PERFORM ACTUARIAL VALUATION
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MEMORANDUM 1,-0:
The City Commissi.on of the City of Clear\vater
SUBJECT:
TRUSTEES OF . A1~enda No.
GENERAL EMPLOYEES f'leetlng Date:
PENSION PLAN
3/30/87
APPOINTMENT OF ACTUARY FOR JANUARY 1, 1987 VALUATION
RECOMMENDATION: Approve the appointment of Ogle and Waters, Inc. to
perform the January 1, 1987 Actuarial Valuation for a total fee of $9,500
as outlined under alternative 12 in the attached proposal letter.
UAnd that the appropriate officials be authorized to execute same.
BACKGROUND: Ogle and Waters was initially hired to perform the January
1, 1986 valuation after serious questions were raised relating to the 1985
valuation performed by Ronald T. Hirsch and Associates.
The fee proposed by Ogle and Waters compares to $8,000 whic:h was bid for
their initial study, but it does include an update of mortality tables
from the 1965 tables which have been used in the past. Increased
contribu~ions resu1~ing from the use of more recent tables will be phased
in over a two or three year period.
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~mmission Disposition:
1. Approved IS 'bcommend~/Revlsed/Condltiona'
. Continued to
dol,.
3/30/97
Fal1ow-up Action:
Submitted by:
Date:
o Affected
Parties
Notified
of Meeting
o Not Required
Costs: S9,500
Funding Source:
o Capital Improve-
ment Budget
o Operating Budget
lO{ Ot her
646-7410-301-585
Appropriation Code
~Attachments:
Proposal Ltr.
Advertised:
City Manager
Paper:
a Not Required
Date aSequential
Reference
OrlQlnatlng Department:
Finance
o None
(}/1.. . ,I'"' 9-") ~I:
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Ogle@i\Tdters"Inc.
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Employee Benefit, Compensation and Human Resource Consultants
March 11, 1987
Mr. Daniel J. Deignan
City of Clearwater
112 South Osceola Avenue
Clearwater, Florida 33518
Re: Actuarial Services for 1987
Dear Dan:
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We are pleased to present this outline of proposed actuarial
services fo~'~he current year and our associated fees. The
Ci ty of Clearwater is a highly valued client and we
appreciate the opportunity to continue providing quality
service.
I have identified three alternative approaches to the January
1, 1987, actuarial valuation this year. Briefly they are:
1. Same actuarial basis. as January 1, 1986.
2. Same actuarial basis as January 1, 1986, but adopting
the updated 1983 Group Annuity Mortality Table,
probably phased in over 2 or 3 years.
.3'.; Same as Alternative #2'0 but,,, also adopting revised
rates of incidence of disability and withdrawal.
Actually, Alternative #1 is only a "token" alternative, since
I believe all parties are in general agreement regarding the
need to update the mortality assumption. I have really
included Alternative #1 only for purposes, of comparability
with last year.
During our work last year we determined that fully adopting
the updated mortality table would raise contribution levels
$400,000 to $500,000. I would prefer to phase this in over
no more than 2 years. While I would accept 3 years, that
would mean that recognition would not be completed until
One Corporate Drive, Suite 600 Clearwater, Florida 33520
Clearwater/St. Petersburg (813) 577-2884 Tampa (813) 224-9106
Branch Office in Orlando
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Mr. Daniel J. Deignan
March 11, 1987
Page 2
1989, when the 1983 table would already be 6 years old. (It
is likely that a new group annuity table will be in general
use by then.)
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AH:ernative #3 needs some additional explanation. George,
you, and I have previously discussed our concerns that the
assumed rates of disability used for many years in your
valuations understate the actual number of participants
receiving disability retirements. This could be significant
because of the very valuable disability benefits provided by
the plan. The process of adopting more representative rates
consists of two distinct steps, an experience study and an
additional actuarial valuation.
The experience study would use the last 5 years of employee
data (the 4 years of data we have already collected from you,
plus the 1986 data we will receive for the January 1, 1987
valuation) to develop crude rates of disability by age
groups. Then based on theS.e crude rates of actual disability
experience, we would ei -ther recommend a new table of
disabi1i ty incidence or verify the appropriateness of the
existing table, although the latter would seem unlikely.
We would perform the same procedure for the rates of
wi thdrawa1, since it would not be sensible to adopt new
dis~bi1ity rates without verifying the withdrawal experience
as well. Withdrawal benefits are the least valuable in the
~lan. Thus if higher rates of withdrawal are appropriate,
" this could actually decrease plan costs or at least somewhat
offset the increase due to higher." disability rates. The
experience study and recommended tables would be presented in
a written report.
The second step of an additional valuation using the new
disability and withdrawal rates would then be undertaken upon
your direction. A preliminary report would be prepared
showing the cost impact of adopting the new rates. If
A1 ternative #3 is chosen, completion of the full actuary's
report would be deferred until after this time so that the
Ci ty' s decision regarding disability and withdrawal rates
would be properly reflected.
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Mr. Daniel J. Deignan
March 11, 1987
Page 3
Our fees for these three alternatives are listed below:
Alternative #1
- Same actuarial basis
$8,500
Alternative #2
- Updated mortality table
Alternative #3
- Experience Study and Report $5,000,;'
$9,500
- Additional Valuation and Report $2,500
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We understand that under Alternatives #1 or #2, the typed
draft of our actuary's report would be due 90 days after the
date we receive all employee and financial data. If
Alternative #3 is selected,'.' an additional 60 days should be
expected until delivery of the final actuary's report, due to
the additional work involved and the two interim reports and
decisions needed by the City. However, we would still be
able to quote the plan costs under the old disability and
withdrawal basis by the 90-day deadline. We understand that
if we fail to meet these due dates, you and I have a
gentlemen's agreement that a reduction in our fee would be in
order.
,;1 believe this is all the information you require for your
presentation to the Trustees ..Please give me a call,
however, if there is anything you wish to discuss further.
Cordially yours,
OGLE & WATERS, INC.
-:r;:J
John A. Lessl
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