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SR-05-12-2015-3DCity it Report City Council Regular Meeting: May 12, 2015 Agenda Item: To: Mayor and City Council From: Gigi Decavalles- Hughes, Director Subject: Other Post - Employment Benefits (OPEB) Trust and Investment Services Recommended Action Staff recommends that the City Council: 1) Authorize the City Manager to negotiate and execute a professional services agreement with the California Public Employees' Retirement System (CaIPERS), a California -based organization, to provide comprehensive services for the establishment and administration of an Internal Revenue Code (IRC) Section 115 Irrevocable Trust for the City's Other Post - Employment Benefits, for five years, with one additional three -year renewal option on the same terms and conditions, for an estimated total amount not to exceed $30,000 over a five -year period; with future year funding contingent on Council budget approval; 2) Adopt a resolution of the City of Santa Monica approving the California Employers' Retiree Benefit Trust ( CERBT) Participation Agreement; 3) Adopt a resolution of the City of Santa Monica delegating authority to the City Treasurer and Assistant City Treasurer to authorize distributions from the CERBT fund; and 4) Approve budget changes as noted in the Financial Impacts and Budget Actions section, including the initial appropriation of the actuarially- determined annual required contribution for other post - employment benefits, totaling $2,506,785 in FY 2014 -15, into the Irrevocable Trust. Executive Summary It is a fiscal management best practice to prefund long -term financial obligations such as retirement benefits. The City has a relatively small obligation for retiree health benefits, or other post - employment benefits (OPEB). The City currently pays approximately $1.1 million annually to beneficiaries, which covers benefits attributable to the current year of service. Staff proposes prefunding this liability, which would increase the annual expenditure to approximately $2.5 million. Over the past two years, staff has set aside year -end savings to smooth the transition into prefunding OPEB obligations, and informed Council on January 27, 2015 of its plans to establish a trust for the purpose of prefunding OPEB obligations during the current fiscal year. Prefunding this obligation would reduce the City's long -term liability. And, funds in such a trust could gain higher returns than earned in current investments. Following a competitive process, staff recommends the California Public Employees' 1 of 8 Retirement System (CalPERS) to serve as the City's trust administrator through its affiliate program, the California Employers' Retiree Benefit Trust (CERBT) at an estimated annual cost of $6,000. Background The City provides some post - employment benefits to a small number of employees. These include limited retiree medical benefits. limited contributions towards healthcare costs for members of the Police Officers Association, and the implicit subsidy related to retired employees' option to access healthcare at the same rate as active City employees. Specifically, the City's OPEB program includes the following components: ® Executive Pay Plan (EPP) - Certain executive participants with more than 5 years of service who retire with the sum of their age and years of service greater than 70 are eligible for City -paid medical insurance premiums upon retirement. Benefits are provided until age 70. Before age 65, the retirees are eligible for the same plans as active employees. Between ages 65 and 70, the plan is a Medicare supplement plan. At this time, 14 retired employees are receiving this benefit and 19 active employees are included in the calculation. ® Police Safety Members in CalPERS Health Benefit Program - The Public Employees' Medical and Hospital Care Act (PEMHCA) minimum benefit is provided through the City's contract with CalPERS healthcare benefits for Police Safety employees. This benefit requires the City to pay a minimum contribution for each employee, both active and retired, enrolled in the program. The minimum contribution, totaling $122 per employee as of 2015, is considered an OPEB obligation for the City. At this time, 84 retired employees are receiving this benefit, and 203 active employees are included in the calculation. ® Supervisory Team Associates - Certain members hired before July 1, 1990 receive one year of medical insurance for each 75 days of unused sick leave at retirement. At this point, 24 employees are included in the calculation. ® City of Santa Monica Health Plan - Fire and non - safety retirees may elect coverage in the City's health plan at the same rates as active employees. The amount by 2of8 which the City effectively subsidizes the retirees' rates, which benefit from being part of the experience pool of younger and potentially healthier active employees, is considered the implied subsidy. As of 2014, 130 retired employees used this benefit. ® Other CaIPERS related benefits - The City pays a flat monthly premium of $2.60 to certain non - safety retirees who were enrolled in CalPERS in the early 1990s and elected to continue their medical coverage under CalPERS. Certain retired firefighters in CalPERS Health Benefit Program only receive a flat monthly premium of $16 in lieu of the PEMHCA minimum benefit. Only 14 retirees are eligible for this benefit. In 2004, the Government Accounting Standards Board (GASB), the organization that sets generally accepted accounting principles (GAAP) for public sector entities, issued a statement (GASB 45) that requires public employers to produce actuarial valuations for their OPEB, and to report these liabilities in their financial reports. The City of Santa Monica, in compliance with GASB 45, produces actuarial valuations every two years. Under GASB regulations, how to handle OPEB payments - pay as you go or prefunding - is at the City's discretion. Up until this point, the City has paid the amounts required for retiree benefits in a given year, or pay -as- you -go. The pay -as- you -go amount has totaled approximately $1.1 million. The difference between these methods is in each one's impact on the amount of the City's total liability. Prefunding means contributing an amount greater than or equal to the annual required contribution (ARC) - the ongoing cost of benefits plus an amortization payment to fund the unfunded actuarial accrued liability over the next 30 years. According to the most recent analysis, the City's current OPEB actuarial accrued liability is approximately $25.9 million; and its ARC is approximately $2.5 million. Discussion It is a financial management best practice, and consistent with the City's financial goals, to reduce long term liabilities wherever possible. Staff believes that entering into a trust 01no agreement to prefund OPEB liabilities, similar to the steps Council has taken to reduce the City's unfunded retirement liability through prepayments, will lower long term liabilities and produce savings in the long run. Additionally, funds kept in the irrevocable trust are anticipated to have a rate of return of at least 6.1 %, as they are not subject to the restrictive investment practices mandated by the State for municipal portfolios, which currently average an approximately 0.9% rate of return. This has the added benefit of increasing the value of the City's assets and decreasing the impact of OPEB obligations on the budget. On October 22, 2013 (Attachment A) and October 28, 2014 (Attachment B), staff informed Council that it would set aside a portion of year -end savings to prefund the City's retiree health care obligations. The combined set aside amount at this time is $2.75 million in the General Fund. The amount the City would pay into the irrevocable trust each year is equal to the ARC, which is $2.5 million at this time; $1.8 million General Fund, and $0.7 million in other funds. Previously, the City contributed $1.1 million citywide, including $0.8 million in the General Fund, and $0.3 million in other funds. Staff proposes to smooth the transition into prefunding OPEB by using the $2.75 million General Fund set -aside over three years, beginning in FY 2014 -15, to pay the ongoing additional net cost of approximately $1.0 million in the General Fund. For other funds, the additional $0.4 million contribution will come from fund balance. Beginning in FY 2016 -17, set -aside funding would no longer fully cover the General Fund's ARC, and the additional annual cost would be supported by annual revenues. This scenario was included in the forecast Council reviewed on January 27, 2015 (Attachment C). It is important to note that once the City begins to prefund OPEB by paying the full ARC, it should continue to do so; paying less than the ARC will increase the liability, as well as the ARC. For example, if the City were to not prefund OPEB in FY 2014 -15, the ARC would be almost $300,000 more. Staff issued a request for proposal (RFP) for Other Post - Employment Benefits (OPEB) H on Irrevocable Trust and Investment Services on January 15, 2015. On January 27, 2015, along with the midyear report and financial status update, staff indicated that it was in the process of selecting a trust administrator, and would return to Council to enter into a contract and to request approval for the annual payment. Staff received three responses to the request for proposals. A committee made up of Finance and Human Resources Department staff selected CalPERS as the best bidder to provide OPEB trust and investment services through its affiliate program California Employers' Retiree Benefit Trust ( CERBT). Should Council approve the staff recommendation, staff will implement the irrevocable trust prior to the end of the current fiscal year. Vendor Selection On January 15, 2015, the City issued a Request for Proposals (RFP) for comprehensive services for the establishment and administration of a Section 115 Irrevocable Trust for its OPEB (Other Postemployment Benefits) as required for reporting under GASB Statement 45. The RFP was posted on the City's online bidding site, and notices were advertised in the Santa Monica Daily Press in accordance with City Charter and Municipal Code provisions. Two hundred and two (202) vendors were notified, and 33 vendors downloaded the RFP. Three firms responded: CERBT, Public Agency Retirement Services (PARS), and PFM Asset Management, LLC. A selection panel of staff from the Finance and Human Resources Departments reviewed RFP responses. The panel evaluated responses based on the criteria set out in the RFP: understanding of OPEB and OPEB trust investments for public entities; background and experience of firm, and individuals on proposed team; choices for asset allocations and /or choices of mutual funds, asset managers; cost, including startup costs and ongoing costs; fiduciary duty of providers, few or no conflicts of interest; and reporting, including asset holdings, performance, benchmarking, and timeliness of reporting. Staff recommends CalPERS as the best bidder. The panel recognized that all responding organizations are financially stable, demonstrate understanding of OPEB and OPEB trust services, and were responsive to other criteria. The CERBT proposal stood out from the others in being significantly 5of8 lower cost; in providing the City with options for asset allocation while not requiring significant management time on the City's side, and in bringing CalPERS's significant experience with public entities. CaIPERS charges one annual fee based on the employer's asset balance; this includes all services provided, and represents the actual cost of operations. As a State agency, it does not retain any profits from service provision. It provides sufficient investment options - three allocation strategies representing various levels of risk and return - and requires little management by City staff, but provides frequent and convenient opportunities to monitor investment performance. CaIPERS has served for 80 years as a retirement system administrator, while CERBT, developed in 2007, is the State's largest public multi - employer OPEB trust fund, with over 400 California public agencies as clients, and over $4 billion in employer assets under management. References indicated satisfaction with CERBT as a trust administrator, noting CERBT staff's responsiveness and flexibility. It is not possible for City staff to provide this service, as it requires specialized expertise that is not within the City's core services or mission. Next Steps Approving the City's participation in the CERBT trust fund requires that Council award the RFP to CalPERS, adopt a resolution approving the CERBT Participation Agreement, and adopt a resolution delegating authority to request disbursements to the City Treasurer and Assistant City Treasurer. The City Treasurer or designee will certify the City's funding policy and asset allocation strategy, which instructs CERBT staff regarding the City's allocation preference. These documents are included as attachments D, E, and F of the report. The City's actuary will provide reports documenting that the City has OPEB liabilities which may be prefunded, listing valuation results required for GASB compliant reporting, and certifying that reports were prepared in compliance with actuarial and government accounting standards. Once documentation is complete, the City will initiate its first contribution of $2.5 million to the .. trust fund. Staff plans to make this contribution by June 30, 2015. Financial Impacts and Budget Actions The California Employers' Retiree Benefit Trust charges employers an annual fee rate based on the employer's asset balance; the current fee rate is 10 basis points. With an initial deposit of $2.5 Million, staff estimates the annual cost of services at approximately $6,000 in FY 2015 -16. Funds are available within the FY 2015 -16 proposed budget at account 01221.555060. Future year funding will depend on Council approval. Staff has set aside $2.75 million in prior year General Fund savings to prefund General Fund OPEB liabilities for FY 2014 -15 and FY 2015 -16. Future year contributions will be funded partially or wholly from the City's annual revenues. The City will make an initial $2.5 million citywide contribution in FY 2014 -15, and will receive reimbursement from the trust fund for the current ongoing costs, $1.1 million, for a net citywide cost of $1.4 million. The General Fund payment will come from prior year savings; other fund contributions will come from fund balance. Approving the initial disbursement requires the following actions: 1) A release of $984,835 from assigned fund balance at account 1.380060. 2) Establishing the budgets below to reflect payment and reimbursement accounts for all funds: FUND ACCOUNTS PAYMENT REIMB. NET General 01274.511580/01274.511851 1,854,941 (870,106) 984,835 Beach 11274.511850/11274.511851 20,397 (378) 20,019 Housing Auth. 12274.511850 / 12274.511851 15,245 (3,636) 11,609 Water 25274.511850 / 25274.511851 60,761 (27,481) 33,280 RRR 27274.511850 /27274.511851 91,751 (27,999) 63,752 Rent Control 29274.511850 /29274.511851 37,634 (36,586) 1,048 Pier 30274.511850/30274.511851 8,625 (1,913) 6,712 Wastewater 31274.511850/31274.511851 23,255 (10,478) 12,777 Airport 33274.511850 / 33274.511851 9,267 (8,682) 585 Cemetery 37274.511850 / 37274.511851 6,225 (6,225) - Big Blue Bus 41274.511850/41274.511851 328,295 (118,834) 209,461 7 of 8 Fleet 54274.511850/54274.511851 Rent Control 29274.511850 / 25274.511851 33,548 16,841 (14,245) (16,841) 06,785 ($1,143,403) 19,303 Staff will include budget changes for FY 2015 -16 and FY 2016 -17 contributions with the proposed FY 2015 -17 biennial budget. Future year funding will be contingent on Council approval. Prepared By: Stephanie Lazicki, Principal Administrative Analyst Approved Forwarded to Council F NO becavalles Bugg es,' irecto4/30 /2015 Elaine M Polachek Interim City M5Y 06x15 Attachments: A. October 22, 2013 Staff Report B. October 28, 2014 Staff Report C. January 27, 2015 Staff Report D. Resolution - Prefunding Agreement DRAFT (PDF) E. Resolution - Delegation of Authority DRAFT (PDF) F. OPEB Funding Strategy Certification (PDF) G. City of Santa Monica OPEB Valuation Rpt (PDF) mm �t i 'r �_i__ _� i As the employer, I certify that my agency chooses the following asset allocation strategy Select one Asset Allocation Stratepy Asset Allocation Long -Term Expected Rate of Return §kgtegly ❑ Strategy 1 7.28% ❑ Strategy 2 6.73% ❑ Strategy 3 6.12% SECTION II: ARC Funding As the employer, I certify that our funding policy is to contribute consistently an amount that is equal to (select one): Full ARC Funding: ❑ 100 % of the ARC as determined in our OPEB valuation (or AMM) dated 20_, which used an actuarial Discount Rate of % Partial ARC Funding: of the ARC as determined in our OPEB valuation (or AMM if it applies) dated , 20_ which used a blended actuarial Discount Rate of % F] We will contribute to the trust using an approach not directly related to the ARC (please describe your funding approach and how it relates to the discount rate assumption in your OPEB valuation (or AMM) dated , 20 which used a blended actuarial Discount Rate of % Rev 10/1/2014 Page 1 of 4 61 ITI 1 :14 Fill 0 144 SECTION III: ARC Contribution Method We plan to contribute toward the ARC in the following manner (select one): Contribute our full ARC payments to the trust and seek reimbursements for Pay -go costs Contribute our ARC payments to the trust net of Pay -go costs and not seek reimbursements (ARC minus Pay -go = Trust Contribution) Other (Please describe): SECTION IV: Years of ARC Coverage This OPEB valuation provides ARC amounts for the following periods: (ARC dates should correspond with Item No. 10.0 in Summary of Actuarial Information) First Year: From 20 through 20 Second Year: From 20 through 20 Rev 10/1/2014 Page 2 of 4 We understand that we must obtain an actuarial valuation (or AMM if applicable) on at least a biennial basis. We understand that we will be asked to provide accounting information to CalPERS as required in order to facilitate CalPERS compliance with GASB 43, 45 and 57 reporting requirements and we agree to make any information requested available to CalPERS on a timely basis. We understand that CalPERS will provide us with our Statement of Plan Net Assets and our Statement of Changes in Plan Net Assets, which can be used to prepare our GASB 45 reporting. CalPERS will report aggregated GASB 43 information pertaining to the Funded Status and Funding Progress. Date of OPEB Valuation (or AMM if it applies) Name of Employer Printed Name and Title of Person Signing the Form Signature Date Designated Employer Contact Name for GASB Reporting Phone # Email Address Rev 10/1/2014 Page 3 of 4 i Wel 3 • Instructions to complete the form SECTION I: Asset allocation Strateav and Discount Rate Selection Check the box next to the Asset Allocation Strategy on which you have based your OPEB actuarial valuation or Alternative Measurement Method (AMM) cost report. Each strategy has a different assumed Long Term Expected Rate of Return and risk profile. Your CERBT assets will be invested using the Asset Allocation Strategy indicated here. The choices you check off on this form should match those used by your actuary in the OPEB valuation. 4XW el<iti/_1T01111IPiL-19 ® If you are fully funding, check the first box indicating the 100% funding, the applicable Discount Rate, and the valuation date. If you are funding at less than 100 %, check the second box to indicate the percentage of funding [trust contributions plus paygo (and Implicit Rate Subsidy if applicable) divided by ARC], the valuation date, and the Discount Rate. ® If you are funding at less than 100% and your contributions are not tied specifically to the ARC, then indicate how you expect to contribute. For example, if you intend to make unreimbursed pay -go payments plus a fixed dollar amount to the trust, then describe this in the space provided. SECTION III: ARC Contribution Method Here we ask you to indicate how you expect to make contributions to the trust: Full ARC with reimbursements, ARC net of paygo, or something else (please describe). SECTION IV: Years of ARC Coverage Generally, your OPEB valuation will provide two years of ARC coverage. Please identify the specific periods to which the ARC applies. Rev 10/1/2014 Page 4 of 4 t � r �`i i f � ,, , , � t �r—^� � � � �% � i r � i �,d d € � � v if I"TM Actuarial Valuation of the Other Post-Employment f ?2f\2Programs As of July 2013 Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 A. Executive Summary ........................................................................... ..............................1 B. Requirements of GASB 45 ............................................................... ............................... 3 C. Sources of OPEB Liabilities .............................................................. ............................... 4 OPEB Obligations of the City ....................................................... ............................... 4 D. Valuation Process .............................................................................. ..............................6 E. Basic Valuation Results .................................................................... ............................... 7 Changes Since the Prior Valuation .............................................. ............................... 7 F. Funding Policy .................................................................................. ............................... 9 Determination of the ARC ............................................................ ............................... 9 Decisions Affecting the Amortization Payment ............................ ............................... 9 Funding Policy Illustrated in This Report ...................................... ............................... 9 G. Choice of Actuarial Funding Method and Assumptions .................. ............................... 10 Factors Impacting the Selection of Funding Method .................. ............................... 10 Factors Affecting the Selection of Assumptions ......................... ............................... 10 H. Certification ....................................................................................... .............................11 Table 1A Summary of Valuation Results Pay -As- You -Go Basis ........... ............................... 12 Table 1 B Calculation of the Annual Required Contribution Pay -As- You -Go Basis .............. 13 Table 1C Expected OPEB Disclosures Pay -As- You -Go Basis ......... ............................... 14 Table 2 Summary of Employee Data ..................................................... ............................... 15 Table 3 Summary of Retiree Benefit Provisions ...................................... .............................17 Table 4 Actuarial Methods and Assumptions ........................................ ............................... 20 Table 5 Projected Benefit Payments ..................................................... ............................... 28 Appendix 1 Prefunding Illustration for the FYE 2015 ............................ ............................... 29 Appendix 2 General OPEB Disclosure and Required Supplementary Information .............. 30 Glossary................................................................................................. ............................... 31 Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 A. Executive Summary This report presents the results of the July 1, 2013 actuarial valuation of the City of Santa Monica (the City) other post - employment benefit (OPEB) programs. Briefly, benefits include medical coverage for eligible retirees. The purpose of this valuation is to assess the OPEB liabilities and provide disclosure information as required by Statement No. 45 of the Governmental Accounting Standards Board (GASB 45). The City has determined that certain subsidies which may be provided to retirees through various Medical Trust plans do not create an OPEB liability required to be reported by the City. Therefore no liabilities for these separate Trust plans are reflected in the results of this valuation (see Section C on page 5 for additional discussion). How much the City contributes each year affects the calculation of liabilities. Prefunding is the term used to describe when an agency consistently contributes an amount at least equal to the annual required contribution (ARC) each year. Contributing only the current year's retiree payments is referred to as pay -as- you -go financing. There are other options relating to the funding policy, including shorter amortization periods and partial pre- funding. These other options would require additional calculations not provided in this report, though we would be happy to provide illustrations at the City's request. Prefunding the plan generally supports use of a higher discount rate and often produces substantially lower liabilities than a pay -as- you -go financing approach. This valuation uses a discount rate of 5.0% for pay -as- you -go calculations and illustrates prefunding results using a 6.5% discount rate. Neither rate is a guarantee of future investment performance, but an assumption about the long term rate of return. The pay -as- you -go discount rate was selected by the City. We are happy to illustrate results at different discount rates on request. In its financial report for the period ending June 30, 2013, the City reported a net OPEB obligation of $8,480,000. The City confirmed it has not yet established an irrevocable OPEB trust, although it intends to do so during the fiscal year ending June 30, 2015. We calculate the GASB 45 actuarial accrued liability (AAL) on a pay -as- you -go basis to be $28,292,513 as of July 1, 2013. With no trust assets to offset these liabilities, the unfunded accrued liability as of this date is also $28,292,513. Although most of the results presented in this report assume continuation of pay -as- you -go funding through the fiscal year ending June 30, 2015, Appendix 1 also develops results for the fiscal year ending June 30, 2015 on a prefunding basis. Exhibits presented in the body of this report are based on our understanding that the results of this July 1, 2013 valuation will be applied in determining the annual OPEB expense for the City's fiscal years ending June 30, 2014 and June 30, 2015. The following summarizes results for the fiscal year ending June 30, 2014: ® We calculate the annual required contribution (ARC) to be $2,665,740. • We have estimated City contributions totaling $986,716 for the fiscal year ending June 30, 2014, equal to the sum of (a) an estimated $275,845 in City -paid premiums for retirees plus (b) $710,871, the calculated estimate of the current year's implicit subsidy of retiree premiums. • Based on the calculations and contributions as described above, we calculate a net OPEB obligation of $10,208,295 as of June 30, 2014. Bickmore q Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 Executive Summary (Concluded) These results are shown in tables beginning on page 12. Projected results for the fiscal year ending June 30, 2015 are also shown in these tables. The liabilities shown in the report reflect assumptions regarding continued future employment, rates of retirement and survival, and elections by future retirees to continue coverage for themselves and their dependents. We also note that this valuation has been prepared on a closed group basis; no provision is made for new employees. The results of this valuation reflect changes to assumptions used in developing the projection of future costs. As with all actuarial projections, the extent to which actual experience is not what we assumed, future results will be different. The following may be likely sources of future differences: • A significant change in the number of covered or eligible plan members; • A significant increase or decrease in the future medical premium rates or in the subsidy provided by the City toward retiree medical premiums; • A recently adopted change in Actuarial Standards of Practice, likely required to be reflected in the July 2015 OPEB valuation, which will require the City to begin recognizing the "implicit subsidy" liability for current and future retirees expected to participate in the CalPERS medical program (see page 4); ® Changes in the OPEB accounting standard (revisions to GASB 45), similar to changes adopted in GASB 68 for defined benefit retirement plan liabilities. Among other changes, reporting of the unfunded OPEB liability will be shifted from a footnote to the balance sheet. The last two items above may not create any additional liability that did not previously exist, but will change how much liability is required to be valued and reported. Details of our valuation process and the various disclosures required by GASB 45 are provided on the succeeding pages. The date of the next actuarial valuation should not be later than July 1, 2015. If there are any significant changes in the employee data, benefits provided or the funding policy, please contact us to discuss whether an earlier valuation is appropriate. Important Notices This report is intended to be used only to present the actuarial information relating to other postemployment benefits for the City's financial statements and to provide the annual contribution information with respect to the City's current OPEB funding policy. The results of this report may not be appropriate for other purposes, where other assumptions, methodology and /or actuarial standards of practice may be required or more suitable. We note that various issues in this report may involve legal analysis of applicable law or regulations. The City should consult counsel on these matters; Bickmore does not practice law and does not intend anything in this report to constitute legal advice. In addition, we recommend the City consult with their internal accounting staff or external auditor or accounting firm about the accounting treatment of OPEB liabilities. Bickmore -=,' Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition, and display of OPEB expense /expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. We understand that the City implemented GASB 45 for the fiscal year ended June 30, 2008. For agencies with 200 or more members covered by or eligible for plan benefits, GASB 45 requires that a valuation be prepared no less frequently than every two years. GASB 45 disclosures include the determination of an annual OPEB cost. For the first year, the annual OPEB cost is equal to the annual required contribution (ARC) as determined by the actuary. • If the City's OPEB contributions had been equal to the ARC each year, the net OPEB obligation would equal $0. • If the City's actual contributions are less than (greater than) the ARC, then a net OPEB obligation (asset) amount is established. In subsequent years, the annual OPEB expense will reflect adjustments made to the net OPEB obligation, in addition to the ARC (see Table 1 C). GASB 45 provides for recognition of payments as contributions if they are made (a) directly to retirees or beneficiaries, (b) to an insurer, e.g., for the payment of premiums, or (c) to an OPEB fund set aside toward the cost of future benefits. Funds set aside for future benefits should be considered contributions to an OPEB plan only if the vehicle established is one that is capable of building assets that are separate from and independent of the control of the employer and legally protected from its creditors. Furthermore, the sole purpose of the assets should be to provide benefits under the plan. These conditions generally require the establishment of a legal trust. Earmarked assets or reserves may be an important step in financing future benefits, but they may not be recognized as an asset for purposes of reporting under GASB 45. The decision whether or not to prefund, and at what level, is at the discretion of the City, as are the manner and term for paying down the unfunded actuarial accrued liability. Once a funding policy has been established, however, the City's auditor may have an opinion as to the timing and manner of any change to such policy in future years. The level of prefunding also affects the selection of the discount rate used for valuing the liabilities. Bickmare 3i Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 • •1j .r Post - employment benefits other than pensions (OPEB) comprise a part of compensation that employers offer for services received. The most common OPEB are: Medical ® Vision Dental ® Life insurance Prescription drug Other possible post - employment benefits may include outside group legal, long -term care, or disability benefits outside of a pension plan. OPEB does not generally include vacation, sick leave' or COBRA benefits, which fall under other GASB accounting statements. A direct employer payment toward the cost of OPEB is referred to as an "explicit" subsidy and these are included in the determination of OPEB liabilities. In addition, if claims experience of employees and retirees are pooled when determining premiums, the retirees pay a premium based on a pool of members that, on average, are younger and healthier. For certain types of coverage, such as medical, payment of the same premium rate results in an "implicit subsidy' of retiree claims by active employee premiums since the retiree premiums are lower than they would have been if the retirees were insured separately. Paragraph 13.a. of GASB 45 generally requires an implicit subsidy of retiree premium rates be valued as an OPEB liability. Exceptions may exist when the plan is part of a "community- rated" plan, such as the CalPERS medical program. Current GASB guidance provides that an agency whose membership is a small portion (e.g., less than 1 %) of the total coverage of a multiple employer plan to reasonably conclude that any change in their group's mix of retired and active employees would not affect the premium rates for the plan. In those circumstances, while an implicit subsidy may exist, it is not required to be disclosed. OPEB Obligations of the City The City provides continuation of medical coverage to its retiring employees. There may be an explicit and /or implicit subsidy liability for retirees and their dependent(s) who have chosen to retain this coverage. Explicit Subsidy Liabilities: ® The City contributes directly to the cost of retiree medical coverage for certain retiree groups. These benefits are described in Table 3 and liabilities have been included in this valuation. Implicit Subsidy Liabilities: Aetna plans: The City reported that the claims experience of active, pre- Medicare and Medicare retirees is pooled in determining premium rates under the HMO and PPO plans available to City employees and retirees. Accordingly, we believe an implicit subsidy exists for retirees covered by the Aetna plans. However, the Aetna HMO plan is not available to Medicare - eligible retirees and, based on experience reported by the City, we have assumed that retirees will not elect coverage under the ' When a terminating employee's unused sick leave credits are converted to provide or enhance a defined benefit OPEB, e.g., healthcare benefits, such converted sick leave credits should be valued under GASB 45. fficlanare Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Aetna OAMC /PPO plan post -65 (post -70 for EPP retirees), due to the very high premiums charged for that coverage. We have, therefore, included an implicit subsidy for Aetna retiree coverage prior to age 65 only. ® Kaiser PEBT retiree plan: It is our understanding that Kaiser PEBT premiums, both pre- and post -65, are developed based on retiree experience only; thus, no implicit subsidy liability was calculated relating to plan members covered by this plan. ® CaIPERS medical plans: Police (POA) employees are covered by the CalPERS medical program. The experience of public agency employer membership in this program is community -rated ( "OPEB Assumption Model ", August 2012) and the City's membership in this program is incidental relative to the total number of members covered. As currently permitted by GASB 452, this report does not make age - related premium adjustments or compute an implicit rate subsidy for employees covered under this program. Other Medical Trusts: Certain employees of the City participate in Medical Trust plans, which may provide a monthly subsidy toward medical premiums for eligible retirees. The City makes contributions to the Trusts pursuant to the terms of various bargaining agreements. However, the Trusts determine eligibility for and the amount of benefits to be provided to retirees and the Trusts are responsible for administration of these benefits. The City has determined that the subsidies which may be provided to retirees by the Medical Trust plans do not create an OPEB liability required to be reported by the City. Accordingly, per the City's instruction, we have not included any liabilities for benefits provided by the Medical Trusts. 2 A change in Actuarial Standards of Practice was recently adopted and a new GASB Statement for reporting of OPEB liabilities is under development. One important change is the elimination of the exception for disclosing the implicit subsidy liability for community rated plans. These changes could significantly impact the OPEB liability to be reported by the City in future years. Bickmore Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 The valuation has been based on employee census data initially submitted to us by the City in September 2014 and clarified in various related communications. Summaries of that data are provided in Table 2. While the individual employee records have been reviewed to verify that they are reasonable in various respects, the data has not been audited and we have otherwise relied on the City as to its accuracy. A summary of the benefits provided under the Plan is provided in Table 3, based on information supplied to Bickmore by the City. The valuation described below has been performed in accordance with the actuarial methods and assumptions described in Table 4. In the specific development of the projected benefit values and liabilities, we first determine an expected premium or benefit stream over the employee's future retirement. These projected benefit streams reflect assumed trends in the cost of those benefits and assumptions as to the expected date(s) when benefits will end. We then apply assumptions regarding the following: • The probability that each individual employee will or will not continue in service with the City to receive benefits. • To the extent assumed to retire from the City, the probability of when such retirement will occur for each retiree, based on current age, service and employee type; and • The likelihood that future retirees will or will not elect retiree coverage (and benefits) for themselves and /or their dependents. We then calculate a present value of these benefits by discounting the value of each future expected benefit payment, multiplied by the assumed expectation that it will be paid, back to the valuation date using the discount rate. These benefit projections and liabilities have a very long time horizon. The final payments for currently active employees may not be made for 70 years or more. The resulting present value for each employee is allocated as a level percent of payroll each year over the employee's career using the entry age normal cost method and the amounts for each individual are then summed to get the results for the entire plan. This creates a cost expected to increase each year as payroll increases. Amounts attributed to prior fiscal years form the "actuarial accrued liability' (AAL). The amount of future OPEB cost allocated for active employees in the current year is referred to as the "normal cost ". The remaining active cost to be assigned to future years is called the "present value of future normal costs ". In summary: Actuarial Accrued Liability Past Years' Costs plus Normal Cost Current Year's Cost plus Present Value of Future Normal Costs Future Years' Costs equals Present Value of Projected Benefits Total Benefit Costs Where contributions have been made to an irrevocable OPEB trust, the accumulated value of trust assets is applied to offset the AAL. It is our understanding that the City's plans have not yet been funded and no assets have been set aside in an irrevocable trust as of the valuation date. The portion of the AAL not covered by assets is referred to as the unfunded actuarial accrued liability (UAAL). fficlanore :. Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 E. Basic Valuation Results The following chart compares the results of the July 1, 2013 valuation of OPEB liabilities to the results of the July 1, 2011 valuation. Valuation date Pay -As- You -Go 7/1/2011 7/1/2013 Subsidy Total Explicit Implicit Total Discount rate 5.00% 5.00% 5.00% 5.00% Number of Covered Employees Actives 1,937 246 1,759 1,962 Retirees 214 112 158 242 Total Participants 2,151 358 1,917 2,204 Actuarial Present Value of Projected Benefits Actives $ 30,110,000 7,283,859 25,678,128 $ 32,961,987 Retirees 6,160,000 3,782,616 3,969,148 7,751,764 Total APVPB 36,270,000 11,066,475 29,647,276 40,713,751 Actuarial Accrued Liability (AAL) Actives 17,681,000 4,457,632 16,083,117 20,540,749 Retirees 6,160,000 3,782,616 3,969,148 7,751,764 Total AAL 23,841,000 8,240,248 20,052,265 28,292,513 Actuarial Value of Assets - - - - Unfunded AAL (UAAL) 23,841,000 8,240,248 20,052,265 28,292,513 Normal Cost 1,228,000 291,579 1,056,518 1,348,097 Benefit Payments Actives (in retirement) - 20,323 136,021 156,344 Retirees 675,000 255,522 574,850 830,372 Total 675,000 275,845 710,871 986,716 The funded ratio (the ratio of the Actuarial Value of Assets divided by the Actuarial Accrued Liability) is 0% as of July 1, 2013. Covered payroll as of July 1, 2013 was reported to be $154,531,776. The Unfunded Actuarial Accrued Liability, expressed as a percentage of payroll, is 18.3% as of this date. Changes Since the Prior Valuation Given the uncertainties involved and the long term nature of these projections, it is highly unlikely that the actuary's prior assumptions will ever be exactly realized. Nonetheless, it is helpful to review why results may be different than anticipated. Bickmore did not prepare the July 2011 OPEB valuation nor did we receive the prior data in order to be able to redevelop those results. Consequently, a detailed determination of why results are different is not possible. However, comparing results shown in the exhibit above, we can see that the actual unfunded actuarial accrued liability (UAAL) increased by roughly $4.5 million between July 1, 2011 and July 1, 2013. The majority of this increase (perhaps ffickmore 3 Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Basic Valuation Results (Concluded) about $3.7 million) would have been expected, from the excess of additional service accruals for active employees and interest adjustments for the passage of time, over benefits paid to retirees. The remainder of the difference would stem from the collective impact of plan experience different from that projected by the actuary in the prior valuation and from changes in assumptions. For example: ® An increase in the AAL from projecting future improvement in mortality rates (i.e., longer life expectancies); • Changes in the percentage of future retirees assumed to participate in City plans or to receive premium subsidies from the City in retirement; ® A change in the percentage of future retirees assumed to cover a spouse in retirement; • Changes in assumed future increase in medical premium levels; and • Plan experience relative to prior assumptions. Plan experience includes factors such as more or fewer employee terminations or retirements than assumed, and premium increases higher or lower than assumed. Bickmare �; Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 F. Funding Policy The specific calculation of the ARC and annual OPEB expense for an employer depends on how the employer elects to fund these benefits. The funding levels can generally be categorized as follows: 1. Prefunding - contributing an amount greater than or equal to the ARC each year. Prefunding generally allows the employer to have the liability calculated using a higher discount rate, which in turn lowers the liability. Prefunding results were illustrated in this report using a discount rate of 6.5 %. 2. Pay -As- You -Go financing — contributing only the amounts needed to pay retiree benefits in the current year; generally requires a lower discount rate, such as the 5.0% rate used in this valuation. 3. Partial prefunding — contributing more than the current year's retiree payments but less than 100% of the ARC; requires that liabilities be developed using a discount rate that "blends" the relative portions of benefits that are prefunded and those not. Determination of the ARC The Annual Required Contribution (ARC) consists of two basic components, which have been adjusted with interest to the City's fiscal year end: The amounts attributed to service performed in the current fiscal year (the normal cost) and ® Amortization of the unfunded actuarial accrued liability (UAAL). ARCS for the fiscal years ending June 30, 2014 and June 30, 2015 are shown in Table 1 B. Decisions Affecting the Amortization Payment The period and method for amortizing the AAL can significantly affect the ARC. GASB 45: • Prescribes a maximum amortization period of 30 years and requires no minimum amortization period (except 10 years for certain actuarial gains). Immediate full funding of the liability is also permitted. • Allows amortization payments to be determined (a) as a level percentage of payroll, designed to increase over time as payroll increases, or (b) as a level dollar amount much like a conventional mortgage, so that this component of the ARC does not increase over time. Where a plan is closed and has no ongoing payroll base, a level percent of payroll basis is not permitted. • Allows the amortization period to decrease annually by one year (closed basis) or to be maintained at the same number of years (open basis). Funding Policy Illustrated in This Report It is our understanding that the City's pay -as- you -go policy includes amortization of the unfunded AAL over an open 30 -year period. Amortization payments are determined on a level percent of pay basis. This particular amortization basis (open period; level percent of pay) results in amortization payments which are less than an "interest only" payment on the UAAL. For pay -as- you -go financing, using this amortization approach will cause the UAAL to increase, rather than decrease, over time. Bickmore y" Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 - .r . The "ultimate real cost' of an employee benefit plan is the value of all benefits and other expenses of the plan over its lifetime. These expenditures are dependent only on the terms of the plan and the administrative arrangements adopted, and as such are not affected by the actuarial funding method. The actuarial funding method attempts to spread recognition of these expected costs on a level basis over the life of the plan, and as such sets the "incidence of cost". Methods that produce higher initial annual (prefunding) costs will produce lower annual costs later. Conversely, methods that produce lower initial costs will produce higher annual costs later relative to the other methods. GASB 45 allows the use of any of six actuarial funding methods; a brief description of each is in the glossary. Factors Impacting the Selection of Funding Method While the goal of GASB 45 is to match recognition of retiree medical expense with the periods during which the benefit is earned, the funding methods differ because they focus on different financial measures in attempting to level the incidence of cost. Appropriate selection of a funding method contributes to creating intergenerational equity between generations of taxpayers. The impact of potential new employees entering the plan may also affect selection of a funding method, though this is not a factor in this plan. We believe it is most appropriate for the plan sponsor to adopt a theory of funding and consistently apply the funding method representing that theory. This valuation was prepared using the entry age normal cost method with normal cost determined on a level percent of pay basis. The entry age normal cost method often produces initial contributions between those of the other more common methods and is generally regarded by pension actuaries as the most stable of the funding methods and is one of the most commonly used methods for GASB 45 compliance. Factors Affecting the Selection of Assumptions Special considerations apply to the selection of actuarial funding methods and assumptions for the City. The actuarial assumptions used in this report were chosen, for the most part, to be the same as the actuarial assumptions used for the most recent actuarial valuation of the retirement plan covering City employees. Several of these assumptions were updated since the last valuation was prepared. Other assumptions were selected based on demonstrated plan experience and /or our best estimate of expected future experience. In selecting an appropriate discount rate, GASB states that the discount rate should be based on the expected long -term yield of investments used to finance the benefits. The City approved calculation of liabilities on a pay -as- you -go basis using a 5.0% discount rate, the same rate used in the prior valuation. Since no OPEB trust has yet been established, for illustrative purposes, we have used a 6.5% discount rate in developing results on a funded basis. The actual discount rate, should the City decide to establish an irrevocable OPEB trust, will depend on the particular investments and asset allocation strategy selected. Bickmore ?`.' Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 This report presents the results of our actuarial valuation of the other post employment benefits provided by the City of Santa Monica. The purpose of this valuation was to provide the actuarial information required for the City's reporting under Statement 45 of the Governmental Accounting Standards Board. The calculations were focused on determining the plan's funded status as of the valuation date, developing the Annual Required Contribution and projecting the Net OPEB Obligations for the years to which this report is expected to be applied. We certify that this report has been prepared in accordance with our understanding of GASB 45. To the best of our knowledge, the report is complete and accurate, based upon the data and plan provisions provided to us by the City. We believe the assumptions and method used are reasonable and appropriate for purposes of the financial reporting required by GASB 45. The results may not be appropriate for other purposes. Each of the undersigned individuals is a Fellow in the Society of Actuaries and Member of the American Academy of Actuaries who satisfies the Academy Qualification Standards for rendering this opinion. Signed: December 10, 2014 Catherine L. MacLeod, FSA, EA, MAAA imn` = Francis M. Schauer Jr., FSA, FCA, EA, MAAA Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table Pay-As-You-Go Basis The following summarizes the results of our valuation of OPEB liabilities for the City calculated under GASB 45 for the fiscal year ending June 30, 2014 as well as projected amounts for the fiscal year ending June 30, 2015. Valuation date Pay -As- You -Go Basis 7/1/2013' For fiscal year beginning 7/112013 7/1/2014 For fiscal year ending 6/30/2014 6/30/2015 Discount rate 5.00% 5.00% Number of Covered Employees* Actives 1,962 1,962 Retirees 242 242 Total Participants 2,204 2,204 Actuarial Present Value of Projected Benefits Actives $ 32,961,987 $ 34,453,742 Retirees 7,751,764 7,308,980 Total APVPB 40,713,751 41,762,722 Actuarial Accrued Liability (AAL) Actives 20,540,749 22,826,944 Retirees 7,751,764 7,308,980 Total AAL 28,292,513 30,135,924 Actuarial Value of Assets - - Unfunded AAL (UAAL) 28,292,513 30,135,924 Normal Cost 1,348,097 1,391,910 Benefit Payments Actives (in retirement) 156,344 325,772 Retirees 830,372 817,632 Total 986,716 1,143,404 * The numbers of active employees and retirees shown above are as of the valuation date and are not necessarily the number expected in the following year. Because this valuation has been prepared on a closed group basis, no potential future employees are included and, based on assumptions outlined in Table 4, we recognize the possibility that active employees may leave employment, some may retire and elect benefits and coverage for some of the retired employees may cease. ffickmare ii`.; Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Pay-As-You-Go Basis The following exhibit calculates the amortization payments and the annual required contribution (ARC) on a pay -as- you -go basis for the fiscal years ending June 30, 2014 and June 30, 2015. Fiscal Year End Pay -As- You -Go Basis 6/30/2014 6130/2015 Funding Policy $ 154,531,776 $ 159,554,059 Discount rate 5.00% 5.00% Amortization method Level % of Pay Level % of Pay Initial amortization period (in years) 30 30 Remaining period (in years) 30 30 Determination of Amortization Payment UAAL $ 28,292,513 $ 30,135,924 Factor 23.76118 23.76118 Payment 1,190,703 1,268,284 Annual Required Contribution (ARC) Normal Cost 1,348,097 1,391,910 Amortization of UAAL 1,190,703 1,268,284 Interest to 06/30 126,940 133,010 Total ARC at fiscal year end 2,665,740 2,793,204 While the following is not intended to be used to determine the normal cost or ARC in future years, this information may be of value for planning purposes: Valuation date 711/2013 Fiscal Year End 6/3012014 6/30/2015 Projected covered payroll $ 154,531,776 $ 159,554,059 Normal Cost as a percent of payroll 0.9% 0.9% ARC as a percent of payroll 1.7% 1.8% ARC per active ee 1,359 1,424 Bickmore ;'. Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 1C V IAQ 1 • : The exhibit below develops the annual OPEB expense, estimates the expected OPEB contributions and projects the net OPEB obligation for the fiscal years ending June 30, 2014 and June 30, 2015. The calculations assume the City continues to follow the pay -as- you -go funding approach outlined on the prior page. Fiscal Year End Pay -As- You -Go Basis f 6/30/2014 6/30/2015 1. Calculation of the Annual OPEB Expense a. ARC for current fiscal year $ 2,665,740 $ 2,793,204 b• Interest on Net OPEB Obligation (Asset) at beginning of year 424,000 510,415 c. Adjustment to the ARC (374,729) (451,102) d. Annual OPEB Expense (a. + b. + c.) 2,715,011 2,852,517 2. Calculation of Expected Contribution a. Payments on behalf of retirees 275,845 288,120 b. Estimated implicit subsidy 710,871 855,284 c. Estimated contribution to OPEB trust - - d. Total Expected Employer Contribution 986,716 1,143,404 3. Change in Net OPEB Obligation (1.d. minus 2.c.) 1,728,295 1,709,113 Net OPEB Obligation (Asset), beginning of fiscal year 8,480,000 10,208,295 Net OPEB Obligation (Asset) at fiscal year end 10,208,295 11,917,408 Please note that the expected payments to retirees shown in item 2.a. above are projections and should be replaced with the actual payments in order to determine the accurate end of year OPEB obligation. ffickmore 3:' Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 x, . - •, ;. The City reported 1,962 active employees; of these, 1,857 are currently participating in the medical program while 105 employees were waiving coverage as of the valuation date. Age and service information for the reported individuals is provided below: July 2011 Valuation July 2013 Valuation Annual Covered Payroll $167,724,000 $154,531,776 Average Attained Age for Actives 45.0 45.2 Average Years of Service 11.9 12.1 There are also 242 retirees currently receiving benefits under this program for whom data was provided. Their ages are summarized in the following chart: Retirees by Age Current q e Number Percent Below 50 7 3 % 50 to 54 17 7% 55 to 59 61 25% 60 to 64 71 29% 65 to 69 58 24% 70 to 74 12 5% 75 to 79 8 3% 80 & up 8 3% Total !!= % Average Attained Age for Retirees: 63.0 There are also retirees covered by Kaiser PEBT who receive no subsidy from the City toward their medical premiums. Since there is also no implicit subsidy inherent in PEBT retiree premiums, data was not provided for these retirees. Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Overall, the total number of active and retired employees covered by a medical plan assumed to generate an OPEB liability for the City has remained fairly stable. There is only a 1.3% increase in the number of active employees covered in the July 1, 2013 valuation of the City plan compared to those included in the July 1, 2011 valuation. While only a net increase of 28 retirees, a 13.1 % increase over the number included in the 2011 valuation. Change in Number Covered in the Valuation by Benefit Group Type Actives Retirees Total Number included on July 1, 2011: 1,937 214 2,151 Number included on July 1, 2013: 1,962 242 2,204 Increase (decrease) 25 1 28 53 Plan member data is summarized below by (1) medical plan, (2) benefit group and (c) employee type in the charts below. Summary of Participants by Medical Plan by Benefit Group Type Retirees Retirees Total Plan Actives ! Pre -651 65 & Over Total Aetna HMO 547 58 11 616 Aetna OAMC /PPO 573 47 39 659 CalPERS Medical* 196 48 36 280 Kaiser PEBT 541 3 - 544 Waiving 105 - - 105 Total 1,962 1 156 86 2,204 *POA is currently the only employee group participating in the CalPERS medical plan. Summary of Participants by Benefit Group Type Actives Retirees Total Group Actives Pre -65 65 & Over Total Umbrella Agreement 1,611 78 26 1,715 Fire 105 22 4 131 SMPOA 203 48 36 287 Executive Pay Plan 19 7 7 * 33 Supervisory Team Associates ** 24 - - 24 Former PEMHCA Retirees - 1 13 14 Total 1,962 1 156 86 2,204 Of these 7 retirees, 6 are under age 70. ** Closed group of employees potentially eligible for sick leave conversion benefits. Summary of Participants by Employee Type Type Actives Retirees Total Fire Miscellaneous Police 105 1,654 203 34 124 84 139 1,778 287 Total 1,962 242 2,204 Bidanore ic: Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 3 OPEB provided: The City reported that the only OPEB provided is medical coverage. Access to coverage: The same medical coverage provided to the City's active employees is made available to its retirees. Non - safety and Fire retirees are offered coverage in one of two City sponsored plans: Aetna HMO and Aetna Open Access Managed Care (OAMC). Kaiser coverage is also available through a pooled arrangement with PEBT. Police safety employees are covered by the CalPERS medical program as permitted under the Public Employees' Medical and Hospital Care Act (PEMHCA). ➢ This coverage requires the employee to satisfy the requirements for retirement under CalPERS, which requires attainment of age 50 (age 52, if a new miscellaneous member on or after January 1, 2013) with 5 years of State or public agency service or approved disability retirement. ➢ The employee must commence his or her retirement warrant within 120 days of terminating employment with the City to be eligible to continue medical coverage through the City and be entitled to the employer subsidy described below. ➢ If an eligible employee is not already enrolled in the medical plan, he or she may enroll within 60 days of retirement or during any future open enrollment period. ➢ Coverage may be continued at the retiree's option for his or her lifetime. A surviving spouse and other eligible dependents may also continue coverage. Current premium rates: Monthly premiums in effect on January 1, 2015 are summarized in the table below. 2015 City of Santa Monica Plan Rates Pre - Medicare Retirees ' Medicare Eligible Plan Ee Only Ee & 1 Ee &'2+ Ee Only Ee & 1 Ee &2+ Aetna HMO Aetna OAMC /PPO Kaiser PEBT $ 739.54 886.46 847.00 $ 1,479.08 1,772.92 1,676.00 $ 1,922.81 2,304.81 2,363.00 863.33 236.00 1,726.66 453.00 2,244.65 1,140.00 If different rates apply where the member resides outside of this area, those rates are reflected in the valuation, but not listed here; similarly, if another rate applies because one member is currently Medicare - eligible but the other is not, we recognized this difference as well. We note that the additional CalPERS administration fee is assumed to be separately expensed each year and has not been projected as an OPEB liability in this valuation. Benefits provided: For most retirees, the City makes no direct contribution toward the monthly medical plan premiums and retirees are required to pay 100% of the premium for themselves and any dependents. However, the City may pay a portion of the premium for retirees in these groups: (a) Police safety; (b) Executive Pay Plan (EPP); (c) Supervisory Team Associates (STA); and (d) retirees previously, but no longer, covered by the CaIPERS medical program. For details, please refer to the charts on the following pages. ffickmare 2T;. wM Ur 0 O O N (6 y c 7 m � N 0 O N _T N U o L 0 l0 U1 > E .M l` N 0 7 d Q LP v c m T N 0 CL E w N 0 a N s w (D O V U) _ O .y L 0. d m d w M W H � Y E N N N Z T; W UJ N N N 9 c v' avi .m a (D c ro - n K ro v a ro v � C N c N ` Q U 0 J E C O J O 0. > .0 a, U N E J 'a U N O U. N v E U �'y�� C C N O t B c N 9 Q O N O U U rn O uJi p� = N U w m U n T .o m o c U y W? 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Q N c a C0 C a E O a E W N O a L u d 7 C) C O v N C O .y d VY G7 i a m d i Y d w M R h N C m FL m IL N W a w a a C 41 N c 9 a O C O � N O U a w 6 co c a r y' O Z D >; N O Z TC 7 T c . a W N' a D A � m � N T O' C O e N m T a a Q, O e � l0 0 E c � a E ca N m U� e O N 0 O N N C a - 0O c M T LL. Y N a N °2 N E v m c' l6 E cc a a Q m c c a c a m 0) •y,: v... O. 7> a 0) N d U S_ N N `4 � a C O) E a� E N N U �aai c c E'9 v a a o a o a E EEs a N E 7c.• a t6 U_ T a C N 6 T a G' w 0 O a m cnEaci to O a o c 0` O V O (p U ' a N a U O o Co Z - m o N T a N a c V N a N N o� a N @ 01 £ Iq a: a cm c N U) Z o C a m 2 m y r a a O� ~ Q E a 7 E 6 ti O w N U d O fl v = o TU EaoE LD a) 3 N p w c O a' Q G � w y' � N C C T 2 W CL N O) /6 0- m' x a W � C m FL m IL N W a w a a C 41 N c 9 a O C O � N O U a w 6 co c a r y' O Z r T c . a e �' a D A � m � N a � O a e N m T a O e � l0 0 E c � a E ca N m 10q U� e O N 0 O N N C a - 0O c M T LL. Y O E v m 7 V co dC c.amZ�. O) E a� E N N U �aai c c E'9 v a a o a o a E EEs a N C N 6 T ao �- N G' w 0 O rn N a` 0 0` O O O i? F+: O T R, c a o� a N a 0 D a E m Q 0 O,L 2 m y r a a O� ~ E C N U) Q a (6 a a .3 a T cu E m O_ O c 1„ fly. ., "Al Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Valuation Date July 1, 2013 Funding Method Entry Age Normal Cost, level percent of pay3 Asset Valuation Method Market value of assets ($0; no OPEB trust has been established) Discount Rate 5.0% for pay -as- you -go; 6.5% illustrated for prefunding Participants Valued Only current active employees and retired participants currently covered by a City sponsored plan or receiving a direct premium subsidy from the City are valued. No future entrants are considered in this valuation. Benefits that may be payable under separate Retiree Medical Trust Plans have not been included in this valuation. Salary Increase 3.25% per year, used only to allocate the cost of benefits between service years Assumed Increase for Amortization Payments 3.25% per year where determined on a percent of pay basis General Inflation Rate 3.0% per year The demographic actuarial assumptions used in this valuation (demographic) experience study of the California Public Employees using data from 1997 to 2007. Mortality, disability, termination and selected age and service are shown on the following pages. are based on the Retirement System retirement rates for 3 The level percent of pay aspect of the funding method refers to how the normal cost is determined. Use of level percent of pay cost allocations in the funding method is separate from and has no effect on a decision regarding use of a level percent of pay or level dollar basis for determining amortization payments. fficlanare o,;; ^, Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 Table 4 - Actuarial Methods and Assumptions (Continued) Mortality rates Mortality Before Retirement Mortality After Retirement Rates shown in each of the tables below were projected by applying Scale AA on a fully generational basis. CaIPERS Public Agency Miscellaneous Non - Industrial Deaths only! Age Male Female 15 0.00045 0.00006 20 0.00047 0.00016 30 0.00053 0.00036 40 0.00087 0.00065 50 0.00176 0.00126 60 0.00395 0.00266 70 0.00914 0.00649 80 0.01527 0.01108 Healthy Lives CalPERS Public Agency Miscellaneous, Police & Fire Post Retirement Mortality Age Male Female 40 0.00093 0.00062 50 0.00239 0.00125 60 0.00720 0.00431 70 0.01675 0.01244 80 0.05270 0.03749 90 0.16747 0.12404 100 0.34551 0.31876 110 1 1.00000 1 1.00000 CalPERS Public Agency Police & Fire Combined Industrial & Non - Industrials Deaths Age Male Female 15 0.00045 0.00006 20 0.00050 0.00019 30 0.00063 0.00046 40 0.00100 0.00078 50 0.00191 0.00141 60 0.00412 0.00283 70 0.00933 0.00668 80 0.01548 0.01129 Disabled Lives CalPERS Public Agency !; Disabled Police Post Retirement Mortality Age Male Female 20 0.00230 0.00181 30 0.00227 0.00188 40 0.00272 0.00224 50 0.00503 0.00401 60 0.00845 0.00835 70 0.02304 0.01771 80 0.06984 0.04569 90 1 0.167741 0.13822 Bickmare xz Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 4 m Actuarial Methods and Assumptions (Continued) Termination Rates Miscellaneous employees: sum of CalPERS Terminated Refund and Terminated Vested rates - Illustrative rates Attained e Years of Service 0 3 5 1i0 15 20 15 0.1812 0.0000 0.0000 0.0000 0.0000 0.0000 20 0.1742 0.1193 0.0946 0.0000 0.0000 0.0000 25 0.1674 0.1125 0.0868 0.0749 0.0000 0.0000 30 0.1606 0.1055 0.0790 0.0668 0.0581 0.0000 35 0.1537 0.0987 0.0711 0.0587 0.0503 0.0450 40 0.1468 0.0919 0.0632 0.0507 0.0424 0.0370 45 1 0.1400 1 0.0849 1 0.0554 1 0.0427 1 0.0347 1 0.0290 For police safety employees: sum of CalPERS Terminated Refund and Terminated Vested rates - Illustrative rates Attained Age Years of Service 0 3 5 10 15 20 15 0.1013 0.0000 0.0000 0.0000 0.0000 0.0000 20 0.1013 0.0258 0.0249 0.0000 0.0000 0.0000 25 0.1013 0.0258 0.0249 0.0179 0.0000 0.0000 30 0.1013 0.0258 0.0249 0.0179 0.0109 0.0000 35 0.1013 0.0258 0.0249 0.0179 0.0109 0.0082 40 0.1013 0.0258 0.0249 0.0179 0.0109 0.0082 45 0.1013 0.0258 0.0249 0.0179 0.0109 0.0082 For fire safety employees: sum of CalPERS Terminated Refund and Terminated Vested rates - Illustrative rates Attained A e Years of Service 0 3 5 10 15 20 15 0.0947 0.0000 0.0000 0.0000 0.0000 0.0000 20 0.0947 0.0323 0.0257 0.0000 0.0000 0.0000 25 0.0947 0.0323 0.0257 0.0090 0.0000 0.0000 30 0.0947 0.0323 0.0257 0.0090 0.0079 0.0000 35 0.0947 0.0323 0.0257 0.0090 0.0079 0.0069 40 0.0947 0.0323 0.0257 0.0090 0.0079 0.0069 45 0.0947 0.0323 0.0257 0.0090 0.0079 0.0069 Bickmore zz,_, Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 4 - Actuarial Methods and Assumptions (Continued) Service Retirement Rates For miscellaneous employees hired before 71112012: CalPERS Public Agency 2.7% @ 55 - Illustrative rates Attained Age Years of Service 5 10 15 20 25 30 50 0.0275 0.0350 0.0425 0.0500 0.0575 0.0650 55 0.0908 0.1155 0.1403 0.1650 0.1898 0.2145 60 0.0880 0.1120 0.1360 0.1600 0.1840 0.2080 65 0.1458 0.1855 0.2253 0.2650 0.3048 0.3445 70 0.1288 0.1638 0.1990 0.2340 0.2692 0.3042 75 & over 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 For miscellaneous employees hired after 613012012 but before 11112013: CalPERS Public Agency Miscellaneous 2% @ 55 - Illustrative rates Attained Age Years of Service 5 10 15 20 25 30 50 0.0150 0.0200 0.0240 0.0290 0.0330 0.0390 55 0.0500 0.0640 0.0780 0.0940 0.1070 0.1270 60 0.0720 0.0920 0.1120 0.1340 0.1530 0.1820 65 0.1740 0.2210 0.2690 0.3230 0.3690 0.4390 70 0.1380 0.1760 0.2140 0.2570 0.2930 0.3490 75 & over 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 For miscellaneous employees joining CaIPERS on or after 11112013: CalPERS Public Agency Miscellaneous 2% @ 62 Illustrative rates Attained Age Years of Service 5 10 15 20 25 30 50 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 55 0.0440 0.0560 0.0680 0.0800 0.0920 0.1040 60 0.0616 0.0784 0.0952 0.1120 0.1288 0.1456 65 0.1287 0.1638 0.1989 0.2340 0.2691 0.3042 70 0.1254 0.1596 0.1938 0.2280 0.2622 0.2964 75 & over 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 For police safety employees hired before 11112013: CalPERS Public Agency Police 3% @ 50 - Illustrative rates Attained A e Years of Service 5 10 15 20 25 30 50 0.0700 0.0700 0.0700 0.1310 0.1930 0.2490 52 0.0610 0.0610 0.0610 0.1160 0.1710 0.2200 55 0.0900 0.0900 0.0900 0.1700 0.2500 0.3220 57 0.0800 0.0800 0.0800 0.1520 0.2230 0.2880 60 0.1350 0.1350 0.1350 0.2550 0.3765 0.4845 62 0.1125 0.1125 0.1125 0.2125 0.3138 0.4038 65 & over 1 1.0000 1 1.0000 1 1.0000 1.0000 1.0000 1.0000 Bickmore 3.> Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 Table 4 - Actuarial Methods and Assumptions (Continued) Service Retirement Rates (continued) For police safety employees joining CaIPERS on or after 11112013: CalPERS Public Agency Police 3% @ 55 - Illustrative rates Attained Years of Service 5 Age 5 10 15 20 25 30 50 0.0190 0.0190 0.0190 0.0190 0.0400 0.0600 52 0.0240 0.0240 0.0240 0.0240 0.0510 0.0770 55 0.1160 0.1160 0.1160 0.1160 0.2400 0.3630 57 0.0580 0.0580 0.0580 0.0580 0.1200 0.1810 60 0.1410 0.1410 0.1410 0.1410 0.2895 0.4380 62 0.1175 0.1175 0.1175 0.1175 0.2413 0.3650 65 & over 1 1.0000 1.0000 1 1.0000 1 1.0000 1 1.0000 1 1.0000 For fire safety employees hired before 11112013: CaIPERS Public Agency Fire 3% @ 55 - Illustrative rates Attained Age Years of Service 5 10 15 20 25 30 50 0.0120 0.0120 0.0120 0.0180 0.0280 0.0330 52 0.0180 0.0180 0.0180 0.0270 0.0420 0.0500 55 0.0920 0.0920 0.0920 0.1340 0.2110 0.2460 57 0.1000 0.1000 0.1000 0.1460 0.2300 0.2680 60 0.1170 0.1170 0.1170 0.1695 0.2670 0.3120 62 0.0975 0.0975 0.0975 0.1413 0.2225 0.2600 65 & over 1.0000 1 1.0000 1 1.0000 1 1.0000 1 1.0000 1 1.0000 ffickinore 2a Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 4 - Actuarial Methods and Assumptions (Continued) Disability Retirement Rates Used for Police Safety only - Illustrative rates: CalPERS Public Agency Police Combined Disability Premium Increase Unisex Premium Increase 0.00079 25 0.00332 T 0.00664 Actual 0.00996 6.00% 0.01327 45 0.01659 50 0.01999 55 0.06803 60 0.06869 Healthcare Trend Medical plan premiums are assumed to increase once each year. The increases over the prior year's levels are assumed to be effective on the dates shown below: Effective January 1 Premium Increase Effective January 1 Premium Increase 2014 Actual 2020 6.50% 2015 Actual 2021 6.00% 2016 8.50% 2022 5.50% 2017 8.00% 2023 5.00% 2018 7.50% 2024 5.00% 2019 7.00% 2025 & later 4.64% The PEMHCA minimum required contribution (MEC) is assumed to increase annually by 4.5 %. Other City Cost Sharing The City's contribution for certain retirees who were previously, but are no longer, covered by the CalPERS medical program are assumed to remain constant in future years. Medicare Eligibility Absent contrary data, all individuals are assumed to be eligible for Medicare Parts A and B at age 65. ffickmore ,. Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 4 - Actuarial Methods and Assumptions (Continued) Participation Rate Active employees: The following percentages of future retirees are assumed to continue their current plan election in retirement: EPP: 100 %, until age 70 ® Police Safety: 85% ® All others: 65% until age 65 Active employees (except police safety) not currently covered by a City sponsored medical plan are assumed to elect coverage in the Aetna OAMC plan in retirement until age 65 (until age 70 for EPP retirees). Retired participants: Existing medical plan elections are assumed to be maintained until the earlier of the retiree's death or attainment of age 65. Spouse Coverage Active employees: 85% are assumed to be married and 70% of those married are assumed to elect coverage for their spouse in retirement. Surviving spouses of Police Safety retirees are assumed to retain coverage until their death. Husbands are assumed to be 3 years older than their wives. Dependent Coverage Development of Age - related Medical Premiums Retired participants: Existing elections for spouse coverage are assumed to be continued until the earlier of the retiree's death or the spouse's attainment of age 65. Actual spouse ages are used, where known; if not, husbands are assumed to be 3 years older than their wives. Not applicable; coverage of dependents other than a spouse is not expected to create an OPEB liability for the City. Aetna HMO and OAMC medical premiums applicable prior to Medicare eligibility: Actual premium rates were adjusted to an age - related basis by applying the rates per the "Representative Curve for General Use" as presented by Petertil, August 2003, Society of Actuaries. Rates between 50 and 64 were averaged and rounded to the nearest .5 %. A uniform rate was developed and applied prior to age 50 based on analysis of plans offered. Based on this, premiums for ages below 65 were assumed to increase at the rate of 3.5% per year. zc:, Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Table 4 - Actuarial Methods and Assumptions (Concluded) Changes Since the Prior Valuation Mortality improvement Future improvement in mortality rates was included by projecting the current mortality rates using Scale AA on a generational basis. Healthcare trend Medical plan premiums are assumed to increase at somewhat different rates than were assumed in the prior valuation. The PEMHCA minimum employer contribution (MEC) is assumed to increase at a constant 4.5% rate. We are unsure of the assumption used for the prior valuation. Spouse coverage for future retirees Rather than assume each employee's current spouse coverage election will continue into retirement, we assumed that 85% of future retirees will be married and that 70% of these married retirees will elect to cover their spouse in retirement. Participation Rate The assumed percentages of active employees assumed to elect coverage through the City in retirement was modified from the assumptions used in the prior valuation. Age - related claim costs A somewhat different, but similar, approach was used for determining base year age- adjusted premiums (claims costs). Bickmore ?� ` Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of Julv 1. 2013 Table 5 The following is an estimate of other post - employment benefits to be paid on behalf of current retirees and current employees expected to retire from the City. ® No benefits expected to be paid on behalf of current active employees prior to retirement are considered in this projection. ® No benefits for potential future employees have been included. Expected annual benefits have been projected on the basis of the actuarial assumptions outlined in Table 4. Projected Annual Benefit Payments Fiscal Year ' Explicit Subsidy Implicit Subsidy Ending Current ' Future Current Future June 30 Retirees Retirees Total Retirees Retirees Total Total 2014 $ 255,522 $ 20,323 $ 275,845 $ 574,850 $ 136,021 $ 710,871 $ 986,716 2015 247,890 40,230 288,120 569,742 285,542 855,284 1,143,404 2016 245,538 61,823 307,361 561,837 470,036 1,031,873 1,339,234 2017 235,647 84,467 320,114 537,743 649,204 1,186,947 1,507,061 2018 222,833 105,601 328,434 553,774 863,492 1,417,266 1,745,700 2019 220,012 130,580 350,592 504,725 1,126,490 1,631,215 1,981,807 2020 229,101 159,248 388,349 386,012 1,348,123 1,734,135 2,122,484 2021 238,009 190,854 428,863 332,334 1,534,494 1,866,828 2,295,691 2022 232,218 214,200 446,418 232,722 1,727,808 1,960,530 2,406,948 2023 224,892 238,068 462,960 199,841 1,890,488 2,090,329 2,553,289 Bickmore 2s, ', Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Appendix a' . • . t The following table compares an illustration of prefunding results to those developed on a pay -as- you -go basis for the fiscal year ending June 30, 2015. Amortization of the unfunded actuarial accrued liability is developed on the same basis as described in Section F. Bickmare 29. - Pay-As-You-Gol Prefunding i 7/112013 Valuation date For fiscal year beginning 7/1/2014 7/1/2014 For fiscal year ending 6/30/2015 6/30/2015 Discount rate 5.00% 6.50% Actuarial Present Value of Projected Benefits Actives $ 34,453,742 $ 27,208,107 Retirees 7,308,980 6,521,477 Total APVPB 41,762,722 33,729,584 Actuarial Accrued Liability (AAL) - Actives 22,826,944 19,344,759 Retirees 7,308,980 6,521,477 Total AAL 30,135,924 25,866,236 Actuarial Value of Assets - - Unfunded AAL (UAAL) 30,135,924 25,866,236 Factor 23.76118 19.83681 Annual Required Contribution (ARC) Normal Cost 1,391,910 1,049,838 Amortization of UAAL 1,268,284 1,303,951 Interest to 01/00 133,010 152,996 Total ARC at fiscal year end 2,793,204 2,506,785 1. Calculation of the Annual OPEB Expense a. ARC for current fiscal year $ 2,793,204 $ 2,506,785 b. Interest on Net OPEB Obligation (Asset) at beginning of year 510,415 648,128 c. Adjustment to the ARC (451,102) (535,334) d. Annual OPEB Expense (a. + b. + c.) 2,852,517 2,619,579 2. Calculation of Expected Contribution a. Estimated payments on behalf of retirees 288,120 288,120 b. Estimated implicit subsidy 855,284 855,284 c. Estimated contribution to OPEB trust - 1,363,381 d. Total Expected Employer Contribution 1,143,404 2,506,785 3. Change in Net OPEB Obligation (1.d. minus 2.c.) 1,709,113 112,794 Net OPEB Obligation (Asset), beginning of fiscal year 10,208,295 9,971,195 Net OPEB Obligation (Asset) at fiscal year end 11,917,408 10,083,989 Bickmare 29. - Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Appendix The information necessary to complete the OPEB footnote in the City's financial reports is summarized below, or we note the location of the information contained elsewhere in this report: Summary of Plan Provisions: OPEB Funding Policy: Annual OPEB Cost and Net OPEB Obligation: Actuarial Methods and Assumptions: Funding Status and See Table 3A See Section F; details are provided also at the top of the exhibit in Table 1 B See Table 1 C See Table 4. Funding Progress: $ See Section E — Basic Valuation Results $ 18,747,000 0% 7/112011 $ Schedule of Funding Progress $ 23,841,000 0% 7/1/2013 Unfunded UAAL as a Actuarial Actuarial Actuarial Percentage Actuarial Value of Accrued Accrued Funded of Covered Valuation Assets Liability Liability Ratio Covered Payroll Payroll Date (a) (b) (b -a) (a /b) (c) ((b -a)/c) 7/1/2009 $ - $ 18,747,000 $ 18,747,000 0% 7/112011 $ - $ 23,841,000 $ 23,841,000 0% 7/1/2013 $ - $ 28,292,513 $ 28,292,513 0% $ 167,724,000 14.21% $ 154,531,776 18.31% Required Supplementary Information: Three Year History of Amounts Funded See chart below: Italicized values above are estimates which may change if contributions are other than projected. Bickmare o: Percentage of Employer Annual OPEB Net OPEB Fiscal Year Annual OPEB OPEB Cost Obligation Ended Cost Contributions Contributed (Asset) 6/30/2011 $ 1,962,000 $ 586,000 30% $ 5,094,000 6/30/2012 $ 2,321,000 $ 675,000 29% $ 6,740,000 6/30/2013 $ 2,451,000 $ 711,000 29% $ 8,480,000 6/30/2014 $ 2,715,011 $ 986,716 36% $ 10,208,295 6/30/2015 $2,852,517 $ 1,143, 404 40% $ 11, 917, 408 Italicized values above are estimates which may change if contributions are other than projected. Bickmare o: Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Actuarial Accrued Liability (AAL) — Total dollars required to fund all plan benefits attributable to service rendered as of the valuation date for current plan members and vested prior plan members; see "Actuarial Present Value" Actuarial Funding Method — A procedure which calculates the actuarial present value of plan benefits and expenses, and allocates these expenses to time periods, typically as a normal cost and an actuarial accrued liability Actuarial Present Value (APV) — The amount presently required to fund a payment or series of payments in the future, it is determined by discounting the future payments by an appropriate interest rate and the probability of nonpayment. Aggregate — An actuarial funding method under which the excess of the actuarial present value of projected benefits over the actuarial accrued liability is levelly spread over the earnings or service of the group forward from the valuation date to the assumed exit date, based not on individual characteristics but rather on the characteristics of the group as a whole Annual Required Contribution (ARC) — The amount the employer would contribute to a defined benefit OPEB plan for a given year, it is the sum of the normal cost and some amortization (typically 30 years) of the unfunded actuarial accrued liability Annual OPEB Expense — The OPEB expense reported in the Agency's financial statement, which is comprised of three elements: the ARC, interest on the net OPEB obligation at the beginning of the year and an ARC adjustment. Attained Age Normal Cost (AANC) — An actuarial funding method where, for each plan member, the excess of the actuarial present value of benefits over the actuarial accrued liability (determined under the unit credit method) is levelly spread over the individual's projected earnings or service forward from the valuation date to the assumed exit date CalPERS — Many state governments maintain a public employee retirement system; CalPERS is the California program, covering all eligible state government employees as well as other employees of other governments within California who have elected to join the system Defined Benefit (DB) — A pension or OPEB plan which defines the monthly income or other benefit which the plan member receives at or after separation from employment Defined Contribution (DC) — A pension or OPEB plan which establishes an individual account for each member and specifies how contributions to each active member's account are determined and the terms of distribution of the account after separation from employment Entry Age Normal Cost (EANC) — An actuarial funding method where, for each individual, the actuarial present value of benefits is levelly spread over the individual's projected earnings or service from entry age to assumed exit age Bickmare ='' Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Glossary (Continued) Frozen Attained Age Normal Cost (FAANCI — An actuarial funding method under which the excess of the actuarial present value of projected benefits over the actuarial accrued liability (determined under the unit credit method) is levelly spread over the earnings or service of the group forward from the valuation date to the assumed exit date, based not on individual characteristics but rather on the characteristics of the group as a whole Frozen Entry Age Normal Cost (FEANC) — An actuarial funding method under which the excess of the actuarial present value of projected benefits over the actuarial accrued liability (determined under the entry age normal cost method) is levelly spread over the earnings or service of the group forward from the valuation date to the assumed exit date, based not on individual characteristics but rather on the characteristics of the group as a whole Financial Accounting Standards Board (FASB) — A private, not - for - profit organization designated by the Securities and Exchange Commission (SEC) to develop generally accepted accounting principles (GAAP) for U.S. public corporations Government Accounting Standards Board (GASB) — A private, not - for - profit organization which develops generally accepted accounting principles (GAAP) for U.S. state and local governments; like FASB, it is part of the Financial Accounting Foundation (FAF), which funds each organization and selects the members of each board Net OPEB Obligation (Asset) - The net OPEB obligation (NOO) represents the accumulated shortfall of OPEB funding since GASB 45 was implemented. If cumulative contributions have exceeded the sum of the prior years' annual OPEB expenses, then a net OPEB asset results. Non - Industrial Disability (NID) — Unless specifically contracted by the individual Agency, PAM employees are assumed to be subject to only non - industrial disabilities. Normal Cost — Total dollar value of benefits expected to be earned by plan members in the current year, as assigned by the chosen funding method; also called current service cost Other Post - Employment Benefits (OPEB) — Post - employment benefits other than pension benefits, most commonly healthcare benefits but also including life insurance if provided separately from a pension plan Pay -As- You -Go (PAYGO) — Contributions to the plan are made at about the same time and in about the same amount as benefit payments and expenses coming due PEMHCA — The Public Employees' Medical and Hospital Care Act, established by the California legislature in 1961, provides community -rated medical benefits to participating public employers. Among its extensive regulations are the requirements that medical insurance contributions for retired annuitants and paid for by a contracting Agency be equal to the medical insurance contributions paid for its active employees, and that a contracting Agency file a resolution, adopted by its governing body, with the CalPERS Board establishing any new contribution. Bickmare B2 Other Post - Employment Benefit Programs of the City of Santa Monica Actuarial Valuation as of July 1, 2013 Projected Unit Credit (PUC) — An actuarial funding method where, for each individual, the projected plan benefit is allocated by a consistent formula from entry date to assumed exit date Public Agency Miscellaneous (PAM) — Actuarial assumptions used by CalPERS for most non - safety public employees. Select and Ultimate — Actuarial assumptions which contemplate rates which differ by year initially (the select period) and then stabilize at a constant long -term rate (the ultimate rate) Trend — The healthcare cost trend rate, defined as the rate of change in per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design and technological developments Unfunded Actuarial Accrued Liability WAAL) — The excess of the actuarial accrued liability over the actuarial value of plan assets Unit Credit (UC) -- An actuarial funding method where, for each individual, the unprojected plan benefit is allocated by a consistent formula from entry date to assumed exit date Vesting — As defined by the plan, requirements which when met make a plan benefit nonforfeitable on separation of service before retirement eligibility Bickmore Reference: Agreement No. 10056 (CCS) Resolution No. 10876 (CCS) 0 Resolution No. 10877 (CCS)