumptions D-9/10 Definitions E-1/5 Certain Disclosures Required by GASB Statements No. 25 and No. 27 E City of Sample General Employees' Pension Fund Item # 5 Attachment number 1 Page 55 of 81 0 SECTION A VALUATION HIGHLIGHTS AND STATEMENT BY ENROLLED ACTUARY is --- ---- I E Item # 5 Attachment number 1 Page 56 of 81 • ACTUARIAL VALUATION HIGHLIGHTS MM/DD/YY FUNDING OBJECTIVE The funding objective of the Pension Fund is to establish and receive contributions which, expressed as percents of active member payroll, will remain approximately level from generation to generation of Sample citizens. The annual actuarial valuation measures the relationship between Pension Fund obligations and assets and determines the contribution rate for the ensuing year. VALUATION RESULTS - FUNDING PROGRESS INDICATORS With the Fund closed to new hires, costs have been computed using the aggregate cost method. The design of the aggregate cost method is to target that all benefits are fully funded when the plan has no active members. Percent of pay contributions will become increasingly sensitive to gains and losses as the covered payroll decreases. Under the aggregate cost method, the present value of future benefits (PVFB) is reduced by the actuarial value of assets and the present value of future member contributions. The remainder is financed by City contributions as a level percent of future payroll. The method does not generate an actuarial accrued liability. The percentage of PVFB funded by the • actuarial value of assets is shown below. Funded Ratio of Present Value of Future Benefits 100% 90% 80% 70% 60% 50% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Actuarial Value of Assets/Present Value of Future Benefits Funded ratios are located on page E-3. • City of Sample General Employees' Pension Fund A-1 Item # 5 Attachment number 1 Page 57 of 81 • VALUATION RESULTS - FUNDING PROGRESS INDICATORS The overall activities of the members during the year increased the obligations of the Fund about as projected by the long-term funding assumptions, even though certain individual assumptions deviated from expected. 27 retirements versus 22 expected (includes 4 DC transfers eligible to retire). 5 terminations of members versus 11 expected (Includes 0 DC transfer not eligible to retire). 7.1 % increase in salary versus 4.3% expected. 10.5% actuarial value rate of return versus 8.0% expected. The market rate of return, net of investment expenses, on assets was 13.8% versus an 8.0% long-term assumption. The asset valuation method recognizes a portion of this year's gain and combines it with portions of smaller gains that occurred from YYYY - YYYY. The result is a $4.1M recognized investment gain for the year. Note that for funding purposes, asset values and rates of return are smoothed over a 4-year period. Please refer to our comment on page C-7. The net result of the participant and fiscal activities was slightly favorable, generating a $0.81 million • net experience gain, which represents 0.4% of the present value of future benefits at the beginning of the year. Experience Gains and Losses (Amounts in Millions) (15) (13) (11) (9) (7) (5) (3) (1) 1 3 5 7 9 11 13 15 17 19 21 23 25 Losses Gains • Derivation of the current and prior year's experience gain/(loss) is located on page B-5. City of Sample General Employees' Pension Fund A-2 Item # 5 Attachment number 1 Page 58 of 81 0 VALUATION RESULTS - CONTRIBUTION REQUIREMENT The contribution requirements for the YYYY-YYYY fiscal year are: 4.88% of pay by active members and; 20.31% of active member covered payroll by the City. The City contribution rate for the YYYY-YYYY fiscal year was 21.74% of payroll. The YYYY- YYYY fiscal year City contribution requirement reflects a 1.43% decrease in the percent of payroll contribution from the prior year. Contribution Rates 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -- ----: 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Member % City % Total Comparative contribution information is located on page B-6. Composition of the current City contribution rate is located on page B-1. • City of Sample General Employees' Pension Fund A-3 Item # 5 Attachment number 1 Page 59 of 81 is HISTORICAL COMPARISONS Retirement and Terminations .7 1,600 1,400 1,200 1,000 800 600 400 200 0 ........ -..- -- -- Previous Year Last 5 Years Last 10 Years 13 Expected Retirements • Actual Retirements ® Expected Terminations ® Actual Terminations DC transfers are included in the chart above as Retirements or Terminations as appropriate. Pension Payments and Total Contributions (In Millions of Dollars) $15 $10 $0 $5 w 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 • Annual Pensions - - - Contribution Dollars City of Sample General Employees' Pension Fund A-4 Item # 5 Attachment number 1 Page 60 of 81 G FUND OBLIGATIONS AND SOURCES OF FUNDING MM/DD/YY Present Resources and Expected Future Resources ($209 Million) • Present Assets 86% Future Employer Contributions 11% Future Member Contributions 3% Actuarial Present Value of Expected Future Benefit Payments and Reserves ($209 Million) To Retired I? U To Present Ac Members 48% The actuarial balance sheet is located on page B-7. City of Sample General Employees' Pension Fund Members and Beneficiaries 49% 10 v estect Terminated Members 3% A-5 Item # 5 Attachment number 1 Page 61 of 81 EXPECTED DEVELOPMENT OF PRESENT ACTIVE POPULATION MM/DD/YY Closed Active Group Population Projection 450 400 350 300 250 200 150 100 50 0 L10 Closed Group Population The charts show the expected future development of the present population in simplified terms. The pension fund presently covers 389 active members. About 84% of the present population is expected to receive monthly retirement benefits by retiring directly from active service. The remaining 16% of the present population is expected to become eligible for vested terminated, refunds, disability, or death-in-service benefits. Within 7 years, over half of the covered membership is expected to exit the Fund. Expected Terminations from Active Employment For Current Active Members • City of Sample General Employees' Pension Fund A-6 Item # 5 2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 Attachment number 1 Page 62 of 81 0 COMMENTS Plan Experience The activities of the Pension Fund and its members generated an experience gain of $0.81 million on an aggregate basis during the plan year ended MM/DD/YY. The market value rate of return on plan assets this year was 13.8%, and with the scheduled effect of prior years' gains, we have recognized an investment gain for the year. This means that asset returns on the funding value basis used for the valuation were greater than anticipated for the year, 10.5% versus 8.0%. The gain results in a lower percent of payroll contribution. Please refer to pages C-5, C-7, C-8, C-14, D-4, D-5, and D-6 for additional experience information. Plan Amendments None. Changes in Actuarial Cost Method None. The Governmental Accounting Standards Board has released Statement No. 50 providing that plans using the Aggregate Cost Method are to report funding progress on both an Aggregate basis and an Entry Age Normal basis. This report already contains a schedule of funding progress based on an Entry Age Normal basis on the bottom of page E-3. Changes in Assumptions 0 None. The next experience review of the Pension Fund will be based on the five-year period ending MM/DD/YY. Looking Ahead Currently the actuarial value of assets, which is used to determine the funded status and contribution rates for the plan, is less than the market value of assets by 4.7%, or $8.8 million (see C-7). This is a favorable situation and an improvement over last year. It means that there are gains to be recognized in the YYYY report. Those gains will put downward pressure of about 1% of payroll on the contribution requirements in the absence of offsetting losses. The second component of determining the funded status and contribution rates is the use of the aggregate cost method. This method results in contributions being made during the expected future working lifetime of the active members. This method will become more volatile as the active membership declines and the funding horizon will decrease from about 8 years as of this valuation to 1 year. The Pension Committee may wish to consider a minimum funding horizon of 3 to 5 years to reduce volatility. City of Sample General Employees' Pension Fund A-7 Item # 5 Attachment number 1 Page 63 of 81 0 CONCLUSION Pension Fund contribution rates are expected to fluctuate from year to year as experience emerges and economic conditions change. The expectation inherent in the funding of a pension fund is that year to year fluctuations will tend to cancel over periods of 5 to 10 years and result in stable conditions over these periods. Over time, the funded ratio of a pension fund is expected to converge to 100%, but the basic trend may be interrupted by events such as benefit increases or changes in actuarial cost methods and assumptions. Fund experience has been in line with this expectation. Since the implementation of the aggregate actuarial cost method in YYYY, the funded status has increased from 65.3% to 86.2%. STATEMENT BY ENROLLED ACTUARY This actuarial valuation and/or cost determination was prepared and completed by me or under my direct supervision, and I acknowledge responsibility for the results. To the best of my knowledge, the results are complete and accurate, and in my opinion, the techniques and assumption used are reasonable and meet the requirements and intent of Part VII, Chapter 112, of the Florida Statutes. There is no benefit or expense to be provided by the plan and/or paid from the plan's assets for which liabilities or current costs have not been established or otherwise taken into account in the valuation. All known events or trends which may require a material increase in plan costs or required contribution rates have been taken into account in the valuation. Lead Actuary Date C City of Sample General Employees' Pension Fund A-8 Item # 5 Attachment number 1 Page 64 of 81 :7 :7 is SECTION B DETAILED VALUATION RESULTS Item # 5 Attachment number 1 Page 65 of 81 • CONTRIBUTIONS TO FINANCE BENEFITS OF THE PENSION FUND FOR THE PLAN YEAR BEGINNING OCTOBER 1 TO BE CONTRIBUTED DURING THE FISCAL YEAR COINCIDENT WITH THE PLAN YEAR Contributions for Development of Normal Cost Contributions Expressed as Percents of Active Member Covered Payroll 2007 2006 a) Present value of future benefit payments $ 208,685,974 $ 200,891,208 b) Actuarial value of assets (179,926,736) (168,447,554) c) Unfunded present value of future benefit payments 28,759,238 32,443,654 d) Present value of future compensation 116,646,935 123,856,922 e) Normal cost: (c - d) 24.65% 26.19% Ad i i i n m strat ve Expenses 0.54% 0.43% Total Normal Cost 25.19% 26.62% Member portion 4.88% 4.88% City portion 20.31% 21.74% FS 112.64 requires City contributions to be deposited not less frequently than quarterly. Member contributions, which are in addition to the City contributions, must be deposited not less frequently than monthly. Procedures for determining dollar contribution amounts are shown on page B-2. Comparative contribution amounts for prior fiscal years are shown on page B-6. • City of Sample General Employees' Pension Fund B-1 Item # 5 Attachment number 1 Page 66 of 81 0 DETERMINING DOLLAR CONTRIBUTIONS For any period of time, the percent-of-payroll contribution rate needs to be converted to dollar amounts. We recommend one of the following procedures. Procedure 1. Contribute dollar amounts at the end of each payroll period that are equal to the City's percent-of-payroll contribution requirement multiplied by the active member covered payroll for the period. Adjustments should be made as necessary to exclude items of pay that are not compensation for Pension Fund benefits and to include non-payroll amounts that are compensation for Pension Fund benefits. Procedure 2. Contribute the annual amounts of $3,894,616 for City normal cost and administrative expenses during the fiscal year beginning MM/DD/YY on at least a quarterly schedule to comply with FS 112.64. The above dollar amount is based on base salary for the next year and is assumed to be contributed, on average, halfway through the fiscal year. For example, if a monthly schedule is followed, the average city contribution would be $324,551. If contributions are made on a later 0 schedule, interest should be added at the rate of 0.64% (0.0064) for each month of delay. .'7 City of Sample General Employees' Pension Fund B-2 Item # 5 Attachment number 1 Page 67 of 81 (9 FUNDING PROGRESS INDICATORS There is no single all-encompassing indicator that measures a pension fund's funding progress and current funded status. Three reliable indicators of funding progress and funded status are described below and shown on page B-4. Indicator (1) The actuarial present value of gains or losses realized in the operation of the Pension Fund - an experience indicator. Gains and losses are expected to cancel each other over a period of years (in the absence of double-digit inflation) and sizable year to year fluctuations are common. Further details on the derivation of the gain (loss) are shown on page B-5. Indicator (2) The ratio of the actuarial value of assets to the present value of future benefits - a funding level indicator. The ratio is expected to converge to 100% as the active membership in the plan is eliminated, but the basic trend may be interrupted by certain events such as benefit improvements, changes in actuarial cost methods or changes in actuarial assumptions. The black line on page B-4 denotes where the change to the aggregate actuarial cost method in YYYY resulted in a decrease in the funded status of the fund. Information concerning the fund ratio both before and after this change in method are provided to allow the reader to draw more appropriate conclusions concerning the funded status trend of the plan. Indicator (3) The ratio of the unfunded present value of future benefits to active member payroll - an inflation adjusted indicator. In a soundly financed pension fund, the amount of the unfunded present value of future benefits will be controlled and prevented from increasing in the absence of benefit improvements. However, in an inflationary environment it is seldom practical to impose this control on dollar amounts which are depreciating in value. The ratio is a relative index of condition where inflation is present in both items. The ratio is expected to decrease over time but the basic trend may be interrupted by certain events such as benefit improvements, changes in actuarial cost methods or changes in actuarial assumptions. 0 City of Sample General Employees' Pension Fund B-3 Item # 5 • w 0 O a V oz 0 a ?z l? [ I ICI COI H W V I?1 F+1 w C O ? L R a a M L ? L ... ? O O C ? C p„ s C R C a w L CC r C w O y _, ?Q r.+ ? L v? O ? y L ? u R vi O O u L O R "O C d .O CC M A ? C ? 0 ? GL R 0 rA 0 ?O kn O ch ?,O O Q1 In d ?,O O da) ?o ' M M --O N O \?o .M- = r C? - ,Y t 'I I? M kn 00 O M M Cl; Cl; ? In kn kn M N o0 r- N O N M 'It N N N N O N O O ?? 69 0 M 00 l- O 00 w r- t? ? ? o0 00 0o a, a, rn ? C? ?O M O ?O O? N ? ? 00 ^? N N 69 DO M O --? 01 ?O 'ct M MM 0?0 O M Vim') 000 = W 69 0?0 N O 7- N O O M ^ m cl -- N M ? V1 ?,O l- 00 C1 (0, ON C) C? C\ C., O D1 ? ? C1 (2? ON C1 rr l? M N N M to N 00 V M M M N O? O v1 N DD O kl) ?D Vl d 00 l? N ?.o m M M ?t 00 M [? O O N 00 w \O M \,O V1 V) ?O 4 N O O C? O? d' M N N N N N N N Q\ V7 M O \C N l ?O O 00 M M? N M N 00 C? ?D ? N M M M M M M N M V'I 00 M `t ? N V) N a1 N Vl N O 00 N N M M M w o0 00 w 00 00 00 00 00 00 00 0000 ? N N d0 N 0000 0000 z O O _O ? ? N d' ?O ?D O o0 00N N N ?t 00 O? a1 a1 a\ N C? O GN N O C? 00 l? N N kn m M 00 a0 N d' M 00 00 00 ? Q1 M C1 V1 r- 00 C1 M M 00 C\. 00 l? \1D in W) k n V) 110 ?o ?o r- V7 01 ? .Nr •-.• C? 00 O O lO V1 : 00 00 M O ?o N O N O Chi G, D\ 0 0 0 0 0 0 0 0 0 Q1 0 0 0 0 0 0 0 0 0 o ? d U U CS CI U LO 0 o '? N d d `O U U CS O r s o 3 V y o C5 w o r? ? o0 U U O w ? S O Q ? 3 ? m ? o w _ o o ° N i ? a 5 C o c U Ci ? Q O t^. ? +U. N Oy -??"' O q O O o W r ? q b4 y ? ? U r w to --z L1 Attachment number 1 Page 69 of 81 • • DERIVATION AND SOURCES OF EXPERIENCE GAIN (LOSS) Derivation of Experience Gain (Loss) (1) UPVFB* at start of year (2) Employer and Employee contributions (3) Interest accrual (4) Expected UPVFB before changes: (1) - (2) + (3) (5) Change from amendments (6) Change from revised actuarial assumptions (7) Expected UPVFB after changes: (4) + (5) + (6) (8) Actual UPVFB at end of year (9) Gain (loss): (7) - (8) (10) Gain (loss) as percent of present value of future benefit at start of year Sources of Experience Gain (Loss) Age and service retirements Disability retirements Death-in-service benefits Terminations from employment Pay increases COLA adjustment Investment return Death after retirement Total Other Gain (Loss) Year Ended September 30, 2007 2006 $ 32,443,654 $33,016,655 5,255,203 5,125,464 2,385,284 2,436,314 29,573,735 0 0 29,573,735 28,759,238 814,497 0.4% 30,327,505 0 0 30,327,505 32,443,654 (2,116,149) (1.08)% (349,228) (23,932) (48,352) (506,837) (2,431,424) 59,208 4,056,494 136,560 892,489 (77,992) $814,497 (9,954) N/A 30,064 128,828 (134,781) 0 (1,257,304) (273,289) (1,516,436) (599,713) $(2,116,149) * Unfunded Present Value of Future Benefits. This is the present value of future benefits less the actuarial value of assets. • City of Sample General Employees' Pension Fund B-5 Item # 5 Attachment number 1 Page 70 of 81 CITY CONTRIBUTIONS: HISTORICAL COMPARISON ($ AMOUNTS IN MILLIONS) Valuation Applicable Computed % of Date Fiscal Active Member Dollar Contribution September 30 Year Covered Payroll Projected Actual 1991 91-92 10.51 % $5.15 $5.15 1992 92-93 10.70 5.84 5.84 1993 93-94 10.72 6.15 6.15 1994 94-95 10.57 6.37 6.37 1995 (a) 95-96 11.48 7.07 7.07 1996 (a) 96-97 12.21 7.75 7.75 1997 97-98 10.97 7.10 7.10 1998 (a)# 98-99 11.27 7.44 7.44 1999 99-00 10.14 4.75 4.75 2000 00-01 7.71 2.73 2.73 2001 01-02 8.63 2.22 2.22 2002 02-03 11.09 2.88 2.88 2003 03-04 13.06 3.12 3.12 2004 (a) 04-05 15.42 3.42 3.42 2005 (a) 05-06 19.72 4.12 4.12 2006 06-07 21.74 4.27 4.27 2007 07-08 20.31 3.90 (b) Before changes in benefit provisions and/or actuarial assumptions and/or actuarial cost methods. (a) After changes described in (b). # Includes the change to the aggregate actuarial cost method. • City of Sample General Employees' Pension Fund B-6 Item # 5 Attachment number 1 Page 71 of 81 0 ACTUARIAL BALANCE SHEET Present Resources and Expected Future Resources at MM/DD, 2007 2006 A. Actuarial value of assets 1. Net assets from plan financial statements (market value) $188,715,384 $171,241,019 2. Actuarial value adjustment (8,788,648) (2,793,465) 3. Actuarial value of assets 179,926,736 168,447,554 B. Actuarial present value of expected future Employer contributions 23,066,869 26,399,436 C. Actuarial present value of expected future member contributions 5,692,370 6,044,218 D. Total Present and Expected Future Resources $208,685,974 $200,891,208 Actuarial Present Value of Expected Future Benefit Payments and Reserves A. To retired members and beneficiaries B. To vested terminated members C. To present active members $102,952,924 $ 94,213,477 7,035,609 7,337,329 98,697,441 99,340,402 D. Total Actuarial Present Value of Expected Future Benefit Payments $208,685,974 $200,891,208 s City of Sample General Employees' Pension Fund B_7 Item # 5 Attachment number 1 Page 72 of 81 • ACTUARIAL PRESENT VALUE OF FUTURE BENEFIT PAYMENTS AND COMPENSATION September 30, Actuarial Present Value of Future Benefit Payments 2007 2006 For present active members Service pensions $ 90,518,179 $ 90,553,190 Pre-retirement survivor pensions 2,171,754 2,172,266 Termination benefits Deferred service pensions 5,911,540 6,516,317 Refunds of member contributions 95,968 98,629 Total 98,697,441 99,340,402 For vested terminated members • Regular 6,149,755 6,285,175 LTD 885,854 1,052,154 Total 7,035,609 7,337,329 For pension recipients Service retirees 98,552,127 90,004,252 Disabled retirees 293,807 301,354 Beneficiaries 4,106,990 3,907,871 Total 102,952,924 94,213,477 Total actuarial present value of future benefit payments $208,685,974 $200,891,208 Actuarial present value of future compensation $116,646,935 $123,856,922 • City of Sample General Employees' Pension Fund B-8 Item # 5 Attachment number 1 Page 73 of 81 • SECTION C SUMMARY OF BENEFIT PROVISIONS AND VALUATION DATA SUBMITTED BY PENSION FUND • 0 Item # 5 Attachment number 1 Page 74 of 81 SUMMARY OF BENEFIT PROVISIONS CONSIDERED FOR ACTUARIAL VALUATION (MM/DD/YY) Participation All persons regularly employed by the City, for more than 20 hours a week and more than 5 months a year except: i) Police Officers ii) Firefighters iii) Employees of the Sample Utilities Commission iv) Employees of the Greater Sample Aviation Authority This plan closed to new hires effective MM/DD/YY. Final Average Earnings One-third (1/3) of the member's basic salary or wages for the 3 highest years during the last 10 years of credited service. Lump sum payments for unused accumulated leave time paid at termination/retirement are excluded for pension purposes. Service (Normal) Retirement Eligibility. Members are eligible to retire with 25 or more years of service or at age 65 or older with 5 or more years of credited service. Pension Amount. Two and one-half percent (2.5%) of final average earnings multiplied by credited service, to a maximum pension of 75% of final average earnings. The normal form of pension is payable for life. Optional forms are available on an actuarial equivalent basis. Service (Early) Retirement Eligibility. Age 55 or older with 10 or more years of credited service. Pension Amount. Two and one-half percent (2.5%) of final average earnings multiplied by credited service, to a maximum pension of 75% of final average earnings, reduced by 1/6 of 1% of the preceding amount for each month retirement precedes age 65. City of Sample General Employees' Pension Fund C-1 Item # 5 Attachment number 1 Page 75 of 81 • SUMMARY OF BENEFIT PROVISIONS CONSIDERED FOR ACTUARIAL VALUATION (MM/DD/YY) Vested Termination of Employment Eligibility. Termination of employment with 5 or more years of credited service (2 or more years if an elected or appointed official prior to MM/DD/YY). Pension Amount. Computed in same manner as a normal or early service retirement pension, based on pension fund benefit provisions, final average earnings and credited service at time of termination. Forfeiture. Terminated member may request refund of employee contributions with interest and forfeit entitlement to the deferred pension. Disability Retirement Benefits are funded and provided through a self-insured long-term disability plan. Vested termination of employment benefits are available to qualifying individuals. U Post-Retirement Survivor Benefits Any excess of member contributions, with interest to date of retirement, over aggregate amount of pension paid is paid to beneficiary in a lump sum. Other optional forms of payment are available on an actuarial equivalent basis. Pre Retirement Survivor Benefits Eligibility Condition 1. Death after attaining age 40 with 10 or more years of credited service prior to termination of employment. Eligibility Condition 2. Death after attaining 25 or more years of credited service prior to termination of employment. Pension Amount under Condition 1. Fifty percent (50%) of the deceased member's actuarially reduced accrued normal service retirement pension will be paid to the surviving spouse if the marriage was of at least l year's duration at time of death. • City of Sample General Employees' Pension Fund C-2 Item # 5 Attachment number 1 Page 76 of 81 • SUMMARY OF BENEFIT PROVISIONS CONSIDERED FOR ACTUARIAL VALUATION (MM/DD/YY) Pension Amount under Condition 2. One Hundred Percent (100%) of the deceased member's actuarially reduced accrued normal service retirement pension will be paid to the surviving spouse. Conversion to the DC Retirement Plan. In the event of the death of a member with 10 or more years of service, as of MM/DD/YY, or of a member who was hired before MM/DD/YY and died prior to MM/DD/YY, the present value of his accrued benefit in the DB Plan may be transferred to the DC Plan by the member's designated beneficiary, or executor or administrator of the member's estate, provided such election is made within 6 months of the date of death. Cost-of-Living Adjustment (COLA) The monthly amount of pension shall be increased annually by 2% of the monthly amount paid during the prior year. Increases occur on the anniversary of the member's pension commencement date. Increases begin at the later of: (a) one full year of retirement; or (b) the earlier of (1) the attainment of age 64 or (2) the completion of 4 full years of retirement. Such cost-of-living adjustments shall apply in like manner to benefits payable to surviving spouses and to surviving pension beneficiaries. Cost-of-living adjustments are payable to employees that retired on or after MM/DD/YY. Terminated vested members are not eligible for the COLA. 0 City of Sample General Employees' Pension Fund Item V35 Attachment number 1 Page 77 of 81 . SUMMARY OF BENEFIT PROVISIONS CONSIDERED FOR ACTUARIAL VALUATION (MM/DD/YY) Transfers To Defined Contribution Plan Effective MM/DD/YY, members may elect to transfer to the DC Retirement Plan with the present value of their accrued benefit as of the date of transfer. Transferred participants revoke their rights to benefits under this plan. The window for transferring is unlimited except for members with less than 10 years of service as of MM/DD/YY, who may only elect to transfer prior to MM/DD/YY. In all cases, the amount of the transfer is calculated using actuarial equivalence factors which are cost neutral to the Fund. Member Contributions Member contributions: 4.88%. City Contributions Amounts determined actuarially in accordance with Chapter 112, Florida Statutes. • Changes Since Prior Valuation None. • City of Sample General Employees' Pension Fund C-4 Item # 5 Attachment number 1 Page 78 of 81 • ACCOUNTING INFORMATION SUBMITTED FOR VALUATION Statements of Change in Plan Net Assets Year Ended September 30, 2007 2006 Additions: a. City Contributions $ 4,273,029 $ 4,123,327 b. Member Contributions: Basic 977,702 999,254 Buybacks 4,472 2,883 c. Total Contributions 5,255,203 5,125,464 Investment Income d. Interest and Dividends 4,626,542 4,178,971 e. Net Appreciation in Fair Value of Assets 19,211,736 9,816,658 f. Securities Lending Income 2,367,182 2,305,533 g. Management & Custodian Fees 633,669 812,347 h. Securities Lending Expense 2,277,122 2,188,413 i. Net Investment Income 23,294,669 13,300,402 j. Total Additions 28,549,872 18,425,866 Deductions: k. Benefits: 9,873,008 9,200,113 1. Refunds of Contributions 26,669 80,149 in. Administrative Expenses 96,614 78,820 n. Other Expenses - - o. Total Deductions 9,996,291 9,359,082 Net Increase (Decrease) before Transfers 18,553,581 9,066,784 Transfers to Defined Contribution Plan 1,079,216 2,707,703 Net Increase (Decrease) 17,474,365 6,359,081 Net Assets Held in Trust for Pension Benefits: Beginning of Year (From Preliminary Statements) 171,241,019 164,881,938 Adjustments After Preliminary Statements Submitted - - Beginning of Year (Audited Balance) 171,241,019 164,881,938 End of Year $188,715,384 $171,241,019 Summary of Assets - Market Value 2007 2006 Cash & Equivalents Due to Other Funds Fixed Income Global Equity Real Estate Miscellaneous Preliminary Net Assets Adjustments After Preliminary Statements Submitted Net Assets 0 *Includes internal holding account, accounts receivable and accounts payable. $ 303,392 $ 107,004 - (224,701) 45,572,219 45,160,282 27,678,050 24,288,514 102,252,504 86,126,991 12,721,356 15,552,396 187,863 230,533 $188,715,384 $171,241,019 $188,715,384 $171,241,019 City of Sample General Employees' Pension Fund C-5 Item # 5 CJ W O I? w z 0 F"'1 W Q O N O O N O O N O 0 N OI O N O ^tt 00 '/') N M 00 01 O O •-'? M N O O \O O ? M ^ N t? 'n ? \O C` r ?t l l? O O? ?D M o0 00 O ?O l? ' O? N C` ? ? C` r` K1 ? O 00 \ \p l? M \O o 0 M ? 01 ? ? M b et DD M O V1 M DD M ? ? C? 00 69 M \° 'n N N O\ M 'n \O t- 00 O . O M O l, l, N N O1 N 'n o0 'n 'ct 'n O ' d• r- 00 \O Qi M \° N O1 \,o "t t O M " M "t m '-+ M N 'n 00 M 00 ?O l? o \p l? .-: C` O o a ' \O O N --? --? , M M • • °? °\ M M 'n r` Oi \O r` O N o0 N 'n Z c*i N °? D; o0 00 'n ' 'n 't M i N fl, .-+ n . 'n `/ 6S a0 r M O 'n a1 '?t oo vl ? N \° ? ' O N 07 N N \O \O M M oo \p ?D °? o M N M --? \° kni M y 1.0 W N O v m N .m•? ON C, C ? N Eii ~ 'n r- d' 01 ON 00 'n M ? N_ _O M_ 'n O \O N ct It r-' = O a1 r` 00 ? r` \O N M \° N O N N '?'' ? N \D ?t \O O ' 00 O \° 'n O C1 to 'IT M •--' O a1 .-- D1 M m r- o 00 \° \O •? o0 o M °? do \p \o 00 \p \O N 'n t? - -+ 'n O -' cp N N \D r N lp Vl 00 N •? ?••? 0^O ,Nr in rr rr ? ? `? 69 m t- N "t Cl 00 •--m 00 ?O 00 'n N N "t "t m m O M o0 °? \D N r` •--? 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V) a1 \O O N O O O ri 06 O \, - \O N 4 06 O O N kr kr O \O kr 00 l? \O N O N N 00 M 00 00 (- \c 01 N \O O \0 01 V) \O Vl 00 \O w \O 00 V1 O N N \p N rl M O Q --? •-+ •--? N N N M M r1 4 w) V1 \O [? DO 00 O\ O QfA p O N N 00 0G .-. N O S to N N_ O ? r- 01 -t r- O \O Z \0 a0 O N kn 00 01 O O M r- -t \O 01 00 r- 01 O N M M M ? ? ?t qzt V) kn In kf ) D \O \O \O \O \O \O r n ? r- a1 ao N 't ?? w kn m N a1 M \O r- O O - q?t N R O \G M 01 O N 00 O )n O O \O Q1 O M _ d' kn ?F 'It .-. 3 .O 00 ?(01, 01 V) r- O M ^• M N M .--i ?t O .--r 00 t N C y \O O M- ?h \p )n kr kr N O 4 \D (:r N `. \O 01 V) 00 N 01 \O 'z' to 0\ 01 01 N M "t :t \O M tr) -- 00 M Q Es9 r. N M N N N d l? \O ?n d v) ?n ?n l? a N O \p O M 00 - r- 0 00 r r- 00 Wn M't 01 \O O N N N N M N - M M N N N - I - - - M M 00 kn O v? l? 01 -?t Vl 01 N Cr, \O ? 00 N v? t- oo O\ \D N 01 O O V) kn O\ .--i M r- N 00 00 00 N 00 l- O .O 00 \D 00 N O M O It \O O 01 01, -+ 0\ to N l- \O N O r N kr) \O a, --? \C --? O \O O M O? M Vl r- M S. C )n r- M M l? r- r~ N N 00 O kn 00 O O W) 00 ,1- t'- 01 0\ -IF O ct a1 M O\ M r- M N k) a, - c) -t 01 N M N O O 00 z N N N N. N N N N N M et N N M N N ti M kn N 01 00 00 O O_ --? 00 d N 00 \O \0 ,t a1 M 01 00 R D1 D\ \D 0\ N 01 N 00 \D O .--i M M t- \O 0\ N M \O N 00 .? \0 O 00 M DD r,?M M 00 lp O ci M M N M V1 't \O O V1 00 00 \p r-- vi r- ? \O .? \p r vi N N M O d' N --C \O 00 ; ? 0\ \O 00 \0 00 l? O 01 ? N r-' O ? 00 M 69 N M ? qzT M M M )n \O 00 kn 00 l? lp [? \O r- O\ O W) M to M O C) C71, O 00 O N \O 01 Otr) r- M t? O M d' M M V1 d' M M N vl )n \O v1 V') d' rn Cr) M M M M ? M FC \0 r- 00 0\ O N M Nt V") \O t- 00 01 O N M ? kn \O ? 00 00 00 00 00 01 71 01 01 01 01 cr, 01 0\ 01 O O O O O O O O O F 01 0\ 01 a1 Q1 0\ 01 C1 01 0\ 01 0\ 01 O O O O O O O O O R ??+ .-. - ,-. - r-I - - - - ,-- - - - N N N N N N N N N a 00 U LO it E a> b 7 w O .N T. N a y O N O E W N N C7 N 0. w 0 U Attachment number 2 Page 1 of 81 AGE AND SERVICE RETIRED MEMBERS All Retired Members New Retired Members During Prior Year Valuation Average Average Date Attained Retirement Annual Retirement Annual September 30 Number Age Age Pension Number Age Service Pension 1993 453 69.1 yrs. 60.7 yrs. $ 7,201 25 61.0 yrs. 19.8 yrs. $13,469 1994 456 69.3 60.6 7,689 27 60.0 18.7 13,352 1995 483 69.2 60.6 8,250 41 61.1 18.7 12,392 1996 502 69.1 60.2 8,736 44 59.6 17.9 13,106 1997 539 68.8 60.1 9,593 56 59.6 19.0 15,599 1998 558 68.8 60.0 9,913 41 59.6 17.8 12,248 1999 583 68.6 59.7 10,498 45 58.5 18.9 16,210 2000 601 69.0 59.8 10,804 38 59.1 19.0 14,988 2001 586 69.5 59.7 11,232 15 58.3 22.9 21,106 2002 589 69.9 59.1 11,531 24 61.5 19.3 12,707 2003 601 70.0 58.8 11,985 32 57.6 18.8 17,557 2004 622 70.2 58.6 12,527 29 57.1 16.9 21,665 2005 626 70.3 58.4 13,257 29 57.3 18.5 22,773 2006 638 70.3 59.2 13,934 33 58.8 20.5 21,503 2007 652 70.3 59.0 14,723 40 55.5 17.9 24,604 • RETIRED MEMBERS AND BENEFICIARIES Historical Comparison Valuation % Incr. in Annual Pensions Date Annual No. of Active as % of Active Average Annual September 30 Pensions Per Retired Member Payroll Pensions 1993 7.7 % 4.4 6.1 % $ 6,863 1994 7.4 4.4 6.3 7,315 1995 13.4 4.1 7.0 7,817 1996 11.8 3.8 7.5 8,172 1997 17.0 3.5 8.7 8,936 1998 7.7 3.2 10.8 9,203 1999 10.7 2.2 13.9 9,776 2000 8.3 1.4 20.0 10,175 2001 2.0 1.0 27.9 10,483 2002 2.9 0.9 27.9 10,700 2003 5.6 0.8 33.8 11,460 2004 7.2 0.7 37.1 11,669 2005 6.3 0.6 40.9 12,330 2006 6.7 0.6 47.7 12,994 2007 15.1 0.5 52.7 13,707 City of Sample General Employees' Pension Fund Item # Attachment number 2 Page 2 of 81 • RETIRED MEMBER AND BENEFICIARY DATA AS OF MM/DD/YY BY TYPE OF BENEFITS BEING PAID Actuarial • • Annual Present Value Type of Benefits Being Paid No. Benefits Average of Pensions Straight Life 10-Year Certain and Life Thereafter 100% Contingent Annuitant 66-2/3% Contingent Annuitant 50% Contingent Annuitant Survivor Beneficiaries Death-in-Service Survivors Total Benefits Being Paid City of Sample General Employees' Pension Fund 430 $5,850,134 $13,605 $ 56,914,126 9 147,988 16,443 1,285,918 83 1,303,956 15,710 16,186,653 39 686,339 17,598 8,080,855 91 1,611,077 17,704 16,378,382 77 452,063 5,871 3,725,648 7 36,867 5,267 381,342 736 $10,088,424 $13,707 $102,952,924 ItemcA Attachment number 2 Page 3 of 81 • RETIRED MEMBER AND BENEFICIARY DATA AS OF MM/DD/YY BY ATTAINED AGE Attained Annual Age No. Benefits Average Under 20 1 $ 10,430 $10,430 45 - 49 10 346,424 34,642 50 - 54 30 969,976 32,333 55 - 59 67 1,486,988 22,194 60 - 64 99 1,615,253 16,316 65 - 69 134 1,980,281 14,778 70 - 74 142 1,785,065 12,571 75 - 79 121 1,091,512 9,021 80 - 84 72 497,026 6,903 85 - 89 45 263,252 5,850 Over 90 15 52,726 3,515 Totals 736 $10,098,933 $13,721 0 City of Sample General Employees' Pension Fund Item W Attachment number 2 Page 4 of 81 VESTED TERMINATED MEMBER DATA* AS of MM/DD/YY BY ATTAINED AGE Estimated Attained Annual Age No. Benefits 30 - 34 1 $ 10,520 35 - 39 6 64,973 40 - 44 11 121,082 45 - 49 22 169,024 50 - 54 42 305,341 55 - 59 43 348,337 60 - 64 21 112,925 65 - 69 2 11,955 • Totals 148 $1,144,157 * Includes Regular and LTD Vested Terminated members. • City of Sample General Employees' Pension Fund Item #l? Attachment number 2 Page 5 of 81 9 ACTIVE AND VESTED TERMINATED MEMBERS INCLUDED IN VALUATION Vested Active Valuation Active Term. Member Average Date Members Members Payroll Age Service Pay 9/30/87 1,464 73 $28,532,754 40.5 7.8 $19,490 9/30/88 1,539 79 31,690,527 40.8 7.8 20,592 9/30/89 1,658 73 36,294,629 40.9 7.7 21,891 9/30/90 * 2,110 85 47,295,950 40.1 6.6 22,415 9/30/91 2,119 92 47,668,439 40.7 7.0 22,496 9/30/92 2,205 111 53,128,978 41.0 7.3 24,095 9/30/93 2,206 132 55,889,939 41.5 7.7 25,335 9/30/94 2,213 134 58,718,175 42.2 8.2 26,533 9/30/95 2,197 160 60,103,118 42.4 8.6 27,357 9/30/96 2,201 170 61,939,225 42.9 9.0 28,141 9/30/97 2,121 201 63,131,058 43.3 9.3 29,765 9/30/98 2,068 208 63,457,210 43.8 9.9 30,685 9/30/99 # 1,449 207 46,853,029 44.6 11.0 32,335 • 9/30/00 998 175 35,343,262 45.9 12.0 35,414 9/30/01 665 159 25,777,150 47.4 13.9 38,763 9/30/02 619 172 26,065,429 48.1 14.8 42,109 9/30/03 543 178 24,015,995 48.9 15.9 44,228 9/30/04 499 174 22,264,155 49.5 16.6 44,618 9/30/05 & 455 168 21,459,676 50.0 17.4 47,164 9/30/06 421 159 19,626,410 50.8 18.2 46,619 9/30/07 389 148 19,140,901 51.5 18.8 49,205 * Change in participation requirements. # On MM/DD/YY the plan was closed to new hires and members were allowed to transfer to anew DC plan. Transfers to the DC plan have occurred in every year since. & The pay reported in conjunction with the valuation included 27 pay periods. • City of Sample General Employees' Pension Fund C-13 Item # 5 Attachment number 2 Page 6 of 81 • NUMBER ADDED TO AND REMOVED FROM ACTIVE PARTICIPATION Number Terminations During Year Active Added During D eath in Other Withdrawals Members Year Year Retirement Service Vested Other Total End of Ended A E A E A E A A A E Year 9/30/87 209 164 26 12 0 6 13 125 138 124 1,464 9/30/88 269 194 25 13 1 6 11 157 168 125 1,539 9/30/89 280 161 35 29 1 6 3 122 125 132 1,658 9/30/90 606 154 43 26 0 7 16 95 111 146 2,110 9/30/91 181 172 32 23 1 5 7 132 139 253 2,119 9/30/92 258 172 28 23 1 6 14 129 143 223 2,205 9/30/93 158 157 22 28 3 6 22 110 132 223 2,206 9/30/94 176 169 21 26 8 6 10 130 140 205 2,213 9/30/95 164 180 41 29 6 6 17 116 133 196 2,197 9/30/96 161 157 34 27 2 2 19 102 121 146 2,201 9/30/97 144 186 53 38 1 2 73 97 170 146 2,121 9/30/98 126 174 33 34 5 2 71 70 141 138 2,068 9/30/99 5 0 111 38 1 2 349 163 512 127 1,449 9/30/00 3 0 72 27 1 2 310 71 381 72 998 • 9/30/01 4 0 58 25 0 2 218 61 279 43 665 9/30/02 4 0 18 25 0 2 22 10 32 43 619 9/30/03 0 0 30 19 0 1 32 14 46 20 543 9/30/04 5 0 28 19 0 1 16 5 21 16 499 9/30/05 1 0 30 18 1 1 11 3 14 15 455 9/30/06 0 0 23 21 1 1 7 3 10 14 421 9/30/07 0 0 27 22 0 0 4 1 5 11 389 Subtotals 2003-2007 6 0 138 99 2 4 70 26 96 76 1998-2007 148 174 430 248 9 14 1,040 401 1,441 499 Expected for 9-30-08 21 1 10 A represents a ctual number. E represents expected number. Transfers to the DC plan are included as Retirements, Vested Withdrawals, or Other Withdrawal, based upon eligibility for retirement at time of transfer. • City of Sample General Employees' Pension Fund C-14 Item # 5 Attachment number 2 Page 7 of 81 • ACTIVE MEMBERS AS OF MM/DD/YY BY ATTAINED AGE AND YEARS OF SERVICE Totals Active Attained Years of Service to Valuation Date Member Age 0-4 5-9 10-14 15-19 20-24 25-29 30 Plus No. Payroll 30-34 2 1 3 $ 97,177 35-39 1 8 11 20 832,309 40-44 1 19 23 10 1 54 2,544,398 45-49 13 26 41 6 86 4,420,174 50-54 2 14 23 29 15 2 85 4,419,839 55-59 4 12 20 25 10 5 76 3,804,399 60 2 4 6 4 1 1 18 754,149 61 2 8 2 2 14 732,796 62 1 1 1 1 1 5 282,202 63 5 4 2 1 12 583,687 • 64 2 4 1 7 250,291 65 1 1 53,918 67 3 3 128,179 68 1 1 105,803 69 1 1 2 74,614 71 1 1 28,822 75 1 1 28,144 Totals 14 82 132 115 38 8 389 $19,140,901 Group Averages: Age: 50.8 years Service: 18.2 years Annual Pay: $46,619 CJ City of Sample General Employees' Pension Fund C-15 Item # 5 • U d y a ? a .y ? a z a ? A ? A' a W a a H • W w W ? ? ? a a F W a F ? z a ? 0 • ? N 00 ?O N O ? M i r 01 N N N N ? N N N N N M N It CIA cq .^? 00 00 d M o o r 42 w y cl Q cts G z Q z a o o z LO it E a> 0 a 0 W 0 U Attachment number 2 Page 9 of 81 • SECTION D ACTUARIAL COST METHOD, ACTUARIAL ASSUMPTIONS AND DEFINITIONS OF TECHNICAL TERMS • • Item # 5 Attachment number 2 Page 10 of 81 0 ACTUARIAL COST METHOD The actuarial cost method is a procedure for allocating the actuarial present value of pension benefits to time periods. The method used for your valuation is known as the aggregate actuarial cost method, and has the following characteristics. The present value of future benefits is reduced by the actuarial value of assets and the present value of future member contributions. The remainder is financed as a level percent of future payroll. The actuarial value of assets used for funding purposes is derived as follows: prior year actuarial value of assets are increased by contribution and expected investment income and reduced by refunds, benefit payments and administrative expenses. To this amount is 25% of the difference between expected and actual investment income for each of the previous four years. The actuarial value of assets is limited to no less than 85% and no more than 115% of the market value of assets. n City of Sample General Employees' Pension Fund Item R9 Attachment number 2 Page 11 of 81 • ACTUARIAL ASSUMPTIONS USED FOR THE VALUATION Funding objective contribution requirements and actuarial present values are calculated by applying estimates of future Fund activities (actuarial assumptions) to the benefit provisions and member data of the Fund, using the actuarial cost method described on page D-1. The principal areas of risk which require estimates of future Fund activities are: (i) Rates of inflation impacting assets of the Fund (ii) Long-term rates of real investment return to be generated by the assets of the Fund (iii) Rates of salary increase to members (iv) Rates of mortality among active members, retired members and beneficiaries, and vested terminated members (v) Rates of withdrawal of active members (vi) Rates of disability among active members (vii) Rates of retirement due to age and service • In making a valuation, the monetary effect of each activity is calculated for as long as a present covered person survives --- a period of time which can be as long as a century. Actual activities of the Fund will not coincide exactly with estimated activities due to the nature of the activities. Each valuation provides a complete recalculation of estimated future activities and takes into account the effect of differences between estimated and actual activities to date. The result is a continual series of adjustments (usually small) to the computed contribution rate. From time to time one or more of the estimates are modified to reflect experience trends (but not random or temporary year-to-year fluctuations). The actuarial assumptions regarding the INFLATION rate, REAL INVESTMENT RETURN rate, and SALARY INCREASE rates were adopted effective MM/DD/YY. These estimates are used, in combination with the other estimates, to (i) determine the present value of amounts expected to be paid in the future and (ii) establish rates of contribution which are expected to remain relatively level as a percent of active member covered payroll. is City of Sample General Employees' Pension Fund Item Attachment number 2 Page 12 of 81 • Rates of Investment Return. 8.0% per annum, compounded annually, net of expenses. Rates of Price Inflation. This is the rate at which growth in the supply of money and credit is estimated to exceed growth in the supply of goods and services. It may be thought of as the rate of depreciation of the purchasing power of the dollar. There are a number of indices for measuring the inflation rate. Recent rates of inflation, as measured by the Consumers Price Index, have been: Year Ended September 30 Average 2007 2006 2005 2004 2003 3-Year 5-Year • Actual 2.8% 2.1% 4.7% 2.5% No specific price inflation assumption is used in this valuation. 2.0% 3.2% 2.8% Rates of Real Investment Return over Prices. This is the rate of return produced by investing a pool of assets in an inflation-free environment. The assumed real rate of return is approximately 4.0% over wages, which would correspond to an assumed real rate of return of 4.5% to 5.0% over prices. Recent rates of real investment return on the actuarial value of assets have been: Year Ended September 30 Average 2007 2006 2005 2004 2003 3-Year 5-Year Gross Rate of Return 10.9 % 7.7 % 7.6 % 6.9 % 5.7 % 8.7 % 7.7 % less Invest. Expenses 0.4 0.5 0.5 0.4 0.4 0.5 0.4 Net Rate of Return 10.5 7.2 7.1 6.5 5.3 8.2 7.3 less Inflation Rate 2.8 2.1 4.7 2.5 2.3 3.2 2.8 Net Real Rate of Return 7.7 5.1 2.4 4.0 3.3 5.0 4.5 The total investment return rate was computed using the approximate formula i = I divided by 1/2 (A + B - I), where I is actual realized investment income plus market value adjustments, A is the beginning of year asset value, and B is the end of year asset value. is The preceding investment return rates reflect the particular characteristics of this Fund and the method of determining the actuarial value of assets. They should not be used to measure an investment advisor's performance or for comparison with other pension funds. City of Sample General Employees' Pension Fund Item R-9 Attachment number 2 Page 13 of 81 . Rates of Salary Increase. Employee salaries are estimated to increase between the date of hire and date of retirement. Salary increases occur in recognition of (i) individual merit and seniority, (ii) inflation-related depreciation of the purchasing power of salaries, and (iii) competition from other employers for personnel. A schedule of long-term rates of increase in individual salaries used for the valuation follows for sample ages: Annual Rates of Salary Increase for Sample Ages Attributable to: 30 40 50 60 Merit & Seniority 2.6 % 0.9 % 0.3 % 0.3 % Other Sources 4.0 4.0 4.0 4.0 Total 6.6 % 4.9 % 4.3 % 4.3 % Lump sum payments for unused leave time are not included in the calculation of final average earnings. Recent rates of salary change experience, as measured by average reported pay, have been: Year Ended September 30 Average 2007 2006 2005 2004 2003 3-Year 5-Year 10-Year- Rate of Average Salary Increase: Actual (1) 7.1 % 2.7 % 3.0 % 3.1 % 4.9 % 4.2 % 4.1 % 5.8 % Assumed 4.3 6.0 6.0 6.1 6.1 5.4 5.7 6.6 (1) Excluding terminations and new entrants. • City of Sample General Employees' Pension Fund Item V-9 Attachment number 2 Page 14 of 81 • • Recent comparisons of the net rate of investment return to the rate of actual increase in salaries have been: Net Rate of Investment Return* Rate of Average Salary Increase Difference: Actual Target * Net of investment expenses. Year Ended September 30 Average 2007 2006 2005 2004 2003 3 Year 5 Year 10.5 % 7.2 % 7.1 % 6.5 % 5.3 % 8.3 % 7.3 % 7.1 2.7 3.0 3.1 4.9 4.2 4.1 3.4 4.5 4.1 3.4 0.4 4.0 3.1 4.0 % 4.0 % 4.0 % 3.5 % 3.5 % 4.0 % 3.8 % Rates of Mortality. The 1994 Group Annuity Mortality Table (GA94) set back 0 years for men and women, effective with the MM/DD/YY valuation. Sample values follow: GA94 Table Value of Future Life Sample $1 Monthly For Life Expectancy (Years) Ages Men Women Men Women 50 $134.63 $140.32 30.69 34.89 55 127.16 134.40 26.15 30.17 60 117.78 126.60 21.83 25.59 65 106.80 117.13 17.84 21.28 70 94.73 106.11 14.29 17.30 75 81.36 92.79 11.12 13.60 80 67.17 77.98 8.37 10.31 is These rates are used to measure the probabilities of members dying before retirement and the probabilities of each benefit payment being made after retirement. The values shown above do not include the effect of any cost-of-living adjustments. City of Sample General Employees' Pension Fund Item 9 Attachment number 2 Page 15 of 81 v Rates of Withdrawal from Active Membership. These rates represent the probabilities of members leaving employment for reasons other than death or disability and prior to their becoming eligible to retire. Sample Rates of Withdrawal Ages Within Next Year 25 6.90% 30 6.30% 35 5.70% 40 4.50% 45 4.20% 50 3.80% 55 3.40% 60 3.00% • • These rates were first used for the MM/DD/YY valuation. Rates of Disability. These rates represent the probabilities of active members becoming disabled. Sample Ages Rates of Disability Within Next Year 0.04% 0.04% 0.12% 0.22% 0.42% 0.72% 1.12% 1.66% 25 30 35 40 45 50 55 60 These rates were first used for the MM/DD/YY valuation. City of Sample General Employees' Pension Fund D- Item # Attachment number 2 Page 16 of 81 0 Rates of Retirement. These rates represent the probabilities of eligible members retiring. Rates of Retirement Within Next Year Years of Service Based Retirement Age Based Rates Service Rates Ages Early Normal 25 25% 55 10% 26 10% 56 5% 27 10% 57 5% 28 15% 58 5% 29 5% 59 5% 30 30% 60 5% 31 30% 61 5% 32 30% 62 10% 33 30% 63 10% 34 30% 64 10% 35 100% 65 25% 66 25% 67 25% 68 25% 69 25% 70 100% These rates were first used for the MM/DD/YY valuation. Expenses. Administrative expenses are included as an additional employer contribution to provide for reimbursement of these expenses. Investment expenses are offset against gross investment income. This is unchanged from previous valuations. Active Member Group Size. The valuation was based on a closed active member group size. Transfers to the DC Plan. Rates of Retirement and Rates of Withdrawal include members transferring to the DC Plan. Marital Status. Eighty percent of active members who meet the age and service requirements for pre-retirement surviving benefits are estimated to be married. Female spouses are assumed to be 3 years younger than the male participant. Male spouses are assumed to be 3 years older then the female participant. This is unchanged from previous valuations. • City of Sample General Employees' Pension Fund Item D Attachment number 2 Page 17 of 81 MISCELLANEOUS AND TECHNICAL ASSUMPTIONS MM/DD/YY Marriage Assumption: 80% of males and 80% of females are assumed to be married for purposes of death-in-service benefits. Male spouses are assumed to be three years older than female spouses for active member valuation purposes. Pay Increase Timing: Beginning of (Fiscal) year. This is equivalent to assuming that reported pays represent amounts paid to members during the year ended on the valuation date. Decrement Timing: Decrements of all types are assumed to occur mid-year. 0 Adjustments: None. Eligibility Testing: Eligibility for benefits is determined based upon the age nearest birthday and service nearest whole year on the date the decrement is assumed to occur. Decrement Relativity: Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Decrement Operation: Disability does not operate during retirement eligibility. Service Credit Accruals: It is assumed that members accrue one year of service credit per year. Incidence of Contributions: Contributions are assumed to be received continuously throughout the year based upon the computed percent of payroll shown in this report, and the actual payroll payable at the time contributions are made. Normal Form of Benefit: A straight life benefit is the normal form of benefit. Benefit Service: Exact Fractional service is used to determine the amount of benefit payable. City Contributions: Dollar contributions are developed using expected pay for the upcoming fiscal year. City of Sample General Employees' Pension Fund Item 9 Attachment number 2 Page 18 of 81 0 DEFINITIONS OF TECHNICAL TERMS Accrued Service - Service credited under the system which was rendered before the date of the actuarial valuation. Actuarial Accrued Liability - The difference between the actuarial present value of future benefits payments and the actuarial present value of future normal costs. Also referred to as "accrued liability" or "past service liability." Actuarial Assumptions - Estimates of expected fixture experience with respect to rates of mortality, disability, withdrawal, retirement, rate or rates of investment income, inflation and salary increases. Decrement estimates (rates of mortality, disability, withdrawal and retirement) are generally based on past experience, often modified for projected changes in conditions. Fiscal estimates (investment income and salary increases) consist of an underlying rate in an inflation-free environment plus a provision for a long-term average rate of inflation. Actuarial Cost Method - A mathematical budgeting procedure for allocating the dollar amount of the "actuarial present value of future benefit payments" between future normal cost and actuarial accrued liabilities. Sometimes referred to as the "actuarial valuation cost method." Actuarial Equivalent - A single amount or series of amounts which is of equal actuarial present value to another single amount or series of amounts, computed on the basis of appropriate actuarial assumptions. Actuarial Present Value - The amount of funds currently required to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payment. Also referred to as "present value." • City of Sample General Employees' Pension Fund Item R-9 Attachment number 2 Page 19 of 81 Actuarial Value of Assets - The value of assets derived by spreading capital value changes (unrealized and realized gains and losses) in equal dollar installments over four years. This treatment removes the timing of investment activities from the valuation process. Amortization - Paying off an interest-discounted amount with periodic payments of interest and principal -- as opposed to paying it off with a lump sum payment. Experience Gain (Loss) - The difference between actual experience costs and anticipated actuarial costs -- during the period between two actuarial valuation dates. Normal Cost - The actuarial cost allocated to the current year by the actuarial cost method. Sometimes referred to as "current service cost." • • City of Sample General Employees' Pension Fund D-10 Item # 5 Attachment number 2 Page 20 of 81 SECTION E THE PRESENT VALUE OF FUTURE BENEFIT PAYMENTS AND CERTAIN OTHER DISCLOSURES REQUIRED BY STATEMENTS NO. 25 AND NO. 27 OF THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD This information is presented in draft form for review by the Plan's auditor. Please let us know if there are any items that the auditor changes so that we may maintain consistency with the Plan's financial statements. • Item # 5 Attachment number 2 Page 21 of 81 0 PRESENT VALUE OF FUTURE BENEFIT PAYMENTS The present value of future benefit payments is the discounted value of benefits likely to be paid to participants based on the assumptions found in Section D of this report. Allocation of the unfunded actuarial present value of projected benefits over future service was based on the aggregate actuarial cost method. Assumptions, including projected pay increases, were the same as used to determine the Fund's level percent of payroll annual required contribution between the valuation date and assumed exit age. The preceding methods comply with the financial reporting standards established by the Governmental Accounting Standards Board. The aggregate actuarial accrued liability was determined as part of an actuarial valuation of the plan as of MM/DD/YY. Significant actuarial assumptions used in determining the aggregate actuarial accrued liability include (a) a rate of return on the investment of present and future assets of 8.0% per year compounded annually, (b) projected salary increases of 4.0% per year compounded annually, attributable to inflation and other sources, (c) additional projected salary increases of 4.0% to 0.3% . per year attributable to seniority/merit, and (d) the assumption that benefits will increase after retirement according to the COLA provisions. As of MM/DD/YY, the unfunded present value of future benefit payments was determined as follows: Present Value of Future Benefit Payments Active members $ 98,697,441 Retired members and beneficiaries currently receiving benefits 102,952,924 Vested terminated members not yet receiving benefits 7,035,609 Total Present Value of Future Benefit Payments 208,685,974 Actuarial Value of Assets (market value was $171,241,019) 179,926,736 Unfunded Present Value of Future Benefit Payments $ 28,759,238 During the year ended MM/DD/YY the Plan experienced a net change of the present value of future benefit payments of $7,794,766. • City of Sample General Employees' Pension Fund E-1 Item # 5 Attachment number 2 Page 22 of 81 OTHER RELEVANT MM/DD/YY VALUATION STATISTICS Members Included in Valuation Active Members Vested 389 Non-Vested 0 Retired Members and Beneficiaries 736 Vested Terminated Members 148 DETERMINATION OF ACTUARIAL VALUE OF ASSETS (1) Original Period Amount to be py Allocated (2) 2003-04 2004-05 2005-06 2006-07 At 9/30/03 Before Reamortization: 00/01 $ (16,734,298) 01/02 (20,939,476) 02/03 TOTAL 8,334,233 At 9/30/04 After Reamortization: 02/03 (3) (8,402,636) $ (2,800,879) $ (2,800,879) $ (2,800,878) 03/04 1,647,313 411,828 411,828 411,828 $ 411,829 04/05 4,054,395 1,013,599 1,013,599 1,013,599 05/06 472,586 118,147 118,147 06/07 10,051,677 2,512,919 TOTAL (2,389,051) (1,375,452) (1,257,304) 4,056,494 Net contribution per year (4) 3,853,624 5,357,842 5,886,495 7,422,688 Beginning actuarial value 158,371,400 159,835,973 163,818,363 168,447,554 Ending actuarial value $159,835,973 $163,818,363 $168,447,554 $179,926,736 Remaining Amount to be Allocated Per Year Total $ (4,183,573) $ (4,183,573) (5,234,869) (10,469,738) 2,083,558 6,250,675 $ (8,402,636) $1,013,599 1,013,598 118,147 236,292 2,512,919 7,538,758 $ 8,788,648 (1) General Employees' Pension Plan includes Component Units' employees. (2) Represents the difference between assumed and actual investment income to be smoothed over the present and three future periods, (114) each year. (3) Outstanding amounts as ofMM/DDIYYwere reamortized over the three yearperiod beginning MMIDDIYY. (4) Represents net change in actuarial value from non-investment cash.Jlow and assumed investment income. • City of Sample General Employees' Pension Fund E-2 Item # 5 Attachment number 2 Page 23 of 81 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (Dollar amounts are in millions) Based on Aggregate Cost Method Present Active UPVFB as Actuarial Actuarial Value of Member a Percentage of Valuation Value of Future Benefits Unfunded Funded Covered Active Member Date Assets (PVFB) PVFB Ratio Payroll Covered Payroll September 30 (a) (b) (b)-(a) (a)/(b) (c) ((b-a)/c) 2000 $169.89 $210.24 $40.35 80.81 % $35.34 114.2 % 2001 155.28 184.21 28.93 84.30 25.78 112.2 2002 157.44 191.14 33.70 82.37 26.07 129.3 2003 158.37 192.14 33.77 82.42 24.02 140.6 2004 * 159.84 194.40 34.56 82.22 22.26 155.2 2005 * 163.82 196.84 33.02 83.22 20.83 158.5 2006 168.45 200.89 32.44 83.85 19.63 165.3 2007 179.93 208.69 28.76 86.22 19.14 150.3 Based on Entry Age Normal Cost Method Actuarial Active Unfunded AAL as Actuarial Actuarial Accrued Member a Percentage of Valuation Value of Liability Unfunded Funded Covered Active Member Date Assets (AAL) AAL Ratio Payroll Covered Payroll September 30 (a) (b) (b)-(a) (a)/(b) (c) ((b-a)/c) 2000 $ 169.89 $ 167.34 ($2.55) 101.5 % $ 35.34 (7.2) % 2001 155.28 155.11 (0.17) 100.1 25.78 (0.7) 2002 157.44 162.68 5.24 96.8 26.07 20.1 2003 158.37 167.04 8.67 94.8 24.02 36.1 2004 * 159.84 171.47 11.63 93.2 22.26 52.2 2005 * 163.82 179.50 15.68 91.3 20.83 75.3 2006 168.45 185.47 17.02 90.8 19.63 86.7 2007 179.93 194.11 14.18 92.7 19.14 74.1 * After changes in benefits and/or actuarial assumptions and/or actuarial cost methods. • City of Sample General Employees' Pension Fund Item #N Attachment number 2 Page 24 of 81 • CONTRIBUTIONS REQUIRED AND CONTRIBUTIONS MADE The City's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of covered payroll, are designed to accumulate sufficient assets to pay benefits when due. Effective MM/DD/YY, the contributions are determined using the aggregate actuarial cost method. Prior to this, the normal cost and actuarial liability were determined using the entry age actuarial cost method. During the year ended MM/DD/YY contributions totaling $5,255,203 -- $4,273,029 employer and $982,174 employee -- were made in accordance with contribution requirements determined by an actuarial valuation of the Fund as of MM/DD/YY. Employer contributions represented 21.74% of MM/DD/YY covered payroll. Schedule of Employer Contributions • Fiscal Valuation Annual Year Date % of Estimated Percentage 10-1/9-30 9-30 Payroll Contribution Contributed 1995-96 1995 11.48 % $7,070,229 100.0 % 1996-97 1996 12.21 7,749,542 100.0 1997-98 1997 10.97 7,096,502 100.0 1998-99 1998 11.27 7,437,896 100.0 1999-00 1999 10.14 4,750,379 100.0 2000-01 2000 7.71 2,726,375 100.0 2001-02 2001 8.63 2,215,979 100.0 2002-03 2002 11.09 2,883,092 100.0 2003-04 2003 13.06 3,123,144 100.0 2004-05 2004 15.42 3,421,203 100.0 2005-06 2005 19.72 4,123,327 100.0 2006-07 2006 21.74 4,273,029 100.0 2007-08 2007 20.31 3,894,616 This information is presented in draft form for review by the City's auditor. Please let us know if there are any items that the auditor changes so that we may maintain consistency with the City's • financial statements. City of Sample General Employees' Pension Fund E-4 Item # 5 • • • w z con w H M? W w ?w A F., L y w w ?; A a ? ? o w v? W a O w C y a 0 ? rA r+ O \° o w a a N O O O O O O O O O ,n C O y o L G? QI ° ~ O O O O O O O O y,, O v? N f`1 0o M O O ? O? M to v'i m [? Q y O 00 M N [? Itt M kn V'1 00 ? 00 00 ? l- 110 ?c 01 ? 69 O V9 ?!1 00 ? O - .a i. O V1 00 M O\ [- r- d C y i. "I?t v1 1 O to 00 l- ee C (? kr ?D to ?G M 0\ ,O '-+ _ u "t g, r- 00 00 M O O 01 O o0 M M W = M O O O 0\ cl? 01 C 6R w (A 00 IC 00 C14 N 00 V) N N It N [? 0 yr '-+ N M d M N a1 m 00 N N ^ 0 0 O "T O ?10 - j V 00 CIF C r- 00 00 0, o O ? l+ M 0 M V 00 -- ,p N ?D O ,^ G? a 1 ',6 ) (3? 01 v-, 00 kr M 06 N t? 00 C M V '6 m \C 00 ? m rn 0 0 - C 00 00 00 0? C a; O U 4ES , G o O O O ? A N O N o N O N o O N O O N O O N O O N O 0\ C1 01 ON 0\ C1 C, 0\ w LO it E a> w 0 Q. 0 a E W c C7 a? a w 0 U Attachment number 2 Page 26 of 81 GRS Gabriel Roeder Smith & Company One Towne Square Consultants & Actuaries Suite 800 Southfield, Ml 48076-3723 248.799.9000 phone 248.799.9020 fax www.gabrielroedeccom Date Recipient's Name City of Sample General Employees' Pension Fund Street Address City, State XXXXX Dear Recipient's Name: Enclosed please find 40 copies of the report of the MM/DD/YY actuarial valuation of the City of Sample General Employees' Pension Fund. • Sincerely, Lead Actuary XXX:xxx Enclosures 49 Item # 5 Attachment number 2 Page 27 of 81 0 APPENDIX E SAMPLE OPEB ACTUARIAL VALUATION REPORT 0 U Item # 5 Attachment number 2 Page 28 of 81 • • • CITY OF ABC OTHER POST-EMPLOYMENT BENEFITS ACTUARIAL REPORT AS OF OCTOBER 1, 2006 Item # 5 Attachment number 2 Page 29 of 81 0 September 1, 2007 Mr. John Doe Finance Director City of ABC 100 1 st Street ABC, FL 33123 Re: GASB Statement No. 45 Impact Study On Other Post-Employment Benefits (OPEB) Dear Mr. Doe: Gabriel Roeder Smith & Company (GRS) has been engaged by the City of ABC to perform an Actuarial Valuation of certain Other Post-Employment Benefits (OPEB) provided to its retiring employees. We are pleased to present the results herein. The Valuation was performed as of October 1, 2006 and covers the implicit subsidies for medical (including prescription drug), dental and life insurance benefits provided to all City retirees. No other OPEBs were considered in the Valuation. Any reportable other post-employment benefits provided through the Retiree VEBA Trusts for Firefighters and Police Officers would be the subject of separate Actuarial Valuation Reports. The actuarial calculations were prepared for the purpose of complying with the requirements of Statement No. 45 of the Governmental Accounting Standards Board (GASB) and have been made on a basis consistent with our understanding of these accounting standards. Determinations of the liability associated with the benefits described in this Report for purposes other than satisfying the City's financial reporting requirements may produce significantly different results. This Report may be provided to parties other than the City of ABC only in its entirety and only with the permission of the City. All actuarial calculations were performed on the basis of the Substantive Plan and the Actuarial Assumptions and Methods, as set forth in the respective sections of this Report. The Valuation was performed on the basis of employee, retiree and financial information supplied by the City officials. Although we did not audit this information, it was reviewed for reasonableness. The undersigned is a member of the American Academy of Actuaries and meets the Qualification Standards of the Academy of Actuaries to render the actuarial opinion herein. We will be pleased to answer any questions pertaining to the Valuation and to meet with you to review this Report. Respectfully submitted, GABRIEL, ROEDER, SMITH AND COMPANY 9MA91V By: James J. Rizzo, ASA, MAAA • Senior Consultant and Actuary Item # 5 Attachment number 2 Page 30 of 81 • TABLE OF CONTENTS SECTION TITLE PAGE A EXECUTIVE SUMMARY 1 B SUMMARY OF ACTUARIAL VALUATION RESULTS 1. SUMMARY OF ACTUARIAL VALUATION RESULTS 5 2. 20 -YEAR PROJECTION OF UNFUNDED CASH FLOW 7 3. 10 -YEAR PROJECTION OF NET OPEB OBLIGATION 8 4. AGE AND SERVICE TABLES 9 • • C DEVELOPMENT OF INITIAL PER CAPITA COSTS 12 D ACTUARIAL ASSUMPTIONS AND METHODS 16 E SUMMARY OF SUBSTANTIVE PLAN PROVISIONS 22 GRS Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 31 of 81 • SECTION A EXECUTIVE SUMMARY • 0 Item # 5 Attachment number 2 Page 32 of 81 • EXECUTIVE SUMMARY The Governmental Accounting Standards Board (GASB) issued Statement No. 45 to set forth rules for how governmental employers should account for Other Post-Employment Benefits (OPEBs). This Accounting Standard is effective for fiscal years beginning after December 15, 2006 for governments that were "Phase I" governments for the purpose of implementing Statement No. 34. The City of ABC has indicated that it was a Phase 1 entity for that purpose. Thus, the latest implementation date for the City is the '07208 fiscal year. However, the GASB encourages early implementation. The results presented herein are applicable to the year ending September 30, 2008. This Actuarial Valuation and Report covers the OPEBs provided to the retirees of the City of ABC. The Substantive Plan provisions for the City's OPEBs are described in the Section at the end of this Report entitled "Summary of Substantive Plan Provisions." GASB'S RATIONALE The issuance of GASB Statement Nos. 43 and 45 marks another major step in GASB's movement toward full accrual accounting for all governmental entities which issue financial statements according to generally accepted accounting principles. Until now, the costs of OPEBs have been reflected in governmental financial statements on a pay-as-you-go basis of accounting. Currently, the subsidy provided by the City has been recorded as an expense only after employees retire, and then only one year at a time as the subsidy is paid. Statement No. 45 views the subsidy for retiree medical benefits as a form of compensation and the subsidy must be accrued on the books of the City during an employee's working life, rather than wait until the employee's service to the City has been completed and he or she has retired. Thus, GASB requires the lifetime value of that subsidy to be expensed over the working career of the employees. IMPLICIT RATE SUBSIDY According to the Substantive Plans, retired Police Officers, Firefighters and General Employees as well as their dependents are permitted to remain covered under the City's respective medical plans as long as they pay the premium charged by the insurance company or benefit fund for the plan and coverage elected. This conforms to the minimum required of Florida governmental employers per Ch. 112.08, F.S. The City's underlying health plans are fully insured. It may appear, at first glance, that there is no obligation on the part of the City for the retiree coverage, since the retirees are charged whatever the insurance companies charge for the type of coverage elected. However, the premiums charged by the insurance company are based on a blending of the experience among younger active employees and older retired employees. Since the older retirees actually have higher costs, this means that the City is actually subsidizing the cost of the retiree coverage because it pays all or a significant portion of that premium on behalf of the active employees. GASB No. 45 calls this the "implicit rate subsidy". Even though it appears that there is no City subsidy of retiree coverage, there really is, and it is not an insignificant amount. A group of 60-year-old retirees can easily cost twice as much as the City is collecting from them for coverage. The City, therefore, has assumed an obligation to pay for that implicit subsidy for the covered lifetime of the current retirees and their dependents, as well for the covered lifetime of the current employees after they retire in the future. Measuring the current year's implicit subsidy and projecting that subsidy (for all Police Officers, Firefighters and General Employees) for decades into the future and making an allocation of that cost to different years, is • the subject of this Actuarial Valuation and Report. GRS Gabriel Roeder Smith & Company -1- Item # 5 Attachment number 2 Page 33 of 81 0 EXPLICIT SUBSIDIES In addition to the implicit subsidies considered in this Actuarial Valuation Report (for all Police Officers, Firefighters and General Employees), the City also contributes to two separate Retiree VEBA Trusts which provide additional "other post-employment benefits" to retiring Firefighters and Police Officers, respectively. These additional benefits may also be considered OPEBs for the purposes of GASB Statement No. 45. However, they are not considered within the scope of this Actuarial Valuation Report. FUNDED AND UNFUNDED PLANS According to GASB Statement No. 45, certain expense and liability numbers will need to be included in the City's Comprehensive Annual Financial Report (CAFR). However, GASB is not requiring the City to actually advance-fund the OPEB Plan by forming a Trust and pre-funding the obligation like pension benefits. That may be advisable, but it is still an option available to the City, whether to pre-fund or not to pre-fund. Currently, the City's OPEB benefits are unfunded. That is, there is no separate Trust Fund or equivalent arrangement into which the City would make contributions to advance-fund the obligation, as it does for its pension plans. Therefore, the ultimate subsidies which are provided over time, are financed directly by general assets of the City, which are invested in very short-term fixed income instruments according to its current investment policy. Consequently and for the City's unfunded OPEB Plan, according to GASB Statement No. 45, the interest discount rate used to calculate the present values and costs of the OPEB must be the long-range expected return on such short-term fixed income instruments. The City selected an interest discount rate of 4.75% for this purpose. However, if the OPEB Plan were advance-funded and if its assets were invested in a reasonable mix of stocks and bonds, like pension funds, then a much higher interest discount rate may be used, say, 7% to 8%. This would result in a substantially lower Annual OPEB Cost and a substantially lower Unfunded Actuarial Accrued Liability than if 4.75% were used. ACTUARIAL ASSUMPTIONS In any long-term Actuarial Valuation (such as for Pensions and OPEBs), certain demographic, economic and behavioral assumptions are made concerning the population, the investment discount rates and the benefits provided. These Actuarial Assumptions form the basis for the actuarial model which is used to project the future population, the future benefits provided, and the future contributions collected. The demographic assumptions used for projecting the future population for this OPEB Valuation were essentially the same as those used to project the future populations for the Police, Firefighter and General Employee Pension Plans. The investment discount rate assumption is used to discount the projected net OPEB benefits to a present value. This and other related present values are used to calculate the Annual OPEB Cost that will be expensed in the City's financial statements and the Unfunded Actuarial Accrued Liability disclosed in the statements as well. It would be instructive to review the Section of this Report titled, "Actuarial Assumptions and Methods" for details of all the relevant Actuarial Assumptions used in this Valuation. ACTUARIAL COST METHODS GASB Statement No. 45 allows flexibility to governmental employers in the use of various actuarial cost methods. Several such acceptable actuarial cost methods were investigated. The goal was to recommend to the City the combination of acceptable and appropriate actuarial cost methods that would produce the lowest measure of the liabilities and OPEB Cost. GRS Gabriel Roeder Smith & Company -2- Item # 5 Attachment number 2 Page 34 of 81 • Liabilities and OPEB Costs for the City's Plan were developed using various actuarial cost methods, such as under the Entry Age Normal Cost Method, the Frozen Entry Age Normal Cost Method, the Aggregate Cost Method and the Projected Unit Credit Normal Cost Method. Furthermore, the Normal Costs and the amortization of any Unfunded Actuarial Accrued Liabilities were calculated using both level dollar and level percent of expected pay. The results presented herein have been obtained using the Entry Age Actuarial Cos Method with a closed amortization of the Unfunded Actuarial Accrued Liability as a level percent of expecte payroll. This is the most common such method used for Pension and OPEB valuations. SUMMARY t d Following is a chart that summarizes the key results of this Actuarial Valuation for City's OPEB. The results of the Pension Valuations of the City's three defined benefit pension plans are presented alongside the OPEB results just to give some context to the OPEB results. More details can be found on following pages. OPEB Pension E As of October 1. 2006 Actuarial Accrued Liability $ 23,771,433 $ 359,681,003 Actuarial Value of Assets $ - $ 279,545,364 Unfunded Actuarial Accrued Liability $ 23,771,433 $ 80,135,638 For FYE September 30, 2008 Annual OPEB or Pension Cost $ 2,161,911 $ 10,021,706 Per Covered Active Employee $ 1,496 $ 18,057 As % of Expected Covered Payroll 2.7% 25.6% Expected Employer Contribution Toward the Benefit Cost $ (857,002) $ 10,021,706 Expected Net OPEB or Pension Obligation $ 1,304,909 $ - Note: The OPEB liabilities and costs presented above reflect only the City's OPEB Plan which arises on account of the implicit subsidy of medical coverage provided to retired Police Officers, Firefighters and General Employees and dependents. This is the subsidy built into the active life premiums as necessary to subsidize the group rate charged to retirees. These do not reflect any OPEB liabilities and costs arising from the benefits provided to retired City Firefighters and Police Officers through their respective retiree VEBA Funds. Any such OPEB liabilities and costs required to be reported under GASB Statement No. 43 and 45 would need to be presented in separate Actuarial Valuation Reports, and reported separately in the City's CAFR. The Unfunded Actuarial Accrued Liability represents an actuarial measurement of the funding obligation that has "accrued" so far, based on the promise that has been made to current retirees and to current employees. This will be displayed in the Notes to Financial Statements and Required Supplementary Information within the City's CAFR. The Annual OPEB Cost is the amount that is expensed for the year. Since the City's OPEB plan is currently unfunded, the offset to that expense comes from actual subsidies paid on behalf of the current retirees and their dependents for the current year. This offset is called the Employer Contribution, and equals the total age- adjusted premiums paid by the City for coverage for the retirees and their dependents for the year (net of the retiree's own payments for the year). The chart above presents the expected amount of such Employer Contributions. • GRS Gabriel Roeder Smith & Company -3- Item # 5 Attachment number 2 Page 35 of 81 The cumulative difference between the Annual OPEB Cost for the year and the Employer Contribution for the year is called the Net OPEB Obligation. This is the amount of the expense charged for the year (per GASB No. 45) which was not yet offset by Employer Contributions. The Net OPEB Obligation will be reflected as a liability in the Statement of Net Assets of the City's CA-FR. It flows right to the balance sheet, and remains there and accumulates each year until fully paid off by future Employer Contributions. CITY OF ABC CAFR The figures, above, would be integrated into the City's government-wide financial statements. There are some issues to flesh-out with respect to any proprietary funds in the CAFR. A full discussion and treatment of these matters is beyond the scope of this Actuarial Valuation Report, but will need to be addressed more thoroughly, if necessary, as the time approaches when the City actually implements GASB Statement No. 45. PLAN CHANGES AND OPTIONS Since the implicit medical subsidy which the City of ABC currently provides is the minimum subsidy required under state Statutes (Ch. 112.080 1, F. S.), there is not much more that can be changed to minimize the effect of implementing GASB Statement No. 45. The medical portion of the implicit subsidy cannot be reduced. However, there are a couple options which could be considered. The cost of life insurance to retirees is currently subsidized by charging them the group rate. The statute does not require implicit subsidies for life insurance, only for medical-related insurance coverage. A GASB Technical Bulletin states that receipt of the Medicare Part D Retiree Drug Subsidy (RDS) payments cannot be considered as a reduction of the OPEB costs and liabilities. Certain insured prescription programs • have the RDS payments built into their premiums so as to lower the costs, and that is permitted to be recognized in the OPEB calculations. This might be considered. Sometimes, offering an alternative Medicare product as an alternative to the City's Plan can induce retirees to drop out of the City's plan and possibly reduce the OPEB liability while providing them with alternative to individual insurance. This is not always a successful strategy, but is worth considering. Finally, the City could consider establishing an OPEB Trust Fund, for the purpose of advance-funding this implicit rate subsidy. This OPEB Trust would be in addition to and not to be confused with the two retiree VEBAs or with any previously proposed retiree VEBA for General Employees. The City could make cash contributions (in excess of the level of implicit subsidy currently provided) to this OPEB Trust Fund, which would pay the implicit subsidies and invest the remainder so as to accumulate for future payments. The liability created for a Plan that provides only the implicit subsidies may not be large enough to justify establishing an OPEB Trust and the mechanism for its operation. But it may be worth considering. • GRS Gabriel Roeder Smith & Company -4- Item # 5 Attachment number 2 Page 36 of 81 • SECTION B SUMMARY OF ACTUARIAL VALUATION RESULTS • 0 Item # 5 Attachment number 2 Page 37 of 81 • 0 • ACT[?ARIAL VAL,LJATION RESt;LTB as of 0(tot wr 1, 2(HK) Total Medical/Rx Total Retirees' Life Insurance Net Employer Costs Premiums Costs Number of Participants Covered Active Participants 1,445 1,445 1,445 1,445 Retired Participants 143 143 143 143 Total Participants 1,588 1,588 1,588 1,588 Expected Payroll of Active Participants $ 76,306,127 $ 76,306,127 76,306,127 $ 76,306,127 Actuarial Present Value of Benefits Active Participants 60,113,444 (33,498,346) 631,530 27,246,628 Retired Participants 21,884,401 (12,673,879) 530,376 9,740,898 Total Participants 81,997,845 (46,172,225) 1,161,906 36,987,526 Actuarial Accrued Liability (Entry Age Normal Cost Actuarial Method) Active Participants 31,778,503 (18,115,939) 367,971 14,030,535 Retired Participants 21,884,401 (12,673,879) 530,376 9,740,898 Total Participants 53,662,904 (30,789,818) 898,347 23,771,433 Actuarial Value of Assets - - Unfunded Actuarial Accrued Liability (EANC) 53,662,904 (30,789,818) 898,347 23,771,433 Annual Required Contribution of the Employer (ARC) for YE 9/30/08 (Entry Age Normal Cost Actuarial Method) Normal Cost 2,655,865 (1,477,103) 32,945 1,211,707 30-Year Amortization of UAAL 1,712,462 (982,548) 28,667 758,581 Interest (to 9/30/08) 424,847 (239,216) 5,992 191,623 Total Annual OPEB Cost for FYE 9/30/08 $ 4,793,174 $ (2,698,867) $ 67,604 $ 2,161,911 Per Active Participant 3,317 (1,868) 47 1,496 As % of Expected Covered Payroll 6.3% (3.50/6) 0.1% 2.7% Expected Net Employer Contr. for FYE 9/30/08 (for crediting against Annual OPEB Cost) $ 1,892,267 $ (1.066,777) $ 31,511 $ 857,002 Expected Net OPEB Obligation at 9/30/08 $ 2900,907 $ (1,632,090) $ 36,093 $ 1304,909 Note: The OPEB liabilities and costs presented above reflect only the City's OPEB Plan which arises on account of the implicit subsidy, of medical coverage provided to retired Police Officers, Firefighters and General Employees and dependents. This is the subsidy built into the active life premiums as necessary to subsidize the group rate charged to retirees. These do not reflect any OPEB liabilities and costs arising from the benefits provided to retired City Firefighters and Police Officers through their respective retiree VEBA Funds. Any such OPEB liabilities and costs required to be reported under GASB Statement No. 43 and 45 would need to be presented in separate Actuarial Valuation Reports, and reported separately in the City's CAFR. GRS Gabriel Roeder Smith & Company -5- Item # 5 Attachment number 2 Page 38 of 81 ACTUARIAL VALUATION RESUL I'S as of October 1, 2006 her of Participants Covered Active Participants Retired Participants Gen' Participants Payroll of Active Participants Actuarial Present Value of Benefits Active Participants Retired Participants Total Gen' Participants Actuarial Accrued Liability (Entry Age Normal Cost Actuarial Method) Active Participants Retired Participants Total Gen' Participants Actuarial Value of Assets Unfunded Actuarial Accrued Liability (EANC) Annual Required Contribution of the Employer (ARC) for YE 9/30/08 (Entry Age Normal Cost Actuarial Method) Normal Cost 30-Year Amortization of UAAL Interest (to 9/30/08) 'Total Gen' Annual OPEB Cost for FYE Per Active Participant As % of Expected Covered Payroll Expected Net Employer Contr. for FYE 9/30/08 (for crediting aeainst Annual OPEB Cost) General Police Officers Firefighters Total Net Employees Employer Costs 9595 8 I 2468 0 I 1482 5 I 1,445 143 $ 46,329,958 $ 18,774,734 11,201,436 1 $ 76,306,127 8,878,840 9,694,362 8,673,426 27,246,628 2,723,255 3,518,447 3,499,196 9,740,898 1,602,095 13,212,809 12,172,622 36,987,526 4,853,247 5,128,371 4,048,917 14,030,535 2,723,255 3,518,447 3,499,196 9,740,898 7,576,502 8,646,818 7,548,113 23,771,433 7,576,502 8,646,818 7,548,113 23,771,433 438,335 414,137 359,234 1,211,707 241,777 275,933 240,871 758,581 66,145 67,114 58,364 191,623 $ 746,257 $ 757,184 $ 658,469 $ 2,161,911 750 2,825 3,618 1,496 1.5% 3.8% 5.6% 2.7% $ 283,492 I $ 290,221 1 $ 283,289 1 $ 857,002 $ 462,765 $ 466,963 $ 375,180 $ 1,304,909 Note: The OPEB liabilities and costs presented above reflect only the City's OPEB Plan which arises on account of the implicit subsidy, of medical coverage provided to retired Police Officers, Firefighters and General Employees and dependents. This is the subsidy built into the active life premiums as necessary to subsidize the group rate charged to retirees. These do not reflect any OPEB liabilities and costs arising from the benefits provided to retired City Firefighters and Police Officers through their respective retiree VEBA Funds. Any such OPEB liabilities and costs required to be reported under GASB Statement No. 43 and 45 would need to be presented in separate Actuarial Valuation Reports, and reported separately in the City's CAFR. Note: The total costs and liabilities of the City for the implicit subsidies only, as shown above, are split among General Employee, Police Officers and Firefighters. This split recognizes the different demographics (age, service and gender), different actuarial assumptions as to turnover and retirement rates, different retirement eligibility requirements of each respective employee group, and different current claims and premium costs. It is a fair representation of the true costs and liabilities of each respective group. • GRS Gabriel Roeder Smith & Company -6- Item # 5 Attachment number 2 Page 39 of 81 TWENTY-YEAR PROJECTION OF UNFUNDED CASH FLOW Premiums collected from employees and retirees account only for a fraction of the cost of the health care benefits provided. The table and a graph below illustrate, based on the closed group projection, how the cost of the benefits is distributed between the Employer and the retirees. These projected benefits are solely for those among the current employees and retirees, without regard for benefits that might become payable to those who have not yet been hired. Ignoring new hires for the purpose of these projections is acceptable because those new hires are not likely to add much to the subsidies' cash flow until after about 20 years anyway. Total 13cnefits Ilctirees Nei VAmployer Year Premiums Subsidy E•:XpRcteii H.XpeetL'(] EXIRLded 2008 $ 1,923,778 $ 1,066,777 $ 857,002 2013 3,378,020 1,876,273 1,501,747 2018 4,730,723 2,588,474 2,142,249 2023 5,527,064 3,020,469 2,506,595 2028 6,298,881 3,454,999 2,843,882 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 20 Total Annual Cost of Retirees' Coverage • GRS Gabriel Roeder Smith & Company -7- Item # 5 Attachment number 2 Page 40 of 81 • 0 TEN-YEAR PROJECTION OF NET OPEB OBLIGATION All results presented in this report assume no advance-funding of this OPEB Plan. It assumes the current operation of the Plan continues without change. The graphics and table below illustrate how the Net OPEB Obligation and the Annual OPEB Cost are expected to grow over the next 10 years assuming no advance- funding (i.e., no change in operation). The projections below are made in a manner so as to simulate an open group forecast. That is, they approximate what the forecast would produce if it included the effect of new hires after the Valuation Date (October 1, 2006). This gives a more realistic picture of what the Net OPEB Obligation will grow to over time, without going through the added time and expense of a true open group forecast. The Net OPEB Obligation will be presented as a liability in the Statement of Net Assets. The numbers below would be presented in the CAFR for the year ending September 30 of the year indicated. Year 'total Annual 01,116 Cost at rsrd Ycar hand Current Net EmhloN?cr tiulnidv Annual Net OPEB Shortfall Net OPER Mliption at Fiscal Near End 2008 $ 2,161,911 $ 857,002 $ 1,304,909 $ 1,304,909 2009 2,432,409 1,000,262 1,432,147 2,737,056 2010 2,627,759 1,166,088 1,461,671 4,198,727 2011 2,834,341 1,287,393 1,546,947 5,745,674 2012 3,056,050 1,379,888 1,676,161 7,421,836 2013 3,296,506 1,501,747 1,794,759 9,216,595 2014 3,556,371 1,634,883 1,921,488 11,138,083 2015 3,837,548 1,791,320 2,046,228 13,184,311 2016 4,141,477 1,955,406 2,186,071 15,370,382 2017 4,470,921 2,053,232 2,417,689 17,788,071 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 • Expected Net OPEB Obligation and Annual OPEB Cost $20,000,000 $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 - - -- t• OPEB Shortfall O Net Employer Cost e -- 'Net OPEB Obligation GRS Gabriel Roeder Smith & Company -8- Item # 5 Attachment number 2 Page 41 of 81 40 AGE/SERVICE DISTRIBUTION FOR PLAN PARTICIPANTS 0 A Yea?'s of Service to Valuation Date - General Employees ge 0-5 6-9 10-14 15-19 20-24 25-29 30&Up Total 0- 14 0 0 0 0 0 0 0 0 15 - 19 4 0 0 0 0 0 0 4 20 - 24 20 2 0 0 0 0 0 22 25 - 29 55 16 0 0 0 0 0 71 30 - 34 55 25 5 0 0 0 0 85 35 - 39 43 28 10 10 1 0 0 92 40 - 44 67 42 16 29 15 2 0 171 45 - 49 57 34 13 32 18 8 0 162 50 - 54 38 40 13 23 16 17 7 154 55 - 59 29 25 15 22 15 18 7 131 60 - 64 14 17 5 14 9 5 9 73 65 - 69 6 4 3 3 3 2 0 21 70 - 74 1 2 0 3 (l 1 0 7 75 - 99, 0 0 0 1 1 0 0 2 Total 389 235 80 137 78 53 23 995 The shaded inner area represents current eligibility for Early or Normal Retirement. 0 GRS Gabriel Roeder Smith & Company -9- Item # 5 Attachment number 2 Page 42 of 81 LJ r1 )'cars of Service to Valuation Date - Firefighters A ge 0-5 6-9 10-14 15-19 20-24 25-29 30&Up Total 0- 14 0 0 0 0 0 0 0 0 15- 19 9 0 0 0 0 0 0 9 20 - 24 20 3 0 0 0 0 0 23 25 - 29 16 4 1 0 0 0 0 21 30 - 34 16 10 9 3 0 0 0 38 35 - 39 2 6 8 8 12 1 0 37 40 - 44 1 2 1 5 25 4 0 38 45 - 49 0 0 0 0 10 4 0 14 50 - 54 0 0 1 U o 1 0 2 55 - 59 0 0 0 0 0 0 0 0 60 - 64 0 0 0 0 0 0 0 0 65 - 69 0 0 0 0 C) 0 0 0 70 - 74 0 0 0 0 0 0 0 0 75 - 99 0 0 0 0 0 0 0 0 Total 64 25 20 16 47 10 0 182 A Years of Service to Valuation Date - Police Officers ge 0-5 6-9 111-14 15-19 20-24 25-29 30&Up 'rotal 0- 14 0 0 0 0 0 0 0 0 15- 19 0 0 0 0 0 0 0 0 20 - 24 6 0 0 0 0 0 0 6 25 - 29 20 4 0 0 0 0 0 24 30 - 34 16 27 2 0 0 0 0 45 35 - 39 12 38 18 5 1 0 0 74 40 - 44 1 5 4 26 7 0 0 43 45 - 49 0 2 3 21 11 11 0 48 50 - 54 0 0 1 4 5 15 0 25 55 - 59 0 0 0 1 0 2 0 3 60 - 64 0 0 0 U 0 0 0 0 65 - 69 0 0 0 b fl 0 0 0 70 - 74 0 0 0 0 0 0 0 0 75 - 99 0 0 0 U 0 U 0 0 Total 55 76 28 57 24 28 0 268 The shaded inner area represents current eligibility for Early or Normal Retirement. 0 GRS Gabriel Roeder Smith & Company -10- Item # 5 Attachment number 2 Page 43 of 81 • I? 1 L? r Current Retires And Sw-iving Spouses Age Numlxr Coverts I:ruuP general hire Police 'total 0-44 0 0 0 0 45-49 1 6 1 8 50- 54 6 18 11 35 55 - 59 4 13 13 30 60- 64 28 7 10 45 65 - 69 8 1 2 11 70- 74 9 0 2 11 75 - 79 1 0 0 1 80- 84 1 0 1 2 85- 89 0 0 0 0 90- 94 0 0 0 0 95-+ 0 0 0 0 Total 58 45 40 143 GRS Gabriel Roeder Smith & Company -11- Item # 5 Attachment number 2 Page 44 of 81 • SECTION C DEVELOPMENT OF PER CAPITA COSTS 0 • Item # 5 Attachment number 2 Page 45 of 81 DEVELOPMENT OF INITIAL PER CAPITA COSTS By offering health insurance coverage to employees, retirees and their dependents, the Employer holds the responsibility for the total gross premium charged by the insurance carriers. These costs are partially offset by contributions from employees and retirees. While the total premium amount charged by the insurance companies for covering employees and pre-Medicare retirees and their dependents is the same without regard to the age or gender of the member, the true costs of medical and Rx coverage in any given year, depends on these factors. As the ages of employees, retirees and dependents in the covered population increase, so do their costs of benefits. Morbidity tables are employed to develop Per Capita Costs (PCC) at every relevant age. The PCC is the cost per person. The table below shows select values of age grading factors illustrating how medical costs increase with age of the member. These percentages are separate from the annual Trend, which operates to increase costs independent of and in addition to the Aging Factors. For example, in any single year a group of 46-year old males are expected to cost 6.40 % more than a group of 45-year old males. • Sa?nple WYlical/RX Cost Increase By Age Ages Male Femalc 30 1.86% 0.81% 35 4.45% 1.32% 40 6.11% 2.23% 45 6.40% 3.02% 50 5.87% 3.40% 55 4.96% 3.45% 60 4.17% 3.03% 65 3.23% 2.62% 70 2.41% 2.08% 75 1.67% 1.50% 80 1.02% 0.92% 85 0.47% 0.39% 90 0.00% 0.00% In the development of the PCC amounts, retirees and dependents age 65 and older are assumed to be Medicare- eligible. Furthermore, the following assumptions have been made: Factors used in PCC DeNclopmcnt General Fire Police % of Claims Paid by Medicare 50% 50% 50% Antiselection Load 10% 10% 5% Retirement Status Load 15% 15% 15% is Amounts for each age/sex combination for this Valuation were developed based on the census data for the active and retired participants of the health plan. The number of subscribers included in the Actuarial Valuation may be slightly different from the number used to develop the Per Capita Costs. The present distribution of subscribers for this purpose is summarized below. GRS Gabriel Roeder Smith & Company -12- Item # 5 Attachment number 2 Page 46 of 81 I L_J • • Number of Subscribers Coverage General Police HMO PPO POS Active Retired Active Retired Active Retired Single 399 36 33 7 99 16 Family/Spouse 492 15 54 0 182 24 Hire HMO POS PPO Active Retired Active Retired Active Retired Single 64 13 3 3 0 4 Family/Spouse 109 23 0 0 1 5 The total cost of premiums paid to the insurance carrier expected for each covered employee group for the coming year was allocated by age/gender, based upon the age/gender distribution each group's plan members and the morbidity tables above. This procedure resulted in a table of age/gender-specific initial Per Capita Costs for the coming year. Monthl.N 1'er Capita Cost BN AgelScx General Fire Police Sample Ales 11111e Female Male Female Male Female Not N7cYlicarc haigible Retiree s and Wimnde nts 40 $ 253.98 $ 397.92 $ 256.25 $ 401.47 $ 242.25 $ 379.53 45 345.08 451.76 348.16 455.80 329.13 430.89 50 466.85 528.98 471.03 533.71 445.29 504.54 55 610.17 627.20 615.63 632.81 581.98 598.22 60 766.55 736.83 773.40 743.41 731.14 702.78 64 892.23 827.01 900.21 834.40 851.01 788.80 Meilicam-Eli oble Retire-es and Dependents 65 $ 461.97 $ 425.41 $ 466.09 $ 429.21 $ 439.97 $ 405.15 70 532.87 479.16 537.63 483.44 507.50 456.34 75 591.58 525.01 596.86 529.70 563.41 500.01 80 634.29 559.11 639.96 564.10 604.09 532.49 85 659.66 579.15 665.55 584.32 628.25 551.57 90 665.76 582.53 671.70 587.73 634.05 554.79 GRJ Gabriel Roeder Smith & Company -13- Item # 5 Attachment number 2 Page 47 of 81 The graphs below illustrate the expected monthly Per Capita Costs (PCC) applicable to current retirees and their spouses in the coming year. Total published premium for the current year is also shown. For ages 65 and over, the PCC shown is applicable to retirees enrolled into Medicare Parts A and B. For clarity, premium applicable to a spouse is not presented on the graph. The spread between the Per Capita Cost and the premium actually collected from retiree is the expected monthly cost incurred by the Employer when providing medical coverage to a particular retiree. $1,200 Expected Monthly Per Capita Cost For Retired General Employees and Spouses on the Next Valuation Date $1,000 I - $800 ?(h $600 I t*,*"vr'" $400: $200 • 50 55 60 65 70 75 80 85 90 Member's Current Age --0 Male PCC ° Female PCC - -Retiree Premium - - - -- - Irk U GRS Gabriel Roeder Smith & Company -14- Item # 5 Attachment number 2 Page 48 of 81 C. • 0 Expected Monthly Per Capita Cost For Retired Police Officers and Spouses on the Next Valuation Date $1,200 _ .. ...a m .. _?..._-.......__. _.- a__.W ......v__g .. __ _v .._.__._v _. .__.._.._. _?_ wv. $1,000 $800 $600 $400 $200 i $- 50 55 60 65 70 75 80 85 g0 Member's Current Age -? - Male PCC r? Female PCC - Retiree Premium GRS Gabriel Roeder Smith & Company -15- Item # 5 Expected Monthly Per Capita Cost For Retired Firefighters and Spouses on the Next Valuation Date Attachment number 2 Page 49 of 81 SECTION D ACTUARIAL ASSUMPTIONS AND METHODS n ?J • Item # 5 Attachment number 2 Page 50 of 81 • ACTUARIAL., ASSUMPTIONS AND METHODS Actuarial Valuation Date: October 1, 2006 for employee and retiree population purposes, for development of per capita cost purposes and for valuation purposes. Actuarial Cost Method: Entry Age Normal Cost Method with an increasing Normal Cost pattern consistent with the salary increase assumptions. Amortization Period and The Unfunded Actuarial Accrued Liability, as calculated pursuant Method: to the Individual Entry Age Actuarial Cost Method, is amortized as a level percent of payroll over a 30 year period. The assumed rate of payroll growth is a weighted average of such rates used in pension valuations and is equal to 5.06%. GASB Statement No. 45 requires that any such payroll growth assumption be based upon no increase in the number of active employees covered by the plan. Investment Discount Rate: Since there are currently no invested plan assets held in trust to finance the OPEB obligations, the investment return discount rate is the long-term expectation of investment return on assets held in City funds pursuant to its Investment Policy. The City has selected 4.75% compounded annually. Mortality Tables: Mortality tables are used to measure the probabilities of participants dying before and after retirement. These are based on the 1983 Group Annuity Mortality Tables set back 0 years for men and 6 years for women as used by the Pension Plan Actuary. Rates of Termination from These rates do not apply to participants eligible to retire and do not Active Employment: include separation on account of death and disability. Termination rates are used to measure the probabilities of participants terminating employment for other reasons. The following table shows termination rates for select ages: Sample ]'cars of 'I erminating Within .Nest Year lges scrN ice (icncril fire Police All 0 40.00% 10.00% 12.00% 1 25.00% 7.00% 9.00% 2 15.00% 5.00% 7.00% 3 10.00% 4.00% 5.00% 4 7.00% 3.50% 4.50% 20 5 & Up 6.00% 3.50% 4.50% 30 6.00% 2.90% 3.90% 40 6.00% 0.60% 0.90% 50 1.50% 0.50% 0.50% 60 1.50% 0.50% 0.50% • GRS Gabriel Roeder Smith & Company -16- Item # 5 Attachment number 2 Page 51 of 81 0 Rates of Disability: Rates of Retirement: 0 r Disability rates are used to measure the probabilities of active participants becoming disabled. Table below presents disability rates for select ages. Sample Becoming; Disabled Within Next Year Ales General hire Male Female Male Female Malc I enralr 20 0.02% 0.02% 0.15% 0.06% 0.15% 0.06% 25 0.02% 0.02% 0.18% 0.10% 0.18% 0.10% 30 0.04% 0.04% 0.20% 0.15% 0.20% 0.15% 35 0.06% 0.06% 0.29% 0.27% 0.29% 0.27% 40 0.16% 0.16% 0.42% 038% 0.42% 0.38% 45 0.19% 0.19% 0.65% 0.57% 0.65% 0.57% 50 0.31% 0.31% 1.05% 0.91% 1.05% 0.91% 55 0.71% 0,71% 1.84% 1.54% 1.84% 1.54% The mortality table is set forward 10 years for projecting disability costs. 100% of the expected disability benefits paid to general employees were assumed to be non-duty related. For Police Officers and Firefighters, it is assumed that 50% of disabilities are duty-related. These rates are used to measure the probabilities of eligible members retiring during the next year. "o Retiring Within Ncet fear Fire Years of Gcncral Sample Ages S0& ]5 of SS&10 26 and 00 scrsice 50 15.00% 50.00% 50.00% 26 51 10.00% 20.00% 20.00% 27 52 10.00% 15.00% 100.00% 28 53 10.00% 15.00% 54 10.00% 15.00% 55 10.00% 15.00% 56 10.00% 15.00% 57 10.00% 15.00% 58 10.00% 20.00% 59 10.00% 30.00% 60 10.00% 100.00% 61 10.00% 62 30.00% 63 10.00% 64 10.00% 65 60.00% 66 30.00% 67 40.00% 68 50.00% 69 90.00% 70 100.00% GRS Gabriel Roeder Smith & Company -17- Item # 5 Attachment number 2 Page 52 of 81 • Retiring NN'ithin Next Year Police Years of Sample Ages Early 50&-20 or 5S& 10 6 & Out service 50 5.00% 30.00% 50.00% 25 51 5.00% 15.00% 50.00% 26 52 5.00% 15.00% 20.00% 27 53 5.00% 15.00% 20.00% 28 54 5.00% 15.00% 20.00% 29 55 50.00% 100.00% 30 56 50.00% 57 50.00% 58 50.00% 59 50.00% 60 100.00% DROP Retirements: It is assumed that 50% of Police Officers first becoming eligible for Normal Retirement will DROP (and 50% will not). Retirement rates among employees who DROP are a percentage of the rates indicated above. These percentages are as follows: Factors for Calculating Retirement Ratcs for DROP Participants fear in DRt)I' of regular rate 1 50% 2 70% 3 87% 4 100% 5 N/A* * - employee must retire by the end of the 5`h year in the program Coverage Acceptance Rates: Not everyone who retires will accept coverage and pay the required premium upon retirement. Following are the assumptions as to future Medical Coverage Acceptance Rates. Acceptance and Lapsing rate General Fi re Po lice Ret Only Ret + I Ret Only Ret + I Ret Only Ret + 1 At Retirement (before age 65) At Retirement (age 65 and after) 30% 12% 10% 4% 30% 3% 40% 4% 20% 7% 20% 7% Lapsing at age of 65 Continuation of Survivors 60% N/A 60% 0% 90% N/A 90% 0% 65% N/A 65% 0% • Expenses: Expenses are included in the Per Capita Costs. CGRS Gabriel Roeder Smith & Company -18- Item # 5 Attachment number 2 Page 53 of 81 • Average Premium (as of Valuation Date) General Fire Police Member Non-Medicare Medicare Non-Medicare Medicare Non-Medicare Medicare Retiree Spouse $ 391.00 $ 392.00 $ 391.00 $ 392.00 $ 305.00 $ 345.00 $ 437.00 $ 577.00 $ 322.00 S 342.00 S 322.00 $ 342.00 • Marital Status: Eighty percent (80%) of active participants who meet the age and service requirements for pre-retirement survivor benefits are assumed to be married. Wives are assumed to be three (3) years younger than their husbands. Per Capita Costs: As described in a previous section of this Report, expected monthly per capita (or per person) costs were developed for the year following the Actuarial Valuation Date. Expected Retiree Members are required to make monthly contributions in order to Contributions: maintain their coverage. For the purpose of this Valuation a weighted average has been used with weights derived from the current distribution of members among plans offered. Such average expected retiree premium contributions for the first year are shown in the table below. Health Care Cost Trend Rates: Monthly Per Capita Costs for Medical and Rx benefits are assumed to increase each year according to the rates set forth in the following table. For example, the Per Capita Costs applicable to retired General employees in 2007 are expected to increase 6.7% over the Per Capita Costs in 2006, while the Per Capita Cost in 2008 are expected to increase by 14% to due to higher claims costs. Annual Increase Hates General Fire Police Year MedicaliRx Contribution Nledical/Rx Contribution Nledical/Rx Contribution 2006 6.7% 6.7% 5.0% 17.0% 9.0% 9.0% 2007 14.0% 14.0% 8.5% 8.5% 8.5% 8.5% 2008 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 2009 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 2010 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 2011 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 2012 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 2013 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 2014 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Thereafter, 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% C GRS Gabriel Roeder Smith & Company -19- Item # 5 Attachment number 2 Page 54 of 81 • is • MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Pay Increase Timing: End of (fiscal) year. This is equivalent to assuming that reported pays represent amounts paid to members during the year starting on the valuation date. Decrement Timing: Decrements of all types are assumed to occur at the middle of the year. Eligibility Testing: Eligibility for benefits is determined based upon the age nearest birthday and service nearest whole year on the date the decrement is assumed to occur. Decrement Relativity: Decrement rates are treated as absolute rates of decrement. Adjustments: None. Decrement Operation: All decrements operate simultaneously. Disability and termination rates cease upon eligibility for normal or early retirement. GRS Gabriel Roeder Smith & Company -20- Item # 5 Attachment number 2 Page 55 of 81 0 • • DEFINITIONS OF TECHNICAL TERMS Actuarial Accrued Liability: The difference between the actuarial present value of future benefit payments and the actuarial present value of future normal costs. Also referred to as "accrued liability" or "past service liability." Actuarial Assumptions: Estimates of expected future experience with respect to rates of mortality, disability, turnover, retirement, rates of investment income and salary increases, rates of coverage acceptance, trend, aging, etc. Actuarial Cost Method: A mathematical budgeting procedure for allocating the dollar amount of the "actuarial present value of future benefit payments" between future normal costs and actuarial accrued liabilities. Sometimes referred to as the "actuarial funding method" or "actuarial valuation cost method Actuarial Present Value: The amount of funds currently required to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payment. Also referred to as "present value." Amortization: Paying off an interest-discounted amount with periodic payments of interest and principal -- as opposed to paying it off with a lump sum payment. Experience Gain (Loss): The difference between actual actuarial costs and assumed actuarial costs - - during the period between two valuation dates. Normal Cost: The actuarial cost allocated to the current year by the actuarial cost method. Sometimes referred to as "current service cost." Unfunded Actuarial Accrued The difference between actuarial accrued liability and the Liability: actuarial value of plan assets. Sometimes referred to as "unfunded past service liability," "unfunded accrued liability," or "unfunded supplemental present value." GRS Gabriel Roeder Smith & Company -21- Item # 5 Attachment number 2 Page 56 of 81 • SECTION E SUMMARY OF SUBSTANTIVE PLAN PROVISIONS • • Item # 5 Attachment number 2 Page 57 of 81 SUMMARY OF SUBSTANTIVE PLAN PROVISIONS GENERAL EMPLOYEES AS OF OCTOBER 1, 2006 ELIGIBILITY FOR RETIREE BENEFITS Any General Employee of the City of ABC who satisfies the Vesting, Disability, Early, or Normal Retirement provisions of the applicable Retirement Plan may be eligible for certain post-employment benefits. The following presents the eligibility requirements for retirement under the City's Restated Employees' Defined Benefit Retirement System and the 401(a) Defined Contribution Plan: DB PLAN VESTING RETIREMENT All members are 100% vested as of September 10, 1997. However, there are no OPEBs available after termination of employment, unless employee satisfies eligibility requirements for any of the other retirement benefits listed below. DISABILITY There is no service credit requirement. SURVIVORSHIP There is no service credit requirement. EARLY RETIREMENT Members may retire with a reduced pension benefit upon attaining age 55 (age 50 for members hired prior to October 1, 1970). • NORMAL RETIREMENT The earliest of (i) the attainment of age of 55 with completed 25 years of service (age 50 for members hired prior to October 1, 1970), (ii) the attainment of age of 60 regardless of service, or (iii) completion of 30 years of credited service. DC PLAN NORMAL RETIREMENT Attainment of age of 55 regardless of service. Terminating participants may elect to have the distribution of their accounts commence prior to that age; however, OPEBs will not be available to employees unless termination occurs after age 55. Long Term Disability insurance is not considered retirement for participants of the DC Plan; nevertheless, employees utilizing its benefits have OPEBs available to them just like retirees. The post-employment benefits include (a) continued coverage for the retiree and dependent in the Medical/Prescription Plan, (b) continued coverage under the Dental Plan, (c) continued coverage under the Vision Plan, and (d) continued coverage under the group Life Insurance Plan. These coverages are all fully insured. HEALTH-RELATED BENEFITS Eligible retirees may choose among the same Medical Plan options available for active employees of the City. Dependents of retirees may be covered at the retirees' option the same as dependents of active employees. Prescription Drug coverage is automatically extended to retirees and their dependents who continue coverage under any one of the Medical Plan options. Covered retirees and their dependents are subject to all the same Medical and Prescription Drugs benefits and rules for coverage as are active employees. Retirees and their • dependents who are over age 65 are not required to enroll in Part B under Medicare in order to remain covered GRS Gabriel Roeder Smith & Company -22- Item # 5 Attachment number 2 Page 58 of 81 • under the program. However, the Plan pays as if secondary to Medicare for all claims otherwise covered by Medicare. Continued coverage in the City's Dental and Vision Plans is available to all retirees and their dependents under the same terms as for active employees. Results presented in this report are based on the healthcare plan design in effect as of October 1, 2006. 0 RETIREE CONTRIBUTIONS FOR MEDICAL/PRESCRIPTION, DENTAL AND VISION BENEFITS All retirees must pay the required premium presented below in order to continue coverage for themselves and/or their dependents after retirement. The following chart presents the current (as of January 1, 2007) premium contributions required to be paid by retirees for continued coverage. Coverage for children of retirees is available (until their limiting age). However, for measuring the long term costs, the relatively few children covered by retirees, coupled with the short duration of their coverage remaining, results in costs that are not material in the long term. Consequently, only spouses are included in the chart below. Premiums Paid by Retirees* as of January 1, 2007 Plan HMO PPO DMO DMO Dental Vision CS150 AVF3 PPO Retiree Only $ 380.89 $ 682.43 $ 11.94 $ 16.36 $ 35.14 $ 4.48 Retiree and $ 798.86 $1,467.71 $ 20.52 $ 28.12 $ 69.28 $12.80 Spouse * Regardless of Medicare eligibility. SURVIVORSHIP BENEFITS No benefit (other than COBRA coverage) is offered to surviving dependents of either active employees or retirees. DENTAL AND VISION PLANS Dental and vision benefits for active employees and their dependents are voluntary and fully paid by the retiree. Consequently, dental and vision benefits are not Employer-provided in any sense and are not considered as Other Post-Employment Benefits for the purposes of GASB Statement No. 45. COBRA BENEFITS Former employees, retirees, and dependents may be eligible for extended benefits under COBRA, regardless of the terms of the employer's Other Post-Employment benefits. COBRA benefits are not considered as Other Post-Employment Benefits for the purposes of GASB Statement No. 43 and 45. LIFE INSURANCE Retiring employees have an option of continuing participation in the Employer sponsored group life program. The cost of insurance to the retiree is $2.30 per month for a policy with a face value of $10,000. Retired • employees retiring prior to October 1, 1998 who elected life insurance, receive a benefit of $7,500, at a cost of $1.73 per month. GRS Gabriel Roeder Smith & Company -23- Item # 5 Attachment number 2 Page 59 of 81 0 FUNDING VEHICLE There is no separate trust through which benefits for retirees are funded. No assets are currently accumulated or earmarked for this purposes. All approved benefits are paid from the Employer's general assets when due. TERMINATION AND AMENDMENT The Other Post-Employment Benefits are extended to retirees and continued at the discretion of the City, which reserves the right (subject to State Statute and any collective bargaining agreements) to change or terminate benefits and to change contributions required from retirees in the future as circumstances change. • • GRS Gabriel Roeder Smith & Company -24- Item # 5 Attachment number 2 Page 60 of 81 SUMMARY OF SUBSTANTIVE PLAN PROVISIONS FIREFIGHTERS AS OF OCTOBER 1, 2006 ELIGIBILITY FOR RETIREE BENEFITS Any Firefighter employed by the City of ABC who satisfies the Vesting, Disability, or Normal Retirement provisions of the applicable Retirement Plan may be eligible for certain post-employment benefits. The following presents the eligibility requirements for retirement under the City's Firefighters' Pension Plan. VESTING RETIREMENT Full vesting starts after 10 years of creditable service. However, there are no OPEBs available after termination of employment, unless employee satisfies eligibility requirements for any of the other retirement benefits listed below. DISABILITY Line of Duty: Members are eligible if totally and permanently disabled during the actual performance of duty. There is no service credit requirement. Non-Duty: Members are eligible if totally and permanently disabled after completing at least 5 years of creditable service. SURVIVORSHIP Line of Duty: There is no service credit requirement. Non-Duty: At least 5 years of creditable service for eligibility. NORMAL RETIREMENT The earliest of (i) the attainment of age of 55 with completed 10 years of service, (ii) the attainment of age of 50 with 15 years of creditable service, or (iii) completion of 26 years of credited service. DROP RETIREMENT The Deferred Retirement Option Program (DROP) is no longer available to members. A Backwards Deferred Retirement Option Plan has been introduced instead, but this option has no bearing on the Other Post-Employment Benefits. The post-employment benefits include (a) continued coverage for the retiree and dependent in the Medical/Prescription Plan, (b) continued coverage under the Dental Plan, (c) continued vision coverage and (d) continued coverage under the group Life Insurance Plan. HEALTH-RELATED BENEFITS Eligible retirees may choose among the same Medical Plan options available for active employees of the City. Dependents of retirees may be covered at the retirees' option, the same as dependents of active employees. Prescription Drug coverage is automatically extended to retirees and their dependents who continue coverage under any one of the Medical Plan options. Covered retirees and their dependents are subject to all the same Medical and Prescription Drugs benefits and rules for coverage as active employees. Retirees and their dependents who are over age 65 are not required to enroll in Part B under Medicare in order to remain covered under the program, however, the Plan pays as if secondary to Medicare for all claims otherwise covered by Medicare. Continued vision and dental coverage are available to all retirees and their dependents under the same terms as for active employees. Results presented in this report are based on the healthcare plan design in effect as of October 1, 2006. • GRS Gabriel Roeder Smith & Company -25- Item # 5 Attachment number 2 Page 61 of 81 • RETIREE CONTRIBUTIONS FOR MEDICAL/PRESCRIPTION, DENTAL AND VISION BENEFITS 1] All retirees must pay the required premium presented below in order to continue coverage for themselves and/or their dependents after retirement. The following chart presents the current (as of April 1, 2007) premium contributions required to be paid by retirees for continued coverage. This premium is paid to the ABC Firefighters Benefit Fund for Firefighters, which provides access to the coverage for all active and retired firefighters of the City. A retiree's health insurance subsidy payment provided through the Retiree Health Trust may be directed toward the payment of these amounts. Coverage for children of retirees is available (until their limiting age). However, for measuring the long term costs, the relatively few children covered by retirees, coupled with the short duration of their coverage remaining, results in costs that are not material in the long term. Consequently, only spouses are included in the chart below. Premiums Paid by Retirees as of April 1, 2007 Plan HMO POS PPO Dental Vision Retiree Only $ 315.66 $ 364.37 $ 507.85 $ 23.77 $ 3.65 Retiree and Spouse $ 664.32 $ 905.80 $ 1,178.23 $ 58.44 $ 8.77 Medicare Retiree* N/A N/A $ 507.85 $ 23.77 $ 3.65 Retiree and Spouse on Medicare* N/A N/A $ 1178.23 ' $ 58.44 $ 8.77 * If either Retiree or the Spouse becomes Medicare eligible, PPO becomes the only available plan. SURVIVORSHIP BENEFITS No benefit (other than COBRA coverage) is offered to surviving dependents of either active employees or retirees. DENTAL AND VISION PLANS Dental and vision benefits for active employees and their dependents are voluntary and fully paid by the retiree. Consequently, dental and vision benefits are not Employer-provided in any sense and are not considered as other post-employment benefits for the purposes of GASB Statement No. 45. COBRA BENEFITS Former employees, retirees and dependents may be eligible for extended benefits under COBRA, regardless of the terms of the employer's other post-employment benefits. COBRA benefits are not considered as other post- employment benefits for the purposes of GASB Statement No. 43 and 45. LIFE INSURANCE Retiring employees have an option of continuing participation in the Employer sponsored group life program. The cost of insurance to the retiree is $5.75 per month for a policy with a face value of $25,000. This is a subsidized benefit. This life insurance coverage is not part of the ABC Firefighters Benefit Fund, but provided directly through the City's group life plan. GRS Gabriel Roeder Smith & Company -26- Item # 5 Attachment number 2 Page 62 of 81 • FUNDING VEHICLE The Medical/Prescription, Dental and Vision benefits are provided through the ABC Firefighters Benefit Fund established pursuant to collective bargaining. This Trust does not qualify as a "trust or equivalent arrangement" according to GASB Statement No. 43/45. It is treated in a similar fashion as if it were an insurance company providing a fully insured policy to the City. The City also contributes to a Retiree Health Trust (VEBA) for firefighters which provides a certain level of subsidy toward the premium required from the Benefit Fund for continued retiree coverage. Assessing the GASB 43/45 impact of the benefits provided by this VEBA Trust is outside the scope of this Actuarial Valuation. TERMINATION AND AMENDMENT The post-employment benefits are extended to retirees and continued at the discretion of the City, which reserves the right (subject to State Statute and any collective bargaining agreements) to change or terminate benefits and to change contributions required from retirees in the future as circumstances change. E • GRS Gabriel Roeder Smith & Company -27- Item # 5 Attachment number 2 Page 63 of 81 SUMMARY OF SUBSTANTIVE PLAN PROVISIONS . POLICE OFFICERS AS OF OCTOBER 1, 2006 EARLY RETIREMENT Members may retire with a reduced pension benefit upon attaining age 50 and accrual of 10 years of creditable service. NORMAL RETIREMENT The earliest of (i) the attainment of age of 55 with completed 10 years of service, (ii) the attainment of age of 50 with 20 years of creditable service, or (iii) completion of 25 years of credited service. ELIGIBILITY FOR RETIREE BENEFITS Any Police Officer employed by the City of ABC who satisfies the Vesting, Disability, Early or Normal Retirement provisions of the applicable Retirement Plan may be eligible for certain post-employment benefits. The following presents the eligibility requirements for retirement under the City's Police Officers' Pension Plan: VESTING RETIREMENT Full vesting starts after 10 years of creditable service. However, there are no OPEBs available after termination of employment, unless employee satisfies eligibility requirements for any other retirement benefits listed below. DISABILITY Line of Duty: Members are eligible if totally and permanently disabled during the actual performance of duty. There is no service credit requirement. Non-Duty: Members are eligible if totally and permanently disabled after completing at least 5 years of creditable service. SURVIVORSHIP Line of Duty: There is no service credit requirement. Non-Duty: At least 5 years of creditable service for eligibility. DROP RETIREMENT DROP Participants are considered active employees while still in the DROP period. Upon actual retirement at the end of or during the DROP period the employee becomes eligible for certain post-employment benefit coverage. • The post-employment benefits include (a) continued coverage for the retiree and dependent in the Medical/Prescription Plan, (b) continued coverage under the Dental Plan, (c) continued coverage under the Vision Plan, and (d) continued coverage under the group Life Insurance Plan. HEALTH-RELATED BENEFITS Eligible retirees may choose among the same Medical Plan options available for active employees of the City. Dependents of retirees may be covered at the retirees' option, the same as dependents of active employees. Prescription Drug coverage is automatically extended to retirees and their dependents who continue coverage under any one of the Medical Plan options. Covered retirees and their dependents are subject to all the same Medical and Prescription Drugs benefits and rules for coverage as for active employees. Retirees and their dependents who are over age 65 are not required to enroll in Part B under Medicare in order to remain covered under the program, however, The Plan pays as if secondary to Medicare for all claims otherwise covered by Medicare. kJ" Gabriel Roeder Smith & Company -28- Item # 5 Attachment number 2 Page 64 of 81 Continued coverage in the City's Dental and Vision Plans is available to all retirees and their dependents under the same terms as active employees. Results presented in this report are based on the healthcare plan design in effect as of October 1, 2006. RETIREE CONTRIBUTIONS FOR MEDICAL/PRESCRIPTION, DENTAL AND VISION BENEFITS All retirees must pay the required premium presented below in order to continue coverage for themselves and/or their dependents after retirement. The following chart presents the current (as of January 1, 2007) premium contributions required to be paid by retirees for continued coverage. A retiree's health insurance subsidy payment provided through the Retiree Health Trust (VEBA) may be directed toward the payment of these amounts. Coverage for children of retirees is available (until their limiting age). However, for measuring the long term costs, the relatively few children covered by retirees, coupled with the short duration of their coverage remaining, results in costs that are not material in the long term. Consequently, only spouses are included in the chart below. Premiums Paid by Retirees* as of January 1, 2007 Member Med/Rx Dental Vision Retiree Only $ 351.06 $ 23.77 $ 4.48 Retiree and Spouse $ 724.34 $ 58.44 $ 12.80 0 * Regardless of Medicare eligibility. SURVIVORSHIP BENEFITS No benefit (other than COBRA coverage) is offered to surviving dependents of either active employees or retirees. DENTAL AND VISION PLANS Dental and vision benefits for active employees and their dependents are voluntary and fully paid by the retiree. Consequently, dental and vision benefits are not Employer-provided in any sense and are not considered as other post-employment benefits for the purposes of GASB Statement No. 45. COBRA BENEFITS Former employees, retirees, and dependents may be eligible for extended benefits under COBRA, regardless of the terms of the employer's other post-employment benefits. COBRA benefits are not considered as other post- employment benefits for the purposes of GASB Statement No. 43 and 45. LIFE INSURANCE Retiring employees have an option of continuing participation in the Employer sponsored group life program. The cost of insurance to the retiree is $5.75 per month for a policy with a face value of $25,000. 0 GRS Gabriel Roeder Smith & Company -29- Item # 5 Attachment number 2 Page 65 of 81 FUNDING VEHICLE The City contributes to a Retiree Health Trust (VEBA) for police officers which provides a certain level of subsidy toward the premium required from the City for continued retiree coverage. Assessing the GASB 43/45 impact of the benefits provided by this VEBA Trust is outside the scope of this Actuarial Valuation. TERMINATION AND AMENDMENT The post-employment benefits are extended to retirees and continued at the discretion of the City, which reserves the right (subject to State Statute and any collective bargaining agreements) to change or terminate benefits and to change contributions required from retirees in the future as circumstances change. • • GRS Gabriel Roeder Smith & Company -30- Item # 5 Attachment number 2 Page 66 of 81 I• 1 LJ • • APPENDIX F SAMPLE EMPLOYEE BENEFIT STATEMENT Item # 5 Attachment number 2 Page 67 of 81 SAMPLE RETIREMENT SYSTEM A Personalized Employee Benefit Statement Prepared for J. Participant 1. Statement date .................................................................................. October 1, XXXX 2. Your Reported Annual Salary on the Statement Date ..................................... $XX,XXX Your Normal Retirement Date ................................................................. July 1 XXXX If you have already reached your Normal Retirement Date, the calculations have been made as though you retired on the Statement Date. 4. If your salary remains at its current level and if you continue working for the employer until your Normal Retirement Date, the approximate monthly benefit payable from the plan will be ................................................................. $X,XXX This benefit will be the following percent of your Average Monthly Earnings....... XX% If you elect to receive an optional form of benefit that differs from the plan's normal form, your monthly payment will be adjusted accordingly. 5. You have already accrued a portion of your retirement benefit. Based on your service and salary up to the Statement Date, the approximate monthly benefit you have earned so far is ..................................................................... $X,XXX 0 6. Your vested interest in this accrued benefit is ............................................. XX /o If your current vested interest is 0% and if you continue working for the employer for a sufficient number of hours each year, you will become vested in the plan year ending ...................................................................................... N/A At that time, your vested interest will be .................................................... N/A Once you become vested to any extent you will be entitled to receive the vested portion of your accrued benefit even if you terminate employment before your Normal Retirement Date. However, you would have to leave your own contributions in the fund in order to receive this deferred, vested benefit. The vested benefit is payable at the date specified in the plan document. The total of your own contributions with interest on the Statement Date is........... $XXX,XXX * Fiscal year is October 1 through September 30 Prepared by Gabriel, Roeder, Smith and Company Item # 5 Please review the reverse side of this Statement for additional important information. Attachment number 2 Page 68 of 81 is Special Notes: a. Any Social Security benefit payable to you would be in addition to your benefit payable from the Plan. Persons covered by Social Security for at least 30 years who leave covered employment at age 65 and start receiving benefits at that time generally receive from 30% to 45x/0 of their preretirement salary from Social Security. Much smaller percentages would apply to workers whose preretirement salary exceeds the Social Security wage base. b. If you have already reached your Normal Retirement Date, the calculations have been made as though you retired on the Statement Date. c, The amounts shown on this Statement are estimates based on information submitted to the Plan's actuary. While great care has been taken to produce correct figures, there is no warranty of complete accuracy. Exact benefits will be computed at your date of termination or retirement. d. The Plan provides benefits for a number of different situations. You are encouraged to review your own Plan description or the Plan documents for details. e. "Policies Are the Last Word. Although we have exercised great care to make this report accurate, the availability and amount of benefits will be governed entirely by the provisions of the legal documents under which the benefits are provided, as in effect at the time." • • Item # 5 Attachment number 2 Page 69 of 81 • APPENDIX G GRS INSIGHT (MAY 2009): "THE GASB' S INVITATION TO COMMENT ON PENSION ACCOUNTING AND REPORTING STANDARDS" 40 0 Item # 5 Attachment number 2 Page 70 of 81 0 The GASB's Invitation to Com- ment presents the conceptual framework that the GASB will use to evaluate potential changes in accounting and reporting stan- dards for public pensions and possibly other postemployment benefits. To respond effectively, it is im- portant to understand the GASB's framework and to address the issues raised. These discussions will likely play a significant role in shaping state and local government pensions and other postemployment ben- efits for at least the next decade. GRS lnsightis puHli hcd batGatariel, Ro Oki-, Smith t? Compony. Tluc information promdcd is not intelittol n> lcgal, income tax, or invcstmcnt advice or opinion. AIticle: attributcd to indiuiafaaals do not ua a saril y wflect tha, uicu,s of GRS as im oa4aniaation. GASB's Invitation Comment on Pension Accounting and Reporting Standards On March 31, 2009, the Governmental Accounting Standards Board (GASB) issued its Invitation to Comment (ITC) on potential changes in accounting and financial reporting standards related to public pen- sions. The ITC is an early step in the GASB's project to review these standards, and is intended to encourage comments from interested parties before the GASB begins its formal deliberations. Written com- ments are due to the GASB by July 31, 2009, and a public hearing is scheduled during the Board's regular meeting on August 26, 2009. This article summarizes the ITC, along with various arguments suggested in the ITC for and against potential changes to the standards.z However, the article does not provide a detailed evaluation of the arguments, which will be done in a separate paper. Basically, the ITC requests comments on the following questions: • Should accounting and reporting standards for state and local government pensions be focused on the process by which the benefits are financed? On the process by which the benefits are incurred? Or both? • What should the measures of pension expense and liability be for governmental employers participating in defined benefit pension plans? 'The author wishes to thank Norman Jones, Brian Murphy, Chris Conradi, and Mary Ann Vitale at GRS, and Stephen Gauthier at the Government Finance Officers Association for their helpful comments on an earlier draft of this article. However, the author retains full responsibility for the accuracy of the information provided. ' While the ITC presents arguments for and against proposed changes in accounting stan- dards, these arguments do not necessarily reflect the GASB's position. Rather they sum- marize positions presented to the GASB during its research on the potential changes. 2009 Gabriel Roeder Smith & Company Item # 5 By Paul Zorn, Director of Governmental Research' In This Issue Gabriel, Roeder, Smith & Company Attachment number 2 Page 71 of 81 2 GRS Insight 5/09 • • What actuarial cost method should be used to determine the employer's "unfunded accrued benefit obligation?" What discount rate? • Should a range of actuarial cost methods be allowed for determining the unfunded accrued benefit obligation? Should the unfunded obligation be immediately recognized or amortized over future periods? Should asset smoothing be allowed? • Are cost-sharing multiple-employer pen- sion plans sufficiently different from single- employer and agent multiple-employer plans to warrant different accounting and reporting standards for participating employers? • Should state and local pension plans recognize the accrued benefit obligation in their financial statements? Should they provide an annual statement of changes in the unfunded accrued benefit obligation? Project Objectives and Evaluation Criteria The ITC is presented in seven chapters. The first chapter provides background information on the project, including its objectives and the key criteria used to evaluate potential changes. The project's primary objective is to comprehensively reexamine the accounting and financial reporting standards for state and local government pensions and other postemployment benefits.' To do this, the GASB will review the standards presented in GASB State- ments 25 and 27, published in 1994, and amended by Statement 50 in 2007. In evaluating alternative accounting and reporting approaches, the GASB will consider the following criteria.4 3 The ITC specifically addresses pension benefits. However, be- cause the GASB sees pension benefits as conceptually similar to retiree health care and other postemployment benefits (OPEB), the decisions related to the pension standards will likely play an im- portant role in the decisions related to the OPEB standards. 0 The criteria are further discussed in GASB Concepts Statements and 4. Accountability. This is considered the primary objective of governmental accounting and finan- cial reporting, and stems from the duty of public officials to provide constituents with an accurate accounting of financial transactions. Decision Usefulness. This reflects the extent to which financial reports provided users with the information they need to make informed deci- sions. Governmental report users reflect a broad range of stakeholders, including: citizens, legisla- tive and oversight bodies, investors and creditors, plan members and beneficiaries, plan trustees, and others. Related decisions include: determining the size of pension benefits and total compensa- tion offered to employees; evaluating the cost of benefit changes; funding the benefits; determining the plan's funded status and progress; assessing the employer's overall economic condition and credit worthiness; determining the overall cost of government services; and allocating plan assets for investment purposes. Interperiod Equity. Another criterion is how well the financial information helps report users evalu- ate interperiod equity. As discussed in the ITC, interperiod equity is achieved when the costs of cur- rent services are borne by current taxpayers rather than shifted to future taxpayers. However, the ITC also notes that interperiod equity is "not a goal that is expected to be met for any period of time," but is "a relevant metric to assess accountability. 115 Comment: In GASB Statement 27, interpe- riod equity is considered achieved when annual contributions for normal costs are determined as a level percent of payroll over time.' More recently, however, some have argued that leveling pension costs as a per- cent of payroll does not allocate the current pension cost for service to the current year and, therefore, does not reflect interperiod s GASB Concepts Statement No. 4, paragraph 27. e GASB Statement 27, paragraph 97. "The level contribution design facilitates budgeting of pension contributions and is consistent with the budgetary concept of intergenerational equity in terms of the burden on citizens." © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 72 of 81 GRS Insight 5/09 3 • equity. This difference in focus is a key fea- ture in the debate over pension accounting and reporting standards. Current Pension Accounting and Reporting Standards for Governmental Employers Most of the ITC examines accounting and reporting standards for employers participating in single- employer or agent multiple-employer public pen- sion plans.' Essentially, these employers are solely responsible for funding the benefits promised to plan members. Generally, accounting and reporting standards es- tablish how financial transactions are defined and measured (e.g., what constitutes an "expense" or "liability") and where the measures are displayed in financial reports (e.g., in the financial statements, notes to the financial statements, or as required supplementary information). Before discussing the ITC, it would be useful to briefly review the GASB's current accounting and reporting standards Wor such employers. Current Governmental Standards. Under cur- rent standards, pension accounting measures are closely related to pension financing measures. The employer's pension expense is the employer's "annual pension cost" determined using the same actuarial methods and assumptions that are used to fund the plan. The annual pension cost consists of the employer's annual required contribution (ARC), plus certain adjustments if the employer has con- tributed more or less than the ARC over time. The ARC, in turn, is the actuarially determined cost of benefits earned in a given year (the "normal cost") plus the amortization of any unfunded actuarial accrued liabilities over time.' 'As the name implies, a single-employer plan is a plan sponsored by a single employer. An agent multiple-employer plan is a col- lection of single-employer plans that are administered together. In either case, the employer is solely responsible for funding the benefits promised to its plan members. By contrast, a cost-sharing multiple-employer plan spreads the benefit costs among multiple employers. •8 While the ARC may not be less than zero, the standards do not otherwise require a minimum ARC. The GASB standards set certain constrains on the actuarial methods and assumptions that can be used, including: • Six actuarial cost methods are acceptable. For the most part, in determining the annual normal cost of benefits, these methods include projected future salary and future service.' • The assumed rate of investment return must reflect the long-term expected return on the plan's investments. This rate is also used as the discount rate to determine the present value of plan liabilities. • The period for amortizing unfunded actuarial liabilities is limited to 30 years. • The actuarial value of plan assets must be market-related; however, investment gains and losses may be averaged over time to smooth the impact of investment volatility on the plan's funded levels and contribution rates. The employer's pension liability, if any, is the dif- ference between the employer's annual pension cost and the employer's actual contributions to the plan, accumulated over time. In essence, it reflects the difference between the employer's actuarially required contributions and actual contributions. This liability is referred to as the "net pension ob- ligation" (NPO) and is reported in the employer's financial statements. The current standards also require employers participating in single-employer and agent plans to report extensive information about the plan in the employer's annual financial report. This in- formation is disclosed in the notes to the financial statements and includes (but is not limited to): a 9 The six acceptable actuarial cost methods are entry age, frozen entry age, attained age, frozen attained age, aggregate and pro- jected unit credit. A seventh method, the unit credit cost method, excludes both projected future salary and service. Under current GASB standards, the unit credit method is only acceptable for plans in which accumulated benefits are not affected by future sal- ary levels. (GASB Statement 27, footnote 8) © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 73 of 81 GRS Insight 5/09 0 description of the plan; annual required contribu- tions; actual contributions; actuarial value of plan assets; actuarial accrued liability; funded status; and related actuarial methods and assumptions. Private-Sector Standards. By contrast, private- sector accounting standards primarily focus on the process by which the employer incurs a pen- sion obligation as a result of employee service to date. As established by the Financial Accounting Standards Board (FASB), private-sector standards allow only one actuarial cost method to be used for accounting purposes, compared with the six actuarial methods allowed by the GASB.10 measured and reported in the employer's annual financial reports? Chapter 2 of the ITC discusses the two different ways of viewing pensions from an accounting and reporting perspective. The first is by focusing on the process through which the employer finances the benefits (referred to the "Financing Focus"). The second is by focusing on the process through which the employer incurs an obligation for ben- efits as a result of employee's service (referred to here as the "Incurrence Focus"). The ITC requests comments on whether governmental accounting and reporting standards should focus on one or the other of these processes, or both. In determining the pension cost, the FASB stan- dards limit the maximum amortization period to the expected remaining service period for active employees, compared with 30 years under the GASB standards. In determining the pension liabil- ity, the FASB standards use the unfunded projected benefit obligation and recognize it in the employer's ,financial statements. Under the GASB's rules, the employer's unfunded obligation is disclosed in the notes to the financial statements, but not in the financial statements themselves. The Focus of Public Pension Accounting and Financial Reporting In discussing potential changes to current stan- dards, the ITC begins by providing a broad concep- tual framework and then progressively narrows the discussion to address various details. The GASB starts by asking: • What should be the focus of pension accounting and reporting for state and local government employers participating in single-employer and agent plans? What processes and transactions associated with the pension benefits should be 10 FASB Statements 87 and 158 require the projected unit credit method, which produces a "projected benefit obligation" reflecting W he cost of benefits earned to date, including projected future salary ut excluding projected future service. Financing Focus. The GASB's standards essentially use the financing focus. This has been a long-stand- ing focus of pension accounting, even before the GASB was established. For example, private-sector accounting principles established in 1966 provided that pension costs should be related to the actuarial costs of funding the benefits." In 1979, the GASB's precursor organization issued a standard applying the 1966 principles to determining public pension expenses and liabilities.12 In 1994, GASB Statement 27 called for the pension cost to be determined us- ing the same actuarial cost method as used to fund the plan. As discussed in the ITC, there are several arguments for and against the financing focus, a few of which are presented below. Arguments For the Financing Focus • It harmonizes pension accounting with actuarial funding. • It provides a measure of the employer's pension cost that reflects the on-going nature of governments. • It reflects total pension costs while mitigating the impact of short-term fluctuations. "Accounting Principles Board (APB), Opinion 8, Accounting for the Cost of Pension Plans, 1966. Generally, under Opinion 8, the cost of pension benefits should reflect the actuarially determined contri- butions needed to fund the plan. 12 National Council on Governmental Accounting, Statement 1, Governmental Accounting and Financial Reporting Principles, 1979. Footnote 8 calls for governmental pension plan expenses and li- abilities to be recognized in conformity with APB Opinion 8. © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 74 of 81 GRS Insight 5/09 40 Arguments Against the Financing Focus • It does not provide specific information about the cost of benefits earned to date. It does not provide specific information about the current pension cost for service in the current year, since it levels contribution rates over time. Incurrence Focus. From this perspective, pen- sions and other postemployment benefits are part of an exchange transaction between the employer and employees related to total compensation. As employees earn benefits by virtue of their service, the employer incurs an obligation for the benefits earned to date. This approach is fundamentally different from the financing focus, since it would exclude pension costs associated with future service and possibly future salary. Arguments For the Incurrence Focus It focuses financial reporting on the exchange transaction. Determining the Employer's Pension Liability and Expense Chapter 3 of the ITC asks what quantities a gov- ernmental employer in a single-employer or agent plan should recognize as the "pension expense" and "pension liability" in its financial statements. As background, the ITC presents the following definitions: An obligation is "a social, legal, or moral requirement such as a duty, contract, or promise that compels one to follow or avoid a particular course of action." A liability is a present obligation requiring "a duty or responsibility to sacrifice resources that the government has little or no discretion to avoid." The ITC notes that an obligation generally becomes a liability when it is legally enforceable, such as in an exchange transaction. 13 ?• It reflects the employer's current position by measuring the liability for unfunded benefits earned to date. • It provides useful information related to employee compensation decisions. Arguments Against the Incurrence Focus It would inappropriately apply a short-term perspective to an on-going entity. • It could introduce misleading volatility into the measurements. • An expense is "a consumption of net assets ... by the government that is applicable to the reporting period." The GASB draws a distinction between amounts "recognized" in financial statements and amounts "disclosed" in the notes to the financial statements. To be recognized in financial statements, an item must be both: (1) an element of financial statements (e.g., an asset, liability, revenue, expense, etc.) and (2) measurable with sufficient reliability. The ITC discusses three alternative approaches to recogniz- ing the pension expenses and liabilities of govern- The financing focus is more consistent with public mental employers participating in single-employer pension funding and current GASB standards. and agent plans. Comment: To evaluate the arguments for or against possible changes in the accounting standards, the specific actuarial methods and assumptions would need to be defined. The use of certain methods and assumptions, especially with regard to the discount rate, could affect the results in a way that under- mines the standard's intended objectives. Alternative 1. The first alternative is the current approach, under which the employer's pension ex- pense is the annual pension cost and the employer's pension liability is the net pension obligation. 13 In addition, there are "constructive liabilities," which are created as a result of the government's conduct rather than a legal require- ment, provided there is little or no discretion to avoid sacrificing resources. © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 75 of 81 GRS Insight 5/09 Both the pension cost and pension liability are recognized in the employer's financial statements. However, the employer's "unfunded accrued ben- efit obligation" is not recognized in the financial statements, but rather is reported in the notes to the financial statements. As used in the ITC, the term "unfunded accrued benefit obligation" is intended to describe the employer's obligation for pension benefits attributable to past periods of service, but is not intended to imply a specific funding meth- odology.14 Arguments For Alternative 1 • The measure of pension expense accurately reflects the total cost of pensions over the long-term. are undefined. Consequently, it is difficult to evaluate the validity of the related argu- ments. Alternative 2. Under the second alternative, the employer's pension liability would be the employ- er's unfunded accrued benefit obligation and the employer's pension expense would be the change in the employer's unfunded accrued benefit obli- gation each year. Both would be recognized in the employer's financial statements. Arguments For Alternative 2 • It reflects the effects of the employment exchange on the employer's pension liability. • The net pension obligation is a useful measure of • The unfunded accrued benefit obligation meets the the liability. conceptual definition of a liability. • The unfunded accrued benefit obligation should Arguments Against Alternative 2 not be used as the liability, since it is based on assumptions about future events and so would not be measured with sufficient reliability. Arguments Against Alternative 1 • The unfunded accrued benefit obligation better meets the conceptual definition of liability and is measurable with sufficient reliability to warrant recognition. • By deferring the recognition of past service costs, Alternative 1 does not provide useful information about interperiod equity. Comment: As discussed earlier, arguments offered for and against the proposed alter- natives can only be evaluated after the ap- proaches are fully defined. As presented, the methods and assumptions related to the unfunded accrued benefit obligation "Unfortunately, this term is very similar to the term "unfunded accumulated benefit obligation" which implies the unit credit cost method. Consequently, if the term "unfunded accrued benefit obli- gation" is used in the standards resulting from this project, signifi- cant confusion could result. • It could result in financial statement volatility that is not relevant to government employers. Using different measures to determine the accounting liability and funding liability would create confusion among financial report users. Alternative 3. This alternative brings together elements of the first two alternatives. It would recognize the unfunded accrued benefit obligation as the employer's pension liability in the financial statements. In addition, it would recognize the employer's normal cost as the measure of expense. However, it could also allow for certain end-of-year adjustments that would amortize and defer com- ponents of the unfunded accrued benefit obligation applicable to future periods. Arguments For Alternative 3 It would allow amortization of costs related tofu ture periods while immediately recognizing certain costs related to past periods. © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 76 of 81 GRS Insight 5/09 7 • It offers common ground between Alternatives I and 2. Arguments Against Alternative 3 • Supporters of Alternative I argue that the unfunded accrued benefit obligation should not be recognized as the liability. Supporters of Alternative 2 argue that deferring any costs associated with past periods is inconsistent with interperiod equity. Measuring the Unfunded Accrued Benefit Obligation Chapter 4 examines possible ways of measuring the unfunded accrued benefit obligation for financial reporting purposes. Specifically, it asks: 0 salary increases, and service credits)? • Should projected future changes be included in the unfunded accrued benefit obligation (e.g., cost-of-living adjustments (COLAs), • What discount rate should be used to determine the present value of benefits? Should it be the long-term expected return on plan investments, the "risk free" rate, or some other rate? For funding purposes, the vast majority of actu- arial valuations for public pension plans include projections of future salary and service, as well as automatic COLAs. This is done to calculate normal costs that, to the greatest extent possible, remain a level percent of payroll over time. This helps the government allocate total pension costs over cur- rent and future taxpayers as an approximately level percentage of their purchasing power. In addition, it helps the government better budget its pension contributions. From the accounting perspective, the measure of the unfunded accrued benefit obligation will de- pend on the focus used. If the GASB decides to use 0the financing focus, then an appropriate measure of the unfunded accrued benefit obligation would likely include projected future salary and service. However, if the GASB decides the focus should be on incurred obligations to date, then basing the unfunded accrued benefit obligation on projected future service would likely be seen as inappropri- ate, since such service would not yet be incurred. If the GASB decides the focus should be on in- curred obligations to date, the ITC asks which of the following two actuarial measures should be used to determine the unfunded accrued benefit obligation. Unfunded Projected Benefit Obligation. This measure includes projected future sal- ary in the value of benefits and only includes future service to the extent it determines an employee's eligibility to receive benefits. Supporters argue it is appropriate to include future salary since there is an implied con- tract that future salary increases will occur. Opponents argue that such future salary increases have not yet occurred and, there- fore, are not relevant to measuring benefits earned to date. Unfunded Accumulated Benefit Obliga- tion. This measure excludes projected future salary and only includes future service to the extent it determines an employee's eligibil- ity to receive benefits. Supporters argue that this is the proper measure of the plan's accrued liability. Opponents argue that it is relevant only in the context of a plans termi- nation or settlement and, therefore, is not a relevant measure for an on-going plan. The Discount Rate. Discount rates are used to estimate the value today of one or more payments to be made in the future. Under current GASB standards, the discount rate should reflect the ex- pected long-term rate of return to be earned on the plan's investments. 15 Since public plans invest in a diversified mix of equity and debt securities, the 15 GASB Statement 27, paragraph 10c. 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 77 of 81 GRS Insight 5/09 expected return would reflect that mix. Currently, public plan discount rates average 8.0% and range from about 7.0% to 8.5%.16 However, some believe that the discount rate should reflect a "risk free" rate of return (e.g., yields on long-term U.S. Treasury bonds or on similar derivative securities). They argue that basing the discount rate on long-term expected returns does not fully reflect investment risks and so will under- estimate plan costs and liabilities. Moreover, they argue benefit payments made by public pension plans are similar to bonds in their amount, timing, and probability of payment and so should be valued (i.e., "priced") using bond yields. Comment: It is important to evaluate these arguments in light of their potential impact on benefit costs and liabilities. For example, the yields on 30-year U.S. Treasury bonds have varied from about 14% in the mid-1980s to about 4% today. Such changes would introduce large variations in the measures of pension costs and liabilities, even in the absence of changes in the underlying plan. Actuarial Methods and Amortization Periods The above discussion of unfunded accrued benefit obligations took place in the context of the GASB's possible future decision to apply the incurrence fo- cus. However, the GASB may decide the financing focus is more appropriate. If so, Chapter 5 asks: reporting purposes, provided it is the same as the method used to finance the benefits. (See footnote 9 for a list of the allowed cost methods.) The choice of actuarial cost method determines how the total pension cost is allocated to past, present, and future periods, but does not affect the total pension cost itself. In its deliberations over Statements 25 and 27, the GASB concluded that any one of the six methods, when properly applied, would produce an acceptable measure of the annual required con- tribution and, therefore, an acceptable measure of the pension expense. 17 However, as discussed in the ITC, some have sug- gested that the ability to choose among six cost methods reduces the decision usefulness of the financial information, since it allows employers to select the most advantageous method. In addition, they argue it reduces the comparability of financial information, and makes interpreting the informa- tion more difficult. Consequently, they suggest reducing the number of acceptable methods. Arguments offered against reducing the number of actuarial cost methods include: (1) the flexibility as- sists employers in funding the benefits; (2) complete comparability of pension accounting measures is impossible given the differences among the plans; (3) comparability is less important than consistency in reporting over time; and (4) in many governmen- tal units, the method is statutory and reducing the number could force a disconnect between pension cost and pension expense. • Which actuarial methods should be If only one actuarial method were to be used, some allowed? Should unfunded obligations be amortized and, if so, over what periods? • Should asset smoothing be allowed? suggest it should be the entry age normal cost method since it is used by the majority of public plans and is seen as the most effective method for accumulating plan assets. Others suggest that, for accounting purposes, the sole actuarial cost method should be the unit credit cost method, since it is Actuarial Cost Methods. The GASB's current stan- explicitly intended to measure current benefit ac- dards allow one of six actuarial cost methods to be cruals. used to measure pension costs for accounting and OP16 Keith Brainard, Public Fund Survey Summary of Findings FY 07, 11 GASB Statement 27, paragraph 99. . 8. © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 78 of 81 GRS Insight 5/09 9 Amortization Periods. Generally, under current standards, the unfunded actuarial accrued liability is amortized and included in the employer's annual required contribution in addition to the normal cost. The maximum amortization period is 30 years and can be either open or closed. A closed period amortizes the unfunded amount over a decreas- ing period each year. An open period amortizes the unfunded amount over the same period each year (e.g., a rolling 30-year period). The amortized amount can be calculated as a level dollar amount or as a level percent of pay. The GASB tentatively assumes that the normal cost of benefits would be included in the pension cost and recognized in the pension expense as employee services are rendered. Therefore, the choices discussed below relate to how components of the unfunded accrued benefit obligation would be amortized over future periods for the purpose of determining the pension expense. Immediate Recognition. Some believe that the unfunded accrued benefit obligation should be im- mediately recognized without amortization. Arguments For Immediate Recognition Deferring recognition of pension costs that have already occurred inappropriately shifts these costs to future taxpayers. Amortization does not help financial report users assess whether revenues are sufficient to pay for services each year. Arguments Against Immediate Recognition • Immediate recognition would introduce unnecessary volatility in the pension expense. It is more appropriate to allocate actuarial gains and losses over the employee's careers than to recognize them immediately. • Amortization Over Average Remaining Service Life. Others believe that while amortizing the un- funded accrued benefit obligation is appropriate, it should be limited to the average remaining service life of the active employees. Arguments For Amortization Over Average Remaining Service Life • Amortizing over the average remaining service life is appropriate, since the active members would be providing services over that period. • Amortizing retroactive benefit increases is appropriate, since the increases have the intangible benefit of improving morale over the employees' remaining years of employment. Arguments Against Amortization Over Average Remaining Service Life Deferring recognition of pension costs that have already occurred inappropriately shifts these costs to future taxpayers. Amortization does not help financial report users assess whether revenues are sufficient to pay for services each year. Amortization Over Different Periods. Still others believe that different types of pension costs should be amortized over different periods. Under this approach, the incremental pension cost created by retroactively applied benefit increases would be amortized over a much shorter period (e.g. 3 years) than the period for amortizing actuarial gains and losses. Open and Closed Amortization Periods. The ITC also asks whether the amortization period should be open or closed. Some believe the amortization period should be closed because it would provide for the full amortization of specific costs over a spe- cific period. Others believe the amortization period should remain open on the grounds that it would © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 79 of 81 10 GRS Insight 5/09 avoid abrupt changes in pension costs and better accommodate benefit obligations that continually change over time. Still others believe a combination of open and closed periods would be suitable. The ITC also notes that an open amortization period may result in amortized amounts that are not suf- ficient to cover the interest on the unfunded obliga- tion and so result in increasing obligations. Others argue that this is not a problem, since the employer will remain better off so long as the unfunded ob- ligation is a decreasing percentage of payroll for active members. Still others suggest that the maxi- mum amortization period should vary depending on whether the amortization period is open or closed (e.g., a maximum of 20 years if the period is open and 30 years if the period is closed). Actuarial Value of Plan Assets. Under current GASB standards, the actuarial value of plan assets is used to measure the plan's funded status and un- funded liabilities (and, by extension, amounts am- ortized in the employer's annual required contribu- tion). While current standards require the actuarial value of assets to be market-related, investment gains and losses may be averaged (or "smoothed") into the value of assets over time, typically 3 to 7 years. This is done to reduce the short-term impact of investment gains and losses on the plan's funded level and required contributions. However, others argue that the (unsmoothed) market value of plan assets should be used. Arguments For Asset Smoothing It effectively mitigates the impact of short-term investment volatility on contribution rates. It is appropriate from a long-term, on-going perspective. • It may help reduce the risk of over-reaction by decision-makers in both favorable and unfavorable times. U Arguments Against Asset Smoothing Changes in unfunded obligations (including those due to investment gains and losses) should be recognized as they occur. Smoothed assets do not represent the assets that are currently available to fund the benefit obligation. The ITC notes that some agree with asset smooth- ing, but believe more specific parameters should be set, such as providing a maximum smoothing period or establishing a corridor limiting the degree to which smoothed assets may differ from their market values. Comment: The GASB standards currently require the fair (market) value of invested assets to be reported in the statement of plan net assets. Treatment of Employers in Cost-Sharing Plans Up to this point, the discussion has centered on accounting and reporting for employers in single-employer and agent plans. In these plans, employers are solely responsible for funding the benefits of their plan members. By contrast, in cost-sharing multiple-employer plans, employers are collectively responsible for funding the benefits of members across all participating plans. As dis- cussed in ITC Chapter 6, key differences between cost-sharing plans and single-employer or agent plans include: Cost-sharing plan obligations are pooled across participating employers and are not directly attributable to any single employer. Cost-sharing plan contributions are often determined by statute and payments are contractually required. • The obligation of any individual employer is limited to their contractually required © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 80 of 81 GRS Insight 5/09 11 contribution and the employer has no control over how contributions are set. Under current GASB standards, employers in cost- sharing plans recognize their contractually required contribution as their pension expense, regardless of whether it reflects their actuarially determined contribution. The ITC asks whether the relation- ship of cost-sharing employers to their cost-sharing plan is sufficiently different from that of employers in single-employer and agent plans to warrant dif- ferent accounting standards.18 Supporters of the current approach point out that it accurately reflects the fact that the financial obliga- tion of cost-sharing employers is their contractually required contribution. Others generally agree that the current approach is appropriate, but would like to see additional disclosures in the employer's financial reports to help readers better understand the adequacy of the contractually required contri- butions. Still others believe that the cost-sharing is not sufficiently different from sin- gle-employer ,arrangement and agent plans to warrant different treatment. Pension Plan Accounting and Reporting The last chapter of the ITC shifts perspective from accounting and reporting for employers to account- ing and reporting for plans. Specifically, Chapter 7 asks: • Should the accrued benefit liability for and (2) the statement of changes in plan net assets. The statement of plan net assets shows current plan assets (including investments) and current liabilities due and payable, but not actuarial ac- crued liabilities, which are shown in the notes to the financial statements. The plans statement of changes in plan net assets shows employer and employee contributions, investment earnings, ben- efit payments, withdrawals, and other expenses. The plans are also required to disclose additional information about annually required contributions, actual contributions, and funding in the notes to the financial statements and required supplementary information. Arguments For the Current Approach • Benefits that are currently due and payable fit the definition of liabilities. The accrued benefit obligation is an obligation of the employer rather than of the plan. Arguments Against the Current Approach Recognizing plan assets without recognizing accrued benefit obligations provides only half of the picture. The accrued benefit obligation is, in effect, the liability that assets are being accumulated to fund. Recognizing a Liability for the Accrued Benefit Obligation. Others believe that the plan's state- ment of net assets should include the accrued ben- defined benefit pensions be recognized in efit obligation earned to date. the plan's statement of financial position? Should a statement of changes in the unfunded accrued benefit obligation be added as a financial statement of the plan? The current standards for defined benefit pension plans require the plans to report two financial statements: (1) the statement of plan net assets Arguments For Recognizing the Accrued Benefit Obligation • The accrued benefit obligation is the liability that assets are being accumulated to fund. Recognizing plan assets without accrued benefit obligations provides only half the picture. is Although not discussed in the ITC, the GASB may also consider .narrowing the definition of a cost-sharing plan. 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 2 Page 81 of 81 12 GRS Insight 5/09 Arguments Against Recognizing the Accrued Benefit Obligation • The accrued benefit obligation pertains to the employer and not the GRS plan. Offices • The accrued benefit obligation is already reported as required supplementary information. CHICAGO Adding a Statement of Changes in the Unfunded Accrued Benefit Obligation. Some also advocate adding a financial statement show- ing changes in the unfunded accrued benefit obligation. Supporters believe this would provide additional information about the economic condition of the plan. Opponents argue that this information is al- ready included in the notes to the financial statements and required supplementary information. Conclusion The GASB's Invitation to Comment presents the conceptual frame- work that the GASB will use to evaluate potential changes in ac- counting and reporting standards for public pensions benefits. Consequently, it is important to understand this framework in order to respond effectively to the GASB. The ITC and the GASB's plain-language summary are available at: www.gasb.org Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this communication concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related matter addressed within. Each taxpayer should seek advice based on the individual's circumstances from an independent tax advisor. 20 North Clark Street, Ste. 2400 Chicago, IL 60602-5111 (312) 456-9800 (312) 456-9801 Fax Contact: Mike Kivi DALLAS 5605 N. MacArthur Boulevard, Ste. 870 Irving, TX 75038-2631 (469) 524-0000 (469) 524-0003 Fax Contact: Mark Randall DENVER 7900 East Union Avenue, Ste. 1100 Denver, CO 80237-2746 (303) 217-7600 (303) 217-7609 Fax Contact: Leslie Thompson DETROIT One Towne Square, Ste. 800 Southfield, Ml 48076-3723 (800) 521-0498 (248) 799-9000 (248) 799-9020 Fax Contact: Judy Kerman Gabriel, Roeder, Smith & Company has provided consulting and actuarial services for benefit plans since 1938. We are dedicated to providing services that encourage sound financing, sensible benefit design, efficient administration, and effective communication FT. LAUDERDALE of employee benefits. One East Broward Boulevard, Ste. 505 Since its inception, GRS has placed special emphasis on services to the public sector. Ft. Lauderdale, FL 33301-1827 (954) 527-1616 From our network of offices, we serve over 700 clients nationwide, including retirement (954) 525-0083 Fax systems, employers, employee organizations, and government agencies. We have worked with many of our clients for more than 30 years - some for more than 60 years. Contact: Theora Braccialarghe The far-ranging locations of our clients and the long associations we have enjoyed reflect the quality of the services we provide. Services offered by GRS include: Pension Plan Consulting This newsletter and additional GASB 43/45 OPEB Consulting information about the firm may be Health and Welfare Benefit Consulting found on the GRS website at: Retirement Technology Application www.gabrielroeder.com © 2009 Gabriel Roeder Smith & Company Item # 5 Attachment number 3 Page 1 of 8 CONSULTING SERVICES AGREEMENT BETWEEN THE CITY OF CLEARWATER, FLORIDA AND GABRIEL, ROEDER, SMITH & COMPANY Section I General Information A. Purpose The City of Clearwater (City) hereby enters into a contractual agreement with Gabriel, Roeder, Smith & Company (GRS) for actuarial and consulting services pertaining to the City of Clearwater Employees Pension Fund and its Other Post-Employment Benefits (OPEB). The client in this matter shall be the City. This Contract does not create any relationship between GRS and any other related private, not for profit, or governmental entity, including, but not limited to, the City employees or collective bargaining units covering such employees. Such entities may rely upon GRS work products only with the permission of both GRS and the City. GRS shall have no obligation to work for such entities, however, GRS may freely elect to work for such an entity with consent of the City and provided that copies of all related work products are provided to the City. B. Entire Agreement and Order of Precedence This Agreement, together with the Proposal issued by GRS to the City and dated September 28, 2009 collectively, form the complete and exclusive contract between the parties as it relates to this transaction. In the event of any conflict among these documents, the following order of precedence shall apply (in descending order of precedence): 1. This Agreement 2. GRS' Proposal for Actuarial and Consulting Services dated September 28, 2009 The failure of a party to insist upon strict adherence to any term of the contract shall not be considered a waiver, or deprive the party of the right thereafter to insist upon strict adherence to that term, or any other term, of the contract. The contract may not be modified, amended, extended, or augmented, except by a writing executed by the parties, and any breach or default by a party shall not be waived or released other than in writing signed by the other party. Each provision of the contract shall be deemed to be severable from all other provisions of the contract and, if one or more of the provisions of the contract shall be declared invalid, the remaining provisions of the contract shall remain in full force and effect. The contract shall in all respects be governed by, and construed in accordance with, the laws of the State of Florida. Any legal action under this Agreement shall be brought in Pinellas County, Florida. Roeder Smith & Company IteM-# 5 Attachment number 3 Page 2 of 8 C. Term of Contract The contract is for the 60-month period extending from January 1, 2010 through December 31, 2014. D. Contractor Responsibilities GRS assumes responsibility for all contractual activities whether or not it performs them directly. GRS shall be the sole point of contact with regard to contractual matters, including payment of any and all charges resulting from the contract. The City reserves the right to interview the key personnel assigned by GRS to this project and to the reassignment of personnel deemed unsatisfactory by the City. If any part of the work is to be subcontracted, the City reserves the right to approve the subcontractors in advance, and to require that GRS replace any subcontractors found by the City to be unacceptable. GRS shall be responsible for adherence by the subcontractor to all provisions of the contract. E. Client Responsibilities The City agrees to review information supplied by GRS for general reasonableness, and to ensure that GRS has properly understood the assignment. In the event that the City finds a GRS work product to be unreasonable or otherwise unsatisfactory, the City shall not distribute such work product or otherwise make use of it, or rely upon it, until a correction has been made, or GRS has explained matters to the satisfaction of the City. The City agrees that GRS is not responsible for the accuracy of any data provided to GRS by the City. In the event of discovery of an error by GRS in a calculation, the City agrees to take immediate steps to mitigate the effects of such error. Any actuarial communication, report and presentation materials may be provided to parties other than the City only in their entirety and only with the permission of the City. F. Accounting Records GRS shall maintain all pertinent financial and accounting records and evidence pertaining to this contract in accordance with generally accepted accounting principles (GAAP). G. Patent/Copyright Infringement and General Indemnification GRS shall indemnify, defend and hold harmless the City and its employees and agents from and against all losses, liabilities, penalties, fines, damages and claims (including taxes), and all related costs and expenses (including reasonable attorneys' fees and disbursements and costs of investigation, litigation, settlement, judgments, interest and penalties) incurred in connection with any action or proceeding threatened or brought against the City to the extent that such action or proceeding is based on a claim that any piece of equipment, software, commodity, or service supplied by GRS or its subcontractors, or the operation of such equipment, software, commodity, or service, or the use or reproduction of any documentation provided with such equipment, software, commodity, or service infringes any United States or foreign patent, copyright, trade secret or other proprietary right of any person or entity, which right is Gabriel Roeder Smith & Company Item -# 5 Attachment number 3 Page 3 of 8 enforceable under the laws of the United States. In addition, should the equipment, software, commodity, or service, or the operation thereof, become, or in GRS' opinion be likely to become, the subject of a claim of infringement, GRS shall at its sole expense, (i) procure for the City the right to continue using the equipment, software, commodity, or service, or if such option is not reasonably available to GRS, (ii) replace or modify the same with equipment, software, commodity, or service of equivalent function and performance so that it becomes non-infringing, or if such option is not reasonably available to GRS, (iii) accept its return by the City with appropriate credits to the City against GRS' charges and reimburse the City for any losses or costs incurred as a consequence of the City ceasing to use and returning the equipment, software, commodity, or service. GRS agrees to indemnify the City from claims made by GRS employees while working on the City premises on the City projects, provided that the City has complied with all relevant Federal and State Laws related to workplace safety, and human rights, including, but not limited to anti-discrimination and anti-harassment laws. In any and all claims against the City, or any of its agents or employees, by any employee of the contractor or any of its subcontractors, the indemnification obligation under the contract shall not be limited in any way by the amount or type of damages, compensation, or benefits payable by or for GRS or any of its subcontractors under worker's disability compensation acts, disability benefit acts, or other employee benefit acts. This indemnification clause is intended to be comprehensive. Any overlap in subelauses, or the fact that greater specificity is provided as to some categories of risk, is not intended to limit the scope of indemnification under any other sub clauses. The duty to indemnify will continue in full force and effect not withstanding the expiration or early termination of the contract with respect to any claims based on facts or conditions, which occurred prior to termination. H. Liability Insurance GRS shall purchase and maintain such insurance as will protect it from claims which may arise out of or result from its performance under the contract, whether such performance be by GRS or by any subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable. The insurance shall be written for not less than the greater of $1,000,000 and any limits required by law, and shall include contractual liability insurance as applicable to GRS' obligations under the indemnification clause of this contract. L Board Minutes The City shall routinely provide GRS with copies of Board Minutes for GRS's reference in connection with work to be performed pursuant to this contract. GRS is not obligated to provide corrections to the minutes. Silence on the part of GRS does not constitute agreement with the minutes, even with respect to meetings that the GRS Consultant attended or at which GRS was directly or indirectly quoted. Gabriel Roeder Smith & Company Item* 5 Attachment number 3 Page 4 of 8 J. Cancellation The City, with 30 days written notice, may cancel the contract. GRS may also cancel the contract with 30 days written notice for any of the following reasons: 1) the City, or one or more plan participants or beneficiaries, or the State has filed a lawsuit against GRS in a matter related to the City, its participants, or its beneficiaries, 2) a member of the City or Staff has been found guilty of criminal or civil breach of fiduciary responsibility or other severe wrongdoing with respect to the City or GRS, or 3) the City or Staff demands that GRS take actions deemed by GRS Management to be unethical or illegal. GRS may otherwise cancel the contract upon giving 90 days written notice. If the City cancels the contract for any cause other than the failure of GRS to fulfill the obligations of the contract, the City shall pay GRS' reasonable final invoice for work performed under the contract. In the event of the failure of GRS to fulfill its obligations under the contract, or in the event that GRS cancels this contract without sufficient notice as described above, the City may procure the services of other sources, and hold GRS liable for any excess costs occasioned thereby, up to the greater of $50,000 or 50% of the amount paid under the contract for the most recently completed fiscal year. Excess costs for this purpose do not include the costs of preparing and issuing an RFP. The City, as an entity of government, is subject to the appropriation of funds by its legislative body in the amount sufficient to allow continuation of its performance in accordance with the terms and conditions of this contract for each and every fiscal year following the fiscal year in which this contract shall remain in effect. Upon notice that sufficient funds are not available in the subsequent fiscal years, the City shall therefore be released of all terms and conditions. K. Delegation/Assignment GRS shall not delegate any duties under this contract to a subcontractor unless the City has given prior written consent to the delegation. GRS may not assign the right to receive money due under the contract without the prior written consent of the City. In addition, the City reserves the right to approve subcontractors for this project and to require GRS to replace subcontractors who in the City's judgment are unacceptable. L. Non-Discrimination Clause In performing the contract, GRS agrees not to discriminate against any employee or applicant for employment, with respect to their hire, tenure, terms, conditions or privileges of employment, or any matter directly or indirectly related to employment, because of race, color, religion, national origin, ancestry, age, sex, height, weight, marital status, physical or mental handicap or disability. GRS further agrees that every subcontract entered into for the performance of any contract resulting here from will contain a provision requiring non- discrimination in employment, as herein specified, binding upon each subcontractor. M. Fees The fees set forth in this contract shall be firm for the duration of the contract as specified on pages 36-38 of GRS submitted proposal to RFP 21-09 (as attached as Exhibit A). Other than routine fee updates for inflation, no fee changes will be permitted without prior written consent of the City. Gabriel Roeder Smith & Company Item # 5 Attachment number 3 Page 5 of 8 N. Modification of Services The City reserves the right to modify the service requirements during the course of the contract. Modifications may include adding, deleting, or altering the work to be performed under the contract. Any changes in pricing (increases or decreases) proposed by GRS as a result of service modifications are subject to written acceptance by the City. In the event that price changes are not acceptable to the City, the contract may be canceled and subject to competitive bidding based upon the new specifications. 0. Confidentiality GRS shall instruct its employees and the employees of any subcontractor to keep as confidential information concerning the business of the City, its financial affairs, its relations with its participating municipalities and courts, members, retirees and beneficiaries, and its employees, as well as any other information which may be specifically classified as confidential by the City. At the City's request, GRS or any subcontractor(s) and each of their employees may be required to sign confidentiality statements prior to beginning or continuing to work on the contract. GRS will not normally print full Social Security numbers on documents used for communication with the City or its participants. The only exception GRS will make to this policy without direction from the City, relates to certain necessary and confidential communications between GRS and the City that are directly related to work assignments. In the event that the City directs GRS to make further exceptions to this policy, the City agrees to indemnify GRS for any illegal use or misuse or security breaches or identity thefts related to such information by individuals other than GRS employees. All copies of information developed by GRS in connection with the contract are the property of and will be returned to the City, upon request. GRS reserves the right to shred or otherwise dispose of information one year following receipt, unless it receives instructions to the contrary from the City. GRS will not reveal or disclose either information or findings concerning this contract with anyone who does not have a substantial need-to-know and who has not been expressly authorized in writing by the City to receive the inform ationlfindings. GRS must ensure that all safeguards and proper procedures are implemented to protect confidential information. P. Tax Advice Legal Advice and Investment Advice Based upon its general background and research on federal income tax, legal issues, and investment matters, GRS employees may from time to time provide general comments and information on same. However, no GRS work product shall be deemed to provide income tax advice, legal advice, or investment advice unless such work product contains one of the following phrases or substantially equivalent language. • "This work product is intended to provide income tax advice." • "This work product is intended to provide legal advice." • "This work product is intended to provide investment advice." Gabriel Roeder Smith. & Company Item # 5 Attachment number 3 Page 6 of 8 No oral communication of any GRS employee shall be interpreted to provide income tax advice, legal advice, or investment advice. Further, no GRS work product shall be used for the purpose of avoiding tax-related penalties under the Internal Revenue Code, or marketing or recommending to another party any tax-related matter addressed within the work product. Q. Third Party Dealings GRS will not provide information related to the City to third parties except with the permission of, and under the specific direction of, the City. By giving such direction and permission, the City agrees to indemnify GRS, or to require such third party to indemnify GRS, against the misuse or misunderstanding of GRS work products by such third party. GRS shall not review any third party work product except under the specific written direction of the City to do so, and only for reasonable compensation. Such review if undertaken shall be limited to those areas in which GRS has expertise, and shall specifically exclude conclusions related to income tax, investment matters, and legal matters. R. Limitations 1. Actuary is an independent contractor and is not an agent, employee or subcontractor of the City. Actuary and its agents and employees shall not accrue leave, retirement, insurance bonding, use of city vehicle, or any other benefit afforded to city employees or City members as a result of this agreement. The Actuary shall be governed in its relations with the City and the plan by the requirements of Chapter 112, Part V11, Florida Statutes. In all of its relations with the plan, the Actuary will utilize the skill, prudence, and diligence that would be expected of a professional actuary in a comparable position. 2. Notwithstanding anything in this agreement to the contrary, Actuary's primary responsibility under this agreement is to the plan and its members, and it will place their interests above all others. The Actuary will not enter into any agreement or take any action contrary to that responsibility. Actuary will not accept or perform any engagement involving the plan or its members for any organization other than the City without the prior written consent of the City or action by the City at a meeting. The Actuary shall not have any discretionary authority or control with respect to management of the plan's assets; render investment advice for a fee or other compensation (direct or indirect) as to any monies or any other property of the plan; nor have any discretionary authority or discretionary responsibility in the administration of the provisions of the plan. The City retains absolute discretion over, and responsibility for, deciding what, if any, action to take with respect to any report, analysis, or recommendation by Actuary and for the implementation of such decision. S. Warranty GRS warrants that all work performed under the contract will be performed by individuals who are qualified to do so in accordance with requirements as are from time to time issued by various actuarial and other professional bodies. GRS warrants that the work product will be subject to an internal peer review procedure. Finally GRS warrants that GRS has no direct or indirect financial relationship to the City, other than the relationship described in this contract. Roeder Smith & Company It@rll # 5 Attachment number 3 Page 7 of 8 Section TY Work Statement A. Scope GRS shall perform actuarial and consulting services for the City for the period January 1, 2010 through December 31, 2014. B. Duties The regular and special services duties to be performed by GRS are set forth on pages 30 through 38 of GRS' proposal for Actuarial and Consulting Services dated September 28, 2009. GRS is not constrained from supplementing this list with additional items or elements deemed necessary to permit the development of alternative approaches or the application of proprietary analytical techniques, within the price schedule set forth in the proposal, unless agreed otherwise by the parties in writing. C. Other Services From time-to-time, the City may require services other than those described. GRS may be asked to provide communication services, applied technology services, defined contribution plan services, or other supplemental consulting services not described above. Fees for such services shall be based on hourly rates. D. Transition If at the end of this contract, another vendor succeeds GRS as the City's actuary, GRS shall fully cooperate in the transition of actuarial services, including providing the successor firm with up-to-date actuarial valuation data, assumptions and results. Such cooperation is contingent upon the City's agreement to pay GRS' reasonable final invoice for work performed under this contract. GRS shall charge fees for the transition requirements in accordance with the rates described herein. E. Actuarial Audit In the event that an Actuarial Audit of GRS' work for the City is performed during the term of this contract, GRS shall cooperate with the actuarial audit and the City shall pay GRS reasonable fees associated with such cooperation. Gabriel Roeder Smith & Company Item # 5 Attachment number 3 Page 8 of 8 Section III Price and Payment Schedule A. Price for Actuarial Valuations and Consulting Services GRS' fixed fees for Actuarial Valuations and Consulting Services set forth in the Proposal for Actuarial and Consulting Services dated September 28, 2009 are listed below and apply to the first year. Prices for future contract years are updated for inflation based on changes to the 12131 CPI-U index, and changes, if any, in the scope of services requested. The City shall pay these fees to GRS as projects are being performed, within 30 days of receiving an invoice. • Annual Fee for Retainer Services Pertaining to the Employees Pension Fund $16,000 • Annual Fee for Retainer Services Pertaining to OPEB Plans $16,000 B. Fees for Additional Meetings and Other Services Hourly rates applicable to these items are set forth on Page 38 of the Proposal for Actuarial and Consulting Services. These fees are adjusted annually based upon changes to the 12131 CFI-U index. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed effective the 1st day of January, 2010. For GRS: CITY OF CLEARWATER, FLORIDA By: abriel, Roeder, S ith & Company bs.ca,.? _ , 2009 William B. Horne 11 City Manager Attest: Cynthia E. Goudeau City Clerk Countersigned: Frank V. Hibbard, Mayor Approved as to form: Leslie K. Dougall-Sides Assistant City Attorney Gabriel Roeder Smith & Company Item # 5 Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Accept the 2009 Asset Allocation Review and authorize staff to implement the recommendations. SUMMARY: Earlier this year the Trustees retained Callan Associates to perform an asset allocation study. After extensive meetings and considerable deliberations that study is now complete. The study considered all of the alternative strategies. Callan found that only four strategies were worthy of consideration at this time. The following are the recommendations: Asset Class Callan Recommendation Committee Private real estate Add to portfolio Add to portfolio Hedge funds Not at this time Not at this time Private equity Add to portfolio More study required Timber Add to portfolio Part of real estate The following are the current asset allocation and the alternative mix that Callan is recommending: Current Callan Large Cap Domestic Equity 20% 32% Mid/Small Cap Domestic Equity 22% 8% International Equity 10% 18% Emerging Market Equity 8% 3% Domestic Fixed Income 30% 30% Real Estate 10% 9% Expected Rate of Return 8.68% 8.43% Standard Deviation 12.36% 11.21% The current asset allocation is a result of an asset allocation study that was performed several years ago. The current allocation is located on the Efficient Frontier which is exactly where we want our investment allocation. Rather than have exact asset allocation targets, Callan is recommending that target ranges be developed. Staff is updating the investment policy, with assistance from our consultant, to reflect target ranges and will bring that to the Trustees in the near future. One advantage of ranges is that it will allow for tactical asset allocations. These tactical asset allocations will be based upon recommendations by the Plan's consultants. Currently, the asset allocation is overweight in small/mid cap domestic and emerging market stocks and underweight developed international equities. This has benefited the plan given the state of the current economy. Cover Memo Currently the plan is exposed to real estate through REITs. REITs was a good first step for the plan and now Callan is ftq?"(&ding we expand the real estate option to include a open ended institutional co-mingled fund. Cap Trust, the Plan's advisor, will work with staff to select an appropriate manager/managers. Staff will bring to the Trustees recommendations as to managers and the actual subclass of real estate in the early spring. Private real estate will add the attributes of diversification, alpha generation (additional return), and inflation hedge to the portfolio mix. Review 1) Office of Management and Budget 2) Financial Services 3) Office of Management and Approval: Budget 4) Legal 5) Clerk 6) Assistant City Manager 7) Clerk 8) City Manager 9) Clerk Cover Memo Item # 6 g 9g LyA^.yA 0 U 0 z 0 t.? n., o) N r i V L ? Q > ? a O Y U_ A ? U N X W U L U N? N U L Q 70 c6 N Q U 0 L 0 U N L r) p L 0 N 0 L O 0 0) 0 0 Y N d 20 U O N a m U (C) it E L O N O ??..r O Q x + w •E L L N N Q U CD N v N p L 0 y-+ 0 L O 0 0 O Y 0 N d cC u O N N a ?(.0 U E C14 N L N L ca O O V N L ? L.L 7 2 LL r ? I I I I U cn _0 N N cn N ? ? N O N ? J to O U J U 0 O_ }' E E cn L L O ? N I I I I p L 0 y-+ 0 L O 0 0 O Y N d cC Z O N a U ? L 0 W L ; O O N O O 000 LO 0 N O? V O O 000 , N N N N 0 LO CO V r LO Cfl o 0 M M N - - N Y O r /? M L O a? 0 }? V O m U ° c G1 N (D Y oLn000Ln LS o000 Q O to E V N I- CO O LSD 0 co 0 N QO O O Lo. 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CD N CD 00 CD CD oo N U N N CO cr W cr N L W • U :3 cr O N E >, W U cn O C) :3 }, C O O E 0- 32 -o a) • O LJJ a) > U X LL o p U U E • cu •? in o ca o a? u? L w ? ? ? ? o ca CL cu cu ? J ? ? E ui o w x W co City of Clearwater Confidential 11/25/2009 Current Asset Allocation Targets 22% 20% Growth Value 7% 5% Domestic 5% 5% Equity 42% 60% 10% 10% EAFE 10% International 10% 18% Emerging Market 8% 8% REITS 10% 10% Fixed 30% 30% 100% Growth/Value 22% 20% New Asset Allocation Targets with Tactical Allocation Domestic Equity 40% 61% EAFE International 18% 21% Emerging Market 3% REITS and Real Estate Private Real Estate 9% 9% Fixed 30.00% 100% Page 1 Attachment number 2 Page 1 of 1 Item # 6 Agenda. PDFCo nvert.10729.xlsx Meeting Date: 12/14/2009 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Discuss and provide direction re pursuing a second tier pension plan. SUMMARY: At the request of the Trustees, the pension attorney has information for discussion by the Trustees. Review Approval: 1) Clerk Cover Memo Item # 7 Attachment number 1 Page 1 of 3 MEMORANDUM TO: Joseph Roseto FROM: Stu Kaufman Klausner & Kaufman, P.A. RE: Tier Two Retirement Plan Options DATE: November 25, 2009 Overview: The purpose of this memorandum is to provide a summary of allowable options for providing a second tier of retirement benefits. Under Florida law, accrued benefits may not be reduced retroactively. Once an employee becomes eligible to retire, benefits may not be reduced or impaired without violating the prohibition on impairment of contract found in the Florida Constitution. As you are aware, in any unionized workforce, changes to a retirement program must be collectively bargained, even if they relate to benefits to be paid to persons not yet employed. I am assuming that the second tier will only be applied to new hires and that the current level benefits will remain in place for current employees. Second tier plan for new employees Future employees would be placed into a new, second tier defined benefit plan which would presumably have lower benefits. {00026088.RTF; I } Item # 7 Attachment number 1 Page 2 of 3 Examples of possible modifications that could be used in the new second tier to reduce pension costs include a lower benefit accrual rate (or plan "multiplier" which is used to calculated benefits), later retirement ages, and the reduction or elimination of the COLA for the second tier plan for new employees. These modifications could be made separately or in combination. Specifically, the following revisions can be considered in a second Tier: CURRENT BENEFIT 1. Retirement Benefit Multiplier - 2.75% 2. Normal Form of Retirement Benefit - 100% survivor annuity paid monthly for period of 5 years; 50% survivor annuity thereafter 3. Disability Benefit - Line of duty - not less than 66-2/3% 4. Overtime for Police - Included 5. Contributions - 8% 6. COLA - 1-1/2% annually 00025047.DOC;1 SECOND TIER BENEFIT - 2% - Ten years certain and life thereafter for hazardous - Life annuity for non-hazardous - Line of duty - not less than 42% - 300 hours minimum - can be raised - COLA can be eliminated {00026088.RTF;1 1-2- Item # 7 Attachment number 1 Page 3 of 3 7. Maximum Benefit - 100% of average final compensation 8. Normal Retirement Age Hazardous duty - 20 years Non-hazardous duty - 30 years - can be lowered - can be eliminated or raised Because the City receives annual premium tax revenue under Chapter 175/185 to help fund police and firefighter benefits, it is important that any future second tier for police or firefighters be reviewed by the Division of Retirement. The Division of Retirement will require that tier two benefits for new police officers and firefighters continue to comply with "minimum benefit" levels and "minimum standards" under Chapter 175/185. The above revisions all take the minimum benefit standards into account. Several months ago our office asked the Division of Retirement for guidance regarding permissible second tier benefit levels for police and fire. The Division indicates that it will evaluate each second tier proposal on a case by case basis. According to the Division, member contributions may not be increased without a corresponding benefit increase. The Division further indicates that minimum benefits cannot be lowered below the March 12, 1999 level. Finally, the Division's current position is that benefits purchased with Chapter 175/185 revenue since 1999 may not be reduced. The Division is still studying this issue, illustrating that second tiers were only approved last year by the Division for Chapter 175/185 plans and, to date, the Division has issued no definitive guidance. The restrictions relating to police and fire plans do not apply to non-public safety employees. There is no required minimum benefit for general employees. The use of multiple tiers is not a new device. Many plans provide different levels of benefits depending on the date of hire. Second tiers permit lower actuarial cost assumptions for future employees while maintaining a steady flow of new employees with a lower per capita retirement cost and a continuing stream of employee contributions. 00025047.DOC;1 {00026088.RTF;1 1-3- Item # 7