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Res No 261-10-13295RESOLUTION NO. 261-10-13295 A Resolution of the Mayor and City Commission of the City of South Miami, Florida, authorizing the City Manager to execute an agreement with Florida League of Cities and Southeastern Actuarial Services, Inc. to perform the Other Post - Employment Benefits (OPEB) valuation required under the GASB for fiscal year 2010 Comprehensive Annual Financial Report (CAFR), for a fixed retainer fee of $5,250 charging account No. 001 - 1410 -513 -3210 auditor's fee, with a current balance of $55,500, and providing an effective date. WHEREAS, state and local government employers provide Other Post - Employment Benefits (OPEB) to retirees in addition to typical pension benefits. OPEB takes form of retiree health insurance, dental, vision, prescription drug, life, or other healthcare benefits; and WHEREAS, GASB No. 45 - Accounting and Financial Reporting by employers for post - employment benefits other than pension establishes new standards for the recording of OPEB expense and the liabilities in the financial reports of state and local government employers; and WHEREAS, employers must account for and report the annual cost of OPEB similar to how pensions are reported. Florida State Statues require that the employer make health coverage available to retirees at the employer's group rate; and WHERAS, for purpose of GASB 45, a valuation is an examination of other (than pension) post- employment benefits to asses the cost and liability associated with those benefits. Valuations are typically handled by actuaries with specific qualifications to perform the work. NOW THEREFORE BE IT RESOLVED BY THE MAYOR AND CITY COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA; Section 1. The City Manager is authorized to execute an agreement with Florida League of Cities and Southeastern Actuarial Services, Inc. to perform the Other Post - Employment Benefits (OPEB) valuation required under the GASB for fiscal year 2010 Comprehensive Annual Financial Report (CAFR), for a fixed retainer fee of $5,250 charging account No. 001 - 1410 -513 -3210 auditor's fee, with a current balance of $55,500. Section 3. This resolution shall take effect immediately upon adoption. PASSED AND ADOPTED this7th day of December, 2010.. ATTEST: Page 1 of 2 Additions shown by underlinine and deletions shown by - erst°'�s. Res. No. 261 -10 -13295 C��( k CITY CL� READ AND APPROVED AS TO FORM AND SUFFICIENCY: CITY ATTORNEY Page 2 of 2 NMI_ • /,Z COMMISSION VOTE: 4 -0 Mayor Stoddard: Yea Vice Mayor Newman: Yea Commissioner Palmer: absent Commissioner Beasley: Yea Commissioner Harris: Yea South Miami M "D CITY OF SOUTH MIAMI W1 r OFFICE OF THE CITY MANAGER INTER- OFFICE MEMORANDUM 200 To: The Honorable Mayor & Members of the City Commission Via: hector Mirabile, PhD, City Manager From: Alfredo Riverol, CPA, Cr.FA, Chief Financial Officer Date: November 12, 2010 Agenda Item No.: A Resolution of the Mayor and City Commission of the City of South Miami, Florida, authorizing the City Manager to execute an agreement with Florida League of Cities and Southeastern Actuarial Services, Inc. to perform the Other Subject: Post - Employment Benefits (OPEB) valuation required under the GASB for fiscal year 2010 Comprehensive Annual Financial Report (CAFR), for a fixed retainer fee of $5,250 charging account No. 001- 1410 -513 -3210 auditor's fee, with a current balance of $55,500, and providing an effective date. State and local government employers provide other post - retirement benefits (OPEB) to retirees in addition to typical pension benefits. OPEB takes form of retiree health insurance, dental, vision, prescription drug, life, or other healthcare benefits. GASB No. 45 - Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pension establishes new standards for the recording of OPEB expense and the liabilities in the financial reports of state and local government employers. Background: Furthermore, employers must account for and report the annual cost of OPEB similar to how pensions are reported. Florida State Statues require that the employer make health coverage available to retirees at the employer's group rate. For purpose of GASB 45, a valuation is an examination of other (than pension) post - employment benefits to asses the cost and liability associated with those benefits. Valuations are typically handled by actuaries with specific qualifications to perform the work. Amount and Account: A fixed retainer fee of $5,250 charging account No. 001 - 1410 -513 -3210 auditor's fee, with a current balance of $55,500. • Keefe, McCullough & CO., LLP Letter to client. (GASB No. 45- Accounting and Financial Reporting by Employers for Postemployemnt Benefits Other Backup Than Pensions.) Documentation: • GRS proposal. • Milliman Proposal. • Florida League of Cities/ Southern Actuarial Services Proposal. JOHN R. XCEVa C.PA. STF.VF,NH. WOODS, ".A. DAVID T. WILLIAMS. C.P.A. 30SE11H D. LEO. C.P.A. WILLIAM G. DWSON, C.P.A. RENNM G. SMITH, CAA. LOUIS R. PROIMID, CPA. JAMES R. LARA \VAX CX 1. HILLARY R. DAIGLE. CAA. Dear Client: CYN7111A L. CALYMa,, C.P.A. ISRAFR,L00MV CAA. JOHN G. WCULLOUGIL C.P.A. (RMVED) VIM" T. CARPEM IL CRA.(RETIRED) PAUL D. SWUM. C.P.P. (RETIRED) RRIAN D. PINNUL,C PA. (REHRED) ROSS S. GOITHOMIR, C.P.A. KEEFE, MCCULLOUGH & CO., LLP CMITIIP11 I) PUBLIC ACCOUNTANTS 6550 NORTH FEDERAL HIGHWAY SUITE 410 FORT LAUDERDALE, FLORIDA 33308 (954) 771-0896 FAX:(954)938 -9353 E -MAIL: kmc@kmccpa.con) State and local government employers provide other post - retirement benefits (OPEB) to retirees in addition to typical pension benefits. OPEB takes the form of retiree health insurance, dental, vision, prescription drug, life, or other healthcare benefits. The costs of these benefits generally have been reported on a pay -as- you -go basis. GASB No. 45 - Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions establishes new standards for the recording of OPEB expense and the Iiabilities in the financial reports of state and local government employers. Employers must account for and report the annual cost of OPEB similar to how pensions are reported. In Florida, state statutes require that the employer make health coverage available to retirees at the employer's group rate. This creates an implicit cost that could potentially make this a financial (monetary, accounting, reporting) issue for every municipality in Florida. How to Determine the Cost of OPEB? For purposes of GASB 45, a valuation is an examination of other (than pension) post - employment benefits to assess the cost and liability associated with those benefits. Valuations are typically handled by actuaries with specific qualifications to perform the work. An actuarial valuation is required at least biennially for OPEB plans with a total membership (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits) of 200 or more, or at least triennially for plans with a total membership of fewer than 200. The projection of benefits should include all benefits covered by the current substantive plan (the plan as understood by the employer and plan members) at the time of each valuation and should take into consideration the pattern of sharing of benefit costs between the employer and plan members to that point, as well as certain legal or contractual caps on benefits to be provided. Alternative Measurement Method: In general, employers with fewer than one hundred total plan members (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retirees and beneficiaries currently receiving benefits) have the option to apply a simplified alternative measurement method instead of obtaining actuarial valuations. -2- Balance Sheet Liability: In general, GASB 45 allows plan sponsors to amortize the portion of the cost attributed to past service over a period not to exceed 30 years. A balance sheet liability arises when a plan sponsor fails to make contributions to cover both the cost for the current year as well as the cost associated with amortizing the cost from past services. Note: a plan sponsor that fully funds the annual required contribution (ARC) each year will not have a balance sheet liability (but the unfunded accrued actuarial liability is typically disclosed within the annual report). Implementation Schedule: the new standards should be implemented by employers in three phases based on a government's total annual revenues in the first fiscal year ending after June 15, 1999. Phase 1: those with total annual revenues of $ 100 million or more: begins with fiscal years starting after December 15, 2006. Phase 2: those with total annual revenues of $ 10 million or more but less than $ 100 million: begins with fiscal years starting after December 15, 2007. Phase 3: those with total annual revenues of less than $ 10 million: begins with fiscal years starting after December 15, 2008. Some of our current clients have used the services of these firms: Milliman* (www.milliman.com Atlanta Office 945 E. Paces Ferry Road NE Suite 2500 Atlanta, GA 30326 Phone: 404 - 237 -7060 Gabriel, Roeder, Smith & Company (www.grsnet.com) One East Broward Blvd, Suite 505 Fort Lauderdale, FL 33301 -1827 Phone: 954 - 527 -1616 Southern Actuarial Services (www.southernactuarial.com) 7878 Roswell Road Suite 100 Atlanta, GA 30350 Phone: 770 - 392 -0980 * Full valuation services and assistance with the alternative measurement method. The Florida League of Cities is also offering assistance with your actuarial services needs. For more information, please contact Mr. Jeremy Buttom at 1- 800 -616 -1513 Ext.3625. For additional information, please review the following information: See attached file: Governmental Accounting Standards Board: Other Postemployment Benefits: A Plain Language Summary of GASB Statements No. 43 and No. 45. -3- See attached file: Government Finance Officers Association: RFP Checklist for OPEB Actuarial Valuation. Visit this website: Florida Statutes Related to OPEB: Please let us know if we can be of further help or if we need to expand on any of the above items. Regards, Kleek, tY1�C�ttout i Co., LLP Keefe, McCullough & Co., LLP Other Postemployment A Plain-Language • s Statements • and No. 45 Please note: This document, prepared by the GASB staff, has not been reviewed or approved by the GASB Board and is not an authoritative document in the hierarchy ofgenerally accepted accounting principles. Governmental Accounting Standards Board Other Postemployment Benefits: A Plain- Language Summary of GASB Statements No. 43 and No. 45 CONTENTS Page Number What Are Other Postemployment Benefits, and Why Are They Important? ........................................................... ..............................1 Why Has the GASB Issued New Standards for OPEB? ..............1 What Types of OPEB Plans Do Governments Use? ...................1 How Do Governments Currently Finance Postemployment Benefits? .................................................. ..............................2 How Should Governments Participating in Defined Benefit Plans Accountfor OPEB? ............................................. ..............................2 How Should Governments Determine the Cost of OPEB? ..........3 TheOPEB liability .................................. ..............................4 OPEBassets ......................................... ..............................4 The unfunded liability ............................. ..............................4 OPEB contributions ............................... ..............................4 OPEB expenses, expenditures, and the net obligations ......5 Implicit Rate Subsidies for Retirees ............... ..............................5 Provisions for Small Plans ............................. ..............................6 What Additional OPEB Information Should a Government Employer Present in Its Financial Report? ........................... ..............................6 Notes to the Financial Statements ................. ..............................6 Plan description ..................................... ..............................6 Fundingpolicy ....................................... ..............................6 Members and types of benefits ............. ............................... 7 Costs and obligations, methods and assumptions ...............7 Required Supplementary Information ............ ..............................8 What Information Should an OPEB Plan Present in Its FinancialReport? ................................................ ..............................9 Financial Statements ..................................... ..............................9 Notes to the Financial Statements ...............................................9 Plan description ..................................... ..............................9 Accounting policies ............................... .............................10 Contributions and reserves ................... .............................10 Investment concentrations .................... .............................10 Funded status and funding progress .... .............................11 Required Supplementary Information ........... .............................11 When Should Governments Implement These New Standards? .......... 11 What Is the GASB? .................................................. .............................12 How Does the GASB Set Standards? ...................... .............................12 Illustrations...........: ................................................... .............................14 Illustration 1. Notes to the Financial Statements for an Employer Contributing to a Single - Employer Defined Benefit Healthcare Plan .......................... .............................14 Illustration 2. Notes to the Financial Statements and Schedule of Funding Progress for an Employer Contributing to an Agent Multiple- Employer Defined Benefit Healthcare Plan .......................... .............................16 Illustration 3. Notes to the Financial Statements for an Employer Contributing to a Cost- Sharing Multiple - Employer Defined Benefit Healthcare Plan ..........................18 Illustration 4. Defined Benefit Healthcare Plan Financial Reports................................................... .............................20 WHAT ARE OTHER POSTEMPLOYMENT BENEFITS, AND WHY ARE THEYIMPORTANT? Employees of state and local governments may be compensated in a variety of forms in exchange for their services. In addition to a salary, many employees earn benefits over their years of service that will not be received until after their employment with the government ends through retirement or other reason for separation. The most common type of these postemployment benefits is a pension. As the name suggests, other postemployment benefits (OPEB) are postemployment benefits other than pensions. OPEB generally takes the form of health insurance and dental, vision, prescription, or other healthcare benefits provided to eligible retirees, including in some cases their beneficiaries. It may also include some types of life insurance, legal services, and other benefits. Why Has the GASB Issued New Standards for OPEB? The GASB established standards in 1994 for how public employee pension plans and governmental employers participating in pension plans should account for and report on pension benefits, but similar provisions did not exist for OPEB. Although the OPEB may not have the same legal standing as pensions in some jurisdictions, the GASB believes that pension benefits (as a legal obligation) and OPEB (as a constructive obligation in some cases) are a part of the compensation that employees earn each year, even though these benefits are not received until after employment has ended. Therefore, the cost of these future benefits is a part of the cost of providing public services today. However, most governments report their cash outlays for OPEB in a given year, rather than the cost to the employer of OPEB earned by employees in that year; these two amounts may be vastly different. in the absence of standards similar to those the GASB enacted for pensions, most governments do not report the full cost of the OPEB earned by their employees each year. Furthermore, most governments do not report information about the nature and size of their long -term financial obligations and commitments related to OPEB. Consequently, the readers of financial statements, including the public, have incomplete information with which to assess the cost of public services and to analyze the financial position and long -run financial health of a government. The purpose of the new standards —GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions —is to address these shortcomings. What Types of OPEB Plans Do Governments Use? There are two basic forms of postemployment benefit plans. Defined benefit plans are those that specify the amount of benefits to be provided to the employees after the end of their employment. Defined contribution plans stipulate only the amounts to be contributed by a government employeeto a plan member's account each year of active employment, and do not specify the amount of benefits employees will receive after the end of their employment. Plans may also be distinguished by how many employers participate in them. As their name indicates, single - employer plans involve only one government, whereas multiple- employer plans include more than one government. in a cost - sharing multiple- employer plan, governments pool or share the costs of financing benefits and administering the plan and the assets, if any, accumulated to pay benefits. Generally, a single actuarial valuation is conducted for all of the employees of the participating governments combined. In agent multiple- employer plans, there is no pooling of benefit costs. Separate actuarial calculations are made for each participating government in the plan, and separate accounts are maintained to ensure that each employer's contributions are used to provide benefits only for the employees of that government. The cost of administering the plan, however, is shared by the participating governments. How Do Governments Currently Finance Postemployment Benefits? In general, postemployment benefits are financed in one of two ways. Some governments follow an actuarial approach, which entails paying to a pension or OPEB plan an amount that is expected to be sufficient, if invested now, to finance the benefits of employees after they are no longer working for the government. This approach is commonly followed for determining pension contributions. For OPEB, however, most governments currently follow a pay -as- you -go approach, paying an amount each year equal to the benefits distributed or claimed in that year. The new OPEB standards do not mandate the funding of OPEB benefits (in other words, to set aside assets in advance to pay benefits in the future). As noted above, they address accounting and financial reporting issues only. HOW SHOULD GOVERNMENTS PARTICIPATING IN DEFINED BENEFIT PLANS ACCOUNT FOR OPEB? In general, governments should account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in the same manner as they currently do for pensions. These amounts should be produced by actuarial valuations performed in accordance with parameters established by the GASB. The valuations should be conducted at least every two years for plans that administer OPEB for 200 or more plan members (both active N employees and retirees) or at least every three years for plans with fewer than 200. Actuarial valuations generally should follow accepted actuarial practices as set forth by the Actuarial Standards Board. How Should Governments Determine the Cost of OPEB? The process of determining how much should be set aside now in order to provide for future benefits in a defined benefit plan utilizes actuarial methods and assumptions. An actuary's estimate or "valuation" is the product of many assumptions, based on historical experience, regarding the factors that determine the level of resources that will be needed in the future to finance benefits. These factors may include, but are not limited to: • - How many employees a government is expected to have that will receive benefits • How long employees are expected to work for the government • How long employees are expected to live after retiring (and, hence, how many years they will receive benefits) • How much healthcare costs are expected to increase • How large a return a government is expected to receive on its investments. The actuary calculates how much should be contributed now to ensure that an adequate level of resources is available in the future. The future cash outlays for OPEB should be projected based on economic and demographic assumptions such as those mentioned above. These cash outflows would then be discounted to their actuarial present value —their estimated value if paid today —using a discount rate equal to an assumed long -term rate of return on investments. The actuarial present value generally would be spread over a period that approximates the anticipated years of an average worker's employment with the government, utilizing any one of six acceptable actuarial cost methods. The portion of the actuarial present value allocated to a particular year is called the normal cost. The portions allocated to the remaining years of employment are future normal costs. The Board's decision to allow a choice among six methods reflects the fact that actuaries have developed a variety of methods to help determine how to fund pension and OPEB plans. The selection of a particular method generally is based on a recommendation from the actuary based on demographics, benefits offered, and the funding status of the plan. The Board believes it is most appropriate and useful to the users of financial statements if a government uses the same actuarial cost method for both funding and financial reporting, as long as the government's funding method is consistent with the principles of accrual - based accounting. If its funding method is not consistent, then a government should select from the six allowable actuarial cost methods for the purposes of financial reporting. 3 The OPEB Liability. The actuarial calculations are required to take into account not only benefits expected to be earned by employees in the future (future normal costs), but also those benefits the employees have already earned. One reason for this is that governments had been granting pension and OPEB benefits for many years before the accounting standards required their costs and obligations to be actuarially determined. Second, governments sometimes retroactively improve the benefits they provide to their employees. The portion of the actuarial present value allocated to prior years of employment —and thus not provided for by future normal costs —is called the actuarial accrued liability (AAL). OPEB Assets. If an OPEB plan has cash, investments, and other resources, these may be applied to fund the actuarial accrued liability. The value of these resources is referred to as the actuarial value of assets. The actuarial value of assets is not the same as fair value, which is used to report a government's investments in its statements of net assets and balance sheet. Fair values can be volatile in the short term, with gains one year and losses the next. Postemployment benefits, however, are long -term transactions — assets are being set aside today to pay for benefits well into the future. Although there may be sharp changes in asset value in the short run, over the long run the change in asset value tends to be steadier. For financial reporting purposes, gains or losses in plan assets are averaged over several years (usually three to five), producing an actuarial value of assets that is more stable over time than fair value. The Unfunded Liability. The excess of the AAL over the actuarial value of assets is the unfunded actuarial accrued liability (UAAL or unfunded liability). The unfunded liability would be amortized (spread) over a period of up to thirty years (approximately equal to a typical public employee's term of employment), either in level dollar amounts or as a level percentage of projected payroll. Like a home mortgage, the level dollar method divides the liability into equal dollar amounts over the selected number of years; each payment is part interest, part principal. The level percentage method calculates payments so that they equal a constant percentage of payroll over time as payroll increases; most governments currently use this method when reporting their pension benefits. OPEB Contributions. The normal cost and the portion of the UAAL to be amortized in the current period together make up the annual required contribution (ARC) of the employer for the period. The ARC is an amount that is actuarially determined in accordance with the requirements of Statements 43 and 45 so that, if paid on an ongoing basis, it would be expected to provide sufficient resources to fund both the normal cost for each year and the amortized unfunded liability. Employer contributions consist of payments directly to or on behalf of a retiree or beneficiary, premium payments to insurers, or irrevocably transferred assets to a trust (or equivalent arrangement) in which plan assets are dedicated to providing benefits to retirees and beneficiaries in accordance with the terms of 12 the plan and are legally protected from creditors of the employer and plan administrator. OPEB Expenses, Expenditures, and the Net Obligations. For a government in a single- employer or agent multiple - employer plan, the annual OPEB cost equals the ARC plus or minus certain adjustments if the employer's actual contributions in prior years differed from the ARC. The annual OPEB cost is the OPEB expense that a government would report in its accrual -based financial statements —the government -wide statements and the proprietary fund statements. Generally, the cumulative sum of differences between an employer's annual OPEB cost and the amounts actually contributed to the plan since the effective date of the standards makes up a liability (or asset) called the net OPEB obligation. By contrast, for an employer government participating in a cost- sharing multiple - employer plan, the annual OPEB expense is equal to the employer's contractually required contribution to the plan —the amount assessed by the plan for the period —which may or may not equal the ARC. In the financial statements that use accrual accounting a government is not required to place an initial liability on the statement of net assets when this standard is first implemented. Governments may report as a liability the accumulated differences between their actual contributions and the ARC for prior years, to the extent they have the necessary information to do so. Under modified accrual in the governmental fund financial statements, an employer would report OPEB expenditures equal to the amount contributed to the plan or expected to be liquidated with expendable available financial resources. Because the governmental fund financial statements focus on current financial resources, they would not include the net OPEB obligation or any other long -ter} liability. Implicit Rate Subsidies for Retirees In health insurance plans where a government's retirees and current employees are insured together as a group, the premiums paid by the retirees may be lower than they would have been if the retirees were insured separately —this is called an implicit rate subsidy. Some believe that if the retirees pay 100 percent of their premiums without a specific contribution from the employer, then the employer should not be required to treat the implicit rate subsidy as an OPEB. The standards that were first proposed for public review were consistent with that point of view. However, based on the comments received regarding those proposed standards, the GASB ultimately concluded in Statements 43 and 45 that exempting governments from including an implicit rate subsidy in their OPEB 5 calculations would result in the annual cost and long -term obligations of their OPEB being significantly understated. Implicit rate subsidies should therefore be included by governments as OPEB. Provisions for Small Plans As mentioned above, actuarial valuations are required at least every two or three years, depending on the size of the OPEB plan. In recognition of the potential cost of hiring consultants to perform these valuations, the standards allow the smallest single - employer plans —those with fewer than one hundred members —and the employers that participate in them to estimate the AAL and the ARC using simplified methods and assumptions. (The method also is available to certain employers in agent multiple - employer plans.) The specifics of this alternative measurement method are described fully in Statements 43 and 45. WHAT ADDITIONAL OPEB INFORMATION SHOULD A GOVERNMENT EMPLOYER PRESENT IN ITS FINANCIAL REPORT? Notes to the Financial Statements To assist users in understanding the nature of a government's OPEB and its efforts to finance its OPEB, the GASB's standards require governments to prepare note disclosures to accompany the expense, expenditure, and liability information reported in the financial statements. Plan Description. Disclosures describing the plan contain the following basic information about the types of OPEB offered and how they are administered. (See illustrations 1 -3 at the end of this document.) a. Name of the plan, identification of the public employee retirement system or other entity that administers the plan, and identification of the plan as a single - employer, agent multiple - employer, or cost - sharing multiple - employer defined benefit OPEB plan. b. Brief description of the types of benefits and the authority under which benefit provisions are established or may be amended. For example, the disclosure might reveal that a plan provides retirement, disability, and death benefits to plan members and their beneficiaries, and that a specific section of state law regulates the changing of benefit provisions. c. Whether the OPEB plan issues a stand -alone financial report or is included in the report of a public employee retirement system or another entity and, if so, how to obtain the report. Funding Policy. Governments should disclose the following funding policy information about how contributions are made toward financing OPEB: 0 a. Authority (for example, state statute) under which the obligations of the plan members, employer(s), and other contributing entities (for example, state contributions to local government plans) to contribute to the plan are established or may be amended. b. Required contribution rate(s) of active plan members. c. Required contribution rate(s) of the employer in accordance with the funding policy, in dollars or as a percentage of current -year covered payroll. If the plan is a single - employer or agent plan and the rate differs significantly from the ARC, a government should disclose how the rate is determined. If the plan is a cost - sharing plan, a government should disclose the required contributions in dollars, the percentage of that amount contributed for the current year and each of the two preceding years, and how the required contribution rate is determined. Governments should also disclose any legal or contractual limitations on the maximum amount of their contributions. d. A brief description of the terms of any long -term contracts for contributions to the plan and the amount still outstanding; for example, a government that is not able to make its full contribution in a given year might agree with the plan to make up the shortfall with interest in annual installments over a three -year period. Members and Types of Benefits. If an employer government includes an OPEB plan in its financial staterents as a trust or agency fund and the plan does not issue its own financial statements separate from those of the employer government, the employer also discloses the following information about the plan as a whole: a. The types of employees covered (such as general employees, police officers, legislators) and, for multiple- employer plans, the participating governments b. The number of members, sorted by (1) retirees and beneficiaries currently receiving benefits, (2) members no longer working for the government and entitled to benefits, but not yet receiving them, and (3) current employees c. A brief description of (1) the types of benefits provided and (2) provisions for cost -of- living adjustments or other future increases in benefits d. The balances remaining as of the date of the financial report in the plan's legally required reserves, a description of the purpose of the reserves, and whether the reserves are fully funded. Costs and Obligations, Methods and Assumptions. Because governments participating in single - employer or agent multiple- employer plans are individually responsible for financing the OPEB cost of their own employees and retirees, these governments are required to provide additional information in their notes. The following additional disclosures are intended to help users assess whether the governments are keeping pace with actuarially required contribution amounts, the extent to which the resources set aside for paying OPEB are sufficient or insufficient, and the methods and assumptions employed to conduct the actuarial calculations: a. For the current year, annual OPEB cost and the dollar amount of contributions actually made. If the employer has a net OPEB obligation, it should also disclose the components of annual OPEB cost, the increase or decrease in the net OPEB obligation, and the net OPEB obligation at the end of the year. b. For the current year and each of the two preceding years, annual OPEB cost, percentage of annual OPEB cost contributed that year, and net OPEB obligation at the end of each year. c. The funded status of the plan; this is the same information governments would be required to disclose in a schedule of funding progress (see below), but only for the most recent valuation date. d. Information about actuarial methods and assumptions used in the valuations that the information reported about the ARC, annual OPEB cost, and the funded status and funding progress of OPEB plans is based upon. (Vlore details regarding this information can be found in Statement 45.) Required Supplementary Information Governments generally should present RSI related to defined benefit OPEB plans covering the last three actuarial valuations. A government participating in a cost- sharing multiple - employer plan, however, does not have to present RSI for OPEB as long as the plan issues its own separate financial report or is included in the financial report of another governmental entity. Three types of RSI about defined benefit OPEB plans might be presented in a government's financial report: a. Schedule of funding progress b. Schedule of employer contributions c. Notes to the RSI schedules. The schedule of funding progress provides information that is useful for judging how well funded a pension plan is. (See page 18 for an illustrative example.) The first column shows the date as of which the information in the following columns was applicable. The next three columns show the actuarial value of assets, the AAL, and the UAAL. The fifth column divides asset value by the AAL —the funded ratio. A funded ratio can be as low as zero (for a pay -as- you-go system with no assets) and as high as 100 percent or even higher (for a fully funded system, or one that actually has assets that exceed the AAL, respectively). The second -to -last column in the schedule includes the covered payroll —the total payroll of the current employees covered by the plan. , The last column then calculates a ratio of unfunded liability -to- payroll— dividing the UAAL by the covered payroll. The schedule of employer contributions compares a government's actual contributions to its OPEB plan with its ARC. (See the illustration on page 26.) If a government is aware of any factors that have a significant effect on the trend information in the two RSI schedules, such as improvements or reductions in OPEB benefit provisions, expansion or reduction of the eligible population, or changes in the actuarial methods, it adds an explanatory note to the schedules. Governments in single - employer and agent multiple- employer plans present funding progress information pertinent to the government's own members. If a government includes the OPEB plan in its financial statements as a trust fund and a separate report is not issued by the OPEB plan, then the government generally would present additional RSI: a. A government in a single - employer plan would add a schedule of employer contributions. b. A government in an agent plan would present a schedule of funding progress and a schedule of employer contributions for the agent plan as a whole (in addition to the schedule of funding progress the government is already presenting for just its own employees and retirees). c. A government in a cost - sharing plan would present a schedule of funding progress and a schedule of employer contributions for the cost - sharing plan as a whole. WHAT INFORMATION SHOULD AN OPEB PLAN PRESENT IN ITS FINANCIAL REPORT? Financial Statements The financial report of a defined benefit OPEB plan includes two financial statements. The statement of plan net assets includes information about the plan's assets, liabilities, and net assets as of the end of the fiscal year. (See Illustration 4.) The statement of changes in plan net assets provides information about additions to, deductions from, and net increases or decreases in plan net assets during the fiscal year. Additions generally include employer and member contributions and investment income. Deductions typically are benefits and administrative expenses. Notes to the Financial Statements Defined benefit OPEB plans should prepare note disclosures to give users information about plan description, accounting policies, contributions and reserves, and funded status and funding progress. (See Illustration 4.) Plan Description. The following information is intended to inform the user about the nature of the plan, its members, and the OPEB it provides: 0 a. Identification of the plan as a single- employer, agent multiple - employer, or cost - sharing multiple- employer defined benefit OPEB plan and disclosure of the number of participating employers and other contributing entities b. Classes of employees covered (for example, general employees and public safety employees) and information on the current members, including the number of retirees and beneficiaries currently receiving benefits, terminated members entitled to but not yet receiving benefits, and current active members c. Brief description of benefit provisions. Accounting Policies. In its summary of significant accounting policies, a plan should disclose the accounting choices it has made relative to OPEB: a. Basis of accounting, including the policy with respect to recognition in the financial statements of contributions, benefits paid, and refunds paid b. Brief description of how the fair value of investments is determined. Contributions and Reserves. The following information should be disclosed to help users understand how contributions are made to the plan and the amounts and purposes of the plan's reserves: a. Authority under which the obligations of the plan members, employer(s), and other contributing entities to contribute to the plan are established or may be amended b. Funding policy, including a brief description of how the contributions of the plan members, employer(s), and other contributing entities are determined, how the costs of administering the plan are financed, and any legal or contractual maximum contribution rates c. Required contribution rates of active plan members, in accordance with the funding policy d. Brief description of the terms of any long -term contracts for contributions to the plan and disclosure of the amounts outstanding at the reporting date e. The balances in the plan's legally required reserves at the reporting date, as well as a brief description of the purpose of each reserve and designation disclosed and whether the reserve is fully funded. Funded Status and Funding Progress. Finally, plans should prepare a note disclosure containing the most recent information about their funded status and funding progress: a. The funded status of the plan as of the most recent valuation date b. Disclosure of information about actuarial methods and assumptions used in the valuations on which the information reported about the ARC, annual OPEB cost, and the funded status and funding progress of OPEB plans is based. (More details regarding this information can be found in Statement 43.) 10 Required Supplementary Information Following the notes, plans should present two schedules as required supplementary information. (See illustration 4.) The schedule of funding progress shows historical trend information for the past three actuarial valuations about the funded status of the plan and efforts to accumulate sufficient resources to pay benefits when they come due. (This trend should cover a period as short as three fiscal years, if the valuation is conducted annually, or as long as nine years if the valuation is performed every three years.) The disclosure should include the actuarial valuation date, the actuarial value of plan assets, the actuarial accrued liability, the total unfunded actuarial accrued liability, the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll, and the ratio of the unfunded actuarial accrued liability to annual covered payroll. To help users understand whether government contributions are keeping pace with amounts required by the actuarial calculations, the schedule of employer contributions should present historical trend information comparing the ARC with actual employer contributions for the fiscal years covered by the three most recent actuarial valuations. This should include the dollar amount of the ARC applicable to each year and the percentage of that ARC that was recognized in the plan's statement of changes in plan net assets for each year as contributions from the employer(s). WHEN SHOULD GOVERNMENTS IMPLEMENT THESE NEW STANDARDS? The new standards should be implemented by employers in three phases based on a government's total annual revenues in the first fiscal year ending after June 15, 1999: • Phase 1— governments with total annual revenues of $100 million or more — periods beginning after December 15, 2006 • Phase 2— governments with total annual revenues of $10 million or more, but less than $100 million— periods beginning after December 15, 2007 • Phase 3— governments with total annual revenues of less than $10 million — periods beginning after December 15, 2008. The standards for OPEB plans are effective one year prior to the implementation date for the employer (in a single - employer plan) or for the largest participating employer in the plan (for multiple - employer plans). 11 WHAT IS THE GASB? The GASB is the private, nonpartisan, nonprofit organization that works to create and improve the rules U.S. state and local governments follow when accounting for their finances and reporting them to the public. The GASB was founded in 1984 under the auspices of the Financial Accounting Foundation (the Foundation), which appoints the GASS's board, raises its funds, and oversees its activities. The Foundation also oversees the GASS's counterpart for the private companies and not- for - profit organizations, the Financial Accounting Standards Board. The mission of the GASB is to establish and improve standards of state and local governmental accounting and financial reporting that will: • Result in useful information for users of financial reports, and • Guide and educate the public, including issuers, auditors, and users of those financial reports. Although the GASB does not have the power to enforce compliance with the standards it promulgates, the authority for its standards is recognized under the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA). The Code requires auditors to note any departures from GASB standards when they express an opinion on financial reports that are presented in conformity with generally accepted accounting principles. Also, legislation in many states requires compliance with GASB standards, and governments usually are expected to prepare financial statements in accordance with those standards when they issue bonds or notes or otherwise borrow from public credit markets. The GASB is composed of a full -time chair and six part -time members drawn from various parts of the GASS's constituency —state and local government finance officers, auditors, the accounting profession, academia, and persons who use financial statement information. The GASB has a professional staff drawn from similar constituencies as the Board. The staff works directly with the Board and its task forces, conducts research, analyzes oral and written comments received from the public, and drafts documents for consideration by the Board. HOW DOES THE GASB SET STANDARDS? The GASB follows the set of "due process" activities enumerated in its published rules of procedure before issuing its standards. Due process is stringent and is designed to permit timely, thorough, and open study of financial accounting and reporting issues by the preparers, attestors, and users of M financial reports in order to encourage broad public participation in the standards - setting process. For many issues it addresses, the GASB: • Appoints an advisory task force of outside experts • Studies existing literature on the subject and conducts or commissions additional research if necessary • Publishes for public comment a discussion document setting forth the issues and possible solutions • Conducts public hearings • Broadly distributes an Exposure Draft of a proposed standard for public comment. Significant steps in the process are announced publicly. The GASB's meetings are open to public observation and a public record is maintained. The GASB also is advised by the Governmental Accounting Standards Advisory Council, a 29- member group appointed by the Foundation and representing a wide range of the GASB's constituents. Additional information about the GASB and its activities may be found at www.gasb.org. 13 Illustration 1 —Notes to the Financial Statements for an Employer Contributing to a Single - Employer Defined Benefit Healthcare Plan [Note: This example assumes that the plan is included as an other employee benefit trust fund in the employer's financial repotting entity. Only those disclosures required by Statement 45 are illustrated. In accordance with footnote 21 of Statement 45, the requirement to present a schedule of funding progress covering at least three actuarial valuations would be met by complying with paragraphs 31 through 35 of Statement 43. That schedule is not illustrated here. Information required by Statement 43 because the plan is reported as an other employee benefit trust fund would be shown in addition to the information illustrated below. If the plan was not included in the employer's financial reporting entity, the employer would be required to present a schedule of funding progress similar to that included in Illustration 2.] State of Grande Notes to the Financial Statements for the Year Ended June 30, 20X2 Note X. Postemployment Healthcare Plan Plan Description. State Retired Employees Healthcare Plan (SREHP) is a single - employer defined benefit healthcare plan administered by the Grande Retirement System. SREHP provides medical and dental insurance benefits to eligible retirees and their spouses. Article 37 of the Statutes of the State of Grande assigns the authority to establish and amend benefit provisions to the state legislature. The Grande Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for SREHP. That report may be obtained by writing to Grande Retirement System, State Government Lane, Latte, GR 01000, or by calling 1- 800 -555 -PLAN. Funding Policy. The contribution requirements of plan members and the state are established and may be amended by the state legislature. The required contribution is based on projected pay -as- you -go financing requirements, with an additional amount to pre €und benefits as determined annually by the legislature. For fiscal year 20X2, the state contributed $357.7 million to the plan, including $190.7 million for current premiums (approximately 84 percent of total premiums) and an additional $167.0 million to prefund benefits. Plan members receiving benefits contributed $35.4 million, or approximately 16 percent of the total premiums, through their required contribution of $50 per month for retiree -only coverage and $105 for retiree and spouse coverage. Annual OPEB Cost and Net OPEB Obligation. The state's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASH Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 14 thirty years. The following table shows the components of the state's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the state's net OPEB obligation to SREHP (dollar amounts in thousands): Annual required contribution $577,180 Interest on net OPEB obligation 90,437 Adjustment to annual required contribution (95,258) Annual OPEB cost (expense) 572,359 Contributions made (357,682) Increase in net OPEB obligation 214,677 Net OPEB obligation— beginning of year 1,349.811 Net OPEB obligation —end of year 5 4 4$$ The state's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 20X2 and the two preceding years were as follows (dollar amounts in thousands): Fiscal Percentage of Net Year Annual Annual OPEB OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/X0 $497,538 67.4% $1,160,171 6/30/X1 538,668 64.8 1,349,811 6/30/X2 572,359 62.5 1,564,488 Funded Status and Funding Progress. As of December 31, 20X1, the most recent actuarial valuation date, the plan was 58.1 percent funded. The actuarial accrued liability for benefits was $8.8 billion, and the actuarial value of assets was $5.1 billion, resulting in an unfunded actuarial accrued liability (UAAL) of $3.7 billion. The covered payroll (annual payroll of active employees covered by the plan) was $2.2 billion, and the ratio of the UAAL to the covered payroll was 165 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial .Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include 15 techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long -term perspective of the calculations. In the December 31, 20X1, actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 6.7 percent investment rate of return (net of administrative expenses), which is a blended rate of the expected long -term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 12 percent initially, reduced by decrements to an ultimate rate of 5 percent after ten years. Both rates included a 4.5 percent inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five -year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at December 31, 20X1, was seventeen years. Illustration 2 —Notes to the Financial Statements and Schedule of Funding Progress for an Employer Contributing to an Agent Multiple - Employer Defined Benefit Healthcare Plan City of Mocha Notes to the Financial Statements for the Year Ended June 30, 20X2 Note X. Postemployment Healthcare Plan Plan Description. The city's defined benefit postemployment healthcare plan, Mocha Postemployment Healthcare Plan (MPHP), provides medical benefits to eligible retired city employees and their beneficiaries. MPHP is affiliated with the Municipal Retired Employees Health Plan (MREHP), an agent multiple - employer postemployment healthcare plan administered by the Robusta Retirement System, Article 39 of the Statutes of the State of Robusta assigns the authority to establish and amend the benefit provisions of the plans that participate in MREHP to the respective employer entities; for MPHP, that authority rests with the city of Mocha. The Robusta Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for MREHP. That report may be obtained by writing to Robusta Retirement System, 399 Grocer Aisle, Caffe, RO 02000, or by calling 1 -877- 555 -PLAN. Funding Policy. The contribution requirements of plan members and the city are established and may be amended by the MREHP board of trustees. MPHP members receiving benefits contribute $75 per month for retiree -only coverage and $150 per month for retiree and spouse coverage to age 65, and $40 and $80 per month, respectively, thereafter. The city of Mocha is required to contribute the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of 16 GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The current ARC rate is 13.75 percent of annual covered payroll. Annual OPEB Cost. For 20X2, the city's annual OPEB cost (expense) of $870,517 for MPHP was equal to the ARC. The city's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 20X2 and the two preceding years were as follows: Fiscal Percentage of Net Year Annual Annual OPEB OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/X0 $929,401 100% $0 6/30/X1 910,042 100 0 6/30/X2 870,517 100 0 Funded Status and Funding Progress. The funded status of the plan as of December 31, 20X1, was as follows: Actuarial accrued liability (AAL) $19,490,482 Actuarial value of plan assets 15,107.180 Unfunded actuarial accrued liability (UAAL) $ 4,3$. 30 Funded ratio (actuarial value of plan assets /AAL) 77.5% Covered payroll (active plan members) $6,331,031 UAAL as a percentage of covered payroll 69.2% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial .Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short -term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long -term perspective of the calculations. In the December 31, 20X1, actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 7.5 percent investment rate of return (net of administrative expenses) and an annual healthcare cost trend rate of 12 percent initially, reduced by decrements to an ultimate rate of 5 percent after ten years. Both rates include a 4.5 percent inflation assumption. The actuarial value of MPHP assets was determined using techniques that spread the effects of short -term volatility in the market value of investments over a three -year period. MPHP's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at December 31, 20X1, was twenty -two years. REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress for MPHP 12/31/W9 Actuarial $16,867,561 $6,729,554 60.1% Accrued 112.4% UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL)— AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll nato (al (hl (h — al (a / M (PI ((h _ al / P) 12/31/W9 $10,138,007 $16,867,561 $6,729,554 60.1% $5,984,554 112.4% 12/31/X0 12,093,839 17,572,474 5,478,635 68.8 6,182,351 88.6 12/31/X1 15,107,180 19,490,482 4,383,302 77.5 6,331,031 69.2 Illustration 3 —Notes to the Financial Statements for an Employer Contributing to a Cost - Sharing Multiple-Employer Defined Benefit Healthcare Plan Brewer State University Notes to the Financial Statements For the Year Ended June 30, 20X2 Note X. University Retiree Health Plan Plan Description. Brewer State University contributes to the State University Retiree Health Plan ( SURHP), a cost - sharing multiple- employer defined benefit postemployment healthcare plan administered by the Grande Retirement System. SURHP provides medical benefits to retired employees of participating universities. Article 38 of the Statutes of the State of Grande assigns the authority to establish and amend benefit provisions to the SURHP board of trustees. The Grande Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for SURHP. That report may be obtained by writing to M Grande Retirement System, State Government Lane, Latte, GR 01000, or by calling 1- 800 -555 -PLAN. Funding Policy. Article 38 provides that contribution requirements of the plan members and the participating employers are established and may be amended by the SURHP board of trustees. Plan members or beneficiaries receiving benefits contribute $65 per month for retiree -only coverage and $135 for retiree and spouse coverage to age 65, and $35 and $75 per month, respectively, thereafter. Participating universities are contractually required to contribute at a rate assessed each year by SURHP, currently 8.75 percent of annual covered payroll. The SURHP board of trustees sets the employer contribution rate based on the annual required contribution of the employers (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the plan over a period not to exceed thirty years. The university's contributions to SURBP for the years ended June 30, 20X2, 20X1, and 20X0, were $58,717, $49,886, and $47,375, respectively, which equaled the required contributions each year. Ito] Illustration 4— Defined Benefit Healthcare Plan Financial Reports GRANDE RETIREMENT SYSTEM STATEMENTS OF PLAN NET ASSETS as of June 30, 20X2 (Dollar amounts in thousands) Investments, at fair value U.S. Treasuries State Retired State University 918,294 Federal government agencies Employees Retiree 20X2 Corporate bonds Healthcare Plan Health Plan Total Assets 3,271,662 615.773 3,887,435 Cash and short -tern investments 250 $ 13.532 13.78 Receivables Employer 1,182 2,101 3,283 Employer —long -term — 4,064 4,064 Employee 1,010 1,562 2,572 Interest and dividends 836 31,193 32,029 Total receivables 3,028 38,920 41,948 Investments, at fair value U.S. Treasuries 723,487 194,807 918,294 Federal government agencies 1,216,282 308,764 1,525,046 Corporate bonds 1,790,676 378,783 2,169,459 Corporate stocks 3,271,662 615.773 3,887,435 Total investments 7.002,107 1.498,127 8,500,234 Properties, at cost, net of accumulated depreciation of $5,164 and $323, respectively 6.177 434 6,611 Total assets 7,011,562 1,551,013 8,562,575 Liabilities Accounts payable and other 7 51,828 51,835 Net assets held in trust for other postemployment benefits V.011.555 14 5 _5 02 20 , a ► 1 2i�It7liilDl►Yi7.N7.31ATJ STATEMENTS OF CHANGES IN PLAN NET ASSETS for the Year Ended .Tune 30, 20X2 (Dollar amounts in thousands) Deductions Benefits State Retired State University 251,676 Administrative expense Employees Retiree 20X2 Total deductions Healthcare Plan Health Plan Total Additions 984,944 146,939 1,131,883 Contributions Employer $ 357,682 $ 33,639 $ 391,321 Plan member 3502 3, 9_r�8 Total contributions 393,091 38,118 431.209 Investment income Net appreciation in fair value of investments 475,914 65,845 541,759 Interest 261,540 55,939 317,479 Dividends 127,853 22,079 149,932 865,307 143,863 1,009,170 Less investment expense 44,996 9,177 54,173 Net investment income 820,311 134.686 954,997 Employer interest on long -term contracts — 365 50 Total additions 21,_ 13.402 173,169 LaM,5Z Deductions Benefits 226,108 25,568 251,676 Administrative expense _ 662 ===i= Total deductions ==Z-a"5 26.230 _—Z554$ Net increase 984,944 146,939 1,131,883 Net assets held in trust for other postemployment benefits Beginning of year End of year 4L1 554 $$510.Z4Q 21 Grande Retirement System Notes to the Financial Statements for the Fiscal Year Ended June 30, 20X2 The Grande Retirement System (GRS) administers two defined benefit postemployment healthcare plans —State Retired Employees Healthcare Plan (SREHP) and State University Retiree Health Plan (SURHP). Although the assets of the plans are commingled for investment purposes, each plan's assets may be used only for the payment of benefits to the members of that plan, in accordance with the terms of the plan. A. Summary of Significant Accounting Policies Basis of Accounting. GRS's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to each plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Method Used to Value Investments. Investments are reported at fair value, which for SREHP and SURHP is determined by the mean of the most recent bid and asked prices as obtained from dealers that make markets in such securities. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by the custodian under the direction of the GRS board of trustees. A valuation service may be engaged to assist in the determination of fair value. B. Plan Descriptions and Contribution Information Membership of each plan consisted of the following at December 31, 20X1, the date of the latest actuarial valuation: 9 _ :l" Retirees and beneficiaries receiving benefits 31,642 4,876 Terminated plan members entitled to but not yet receiving benefits 743 2,289 Active plan members 50.601 8,861 Total 82.986 16 Q26 Number of participating employers 1 15 22 State Retired Employees Healthcare Plan Plan Description. SREHP is a single - employer defined benefit postemployment healthcare plan that covers retired employees of the state including all departments and agencies. SREHP provides health and dental insurance benefits to eligible retirees and their spouses. Article 37 of the Statutes of the State of Grande assigns the authority to establish and amend the benefit provisions of the plan to the state legislature. Contributions. Article 37 also assigns to the state legislature the authority to establish and amend contribution requirements of the plan members and the state. Retired plan members and beneficiaries currently receiving benefits are required to contribute specified amounts monthly toward the cost of health insurance premiums. For the year ended June 30, 20X2, plan members contributed $35.4 million, or approximately 16 percent of total premiums, through their required contributions of $50 per month for retiree -only coverage and $105 per month for retiree and spouse coverage. The state is required to contribute the balance of the current premium cost ($190.7 million, or about 84 percent of total premiums for 20X2) and may contribute an additional amount to prefund benefits as determined annually by the legislature ($167.0 million for 20X2). Administrative costs of SREHP are financed through investment earnings. State University Retiree Health Plan Plan Description. SURHP is a cost - sharing multiple - employer defined benefit postemployment healthcare plan that covers retired employees of participating universities. SUMP provides medical benefits to plan members. Article 38 of the Statutes of the State of Grande assigns the authority to establish and amend benefit provisions to the SURHP board of trustees. Contributions. Article 38 also assigns to the SURHP board of trustees the authority to establish and amend contribution requirements of the plan members and the participating employers. For the year ended June 30, 20X2, plan members or beneficiaries receiving benefits contributed $4.5 million, or approximately 18 percent of total premiums, through their required contributions of $65 per month for retiree -only coverage and $135 for retiree and spouse coverage to age 65, and $35 and $75 per month, respectively, thereafter. Participating .universities were required to contribute at a rate equivalent to the annually required contribution of the employers (ARC) (8.75 percent of covered payroll, or $33.6 million). Administrative costs of SURHP are financed through investment earnings. Long -Term Receivables. In addition to actuarially determined contributions, certain employers also make semiannual installment payments, including interest at 7.5 percent per year, for the cost of service credit granted retroactively to, employees when the employers initially joined SURHP. As of June 30, 20X2, the outstanding balance was $4.1 million. These payments are due over various time periods not exceeding five years at June 30, 20X2. 23 C. Funded Status and Funding Progress —OPEB Plans The funded status of each plan as of the most recent actuarial valuation date is as follows (dollar amounts in thousands): Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage of Actuarial Value of (AAL)— AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b – a) (a / b) (c) ((b – a) / c) SREHP 12/31/X1 $5,131,017 SURHP 12/31/X1 1,301,663 $8,833,219 $3,702,202 58.1% $2,243,759 165.0% 1,575,136 273,473 82.6 371,168 73.7 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedules of funding progress, presented as required supplementary information following the notes to the financial statements, present multiyear trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. The accompanying schedules of employer contributions present trend information about the amounts contributed to the plan by employers in comparison to the ARC, an amount that is actuarially determined in accordance with the parameters of GASB Statement 43. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost for each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short -term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long -term perspective of the calculations. Additional information as of the latest actuarial valuation. follows: a] Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions: Investment rate of return* Healthcare cost trend rate* SREHP SURHP 12/31/X1 Entry age Level percentage of pay, open 17 years 5 -year smoothed market 6.7 %t 12% initial 5% ultimate 12/31/X1 Entry age Level percentage of pay, open 15 years . 5 -year smoothed market 7.5% 12 % initial 5% ultimate *Includes an inflation assumption of 4.5 %. tDetermined as a blended rate of the expected long -term investment returns on plan assets and on the state's investments, based on the funded level of the plan at the valuation date. REQUIRED SUPPLEMENTARY INFORMATION (Dollar amounts in thousands) SCHEDULES OF FUNDING PROGRESS 25 Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage of Actuarial Value of (AAL)— AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b} (b — a) (a / b) (c) ((b — a) / c) SREIIP 12/31/W7 $3,696,201 $7,189,703 $3,493,502 51.4% $2,144,804 162.9% 12131/W9 4,209,207 7,838,210 3,629,003 53.7 2,325,810 156.0 12/31/X1 5,131,017 8,833,219 3,702,202 58.1 2,243,759 165.0 SURHP 12/31/W7 697,274 1,001,851 304,577 69.6 297,926 102.2 12/31/W9 935,184 1,168,147 232,963 80.1 329,473 70.7 12/31/X1 1,301,663 1,575,136 273,473 82.6 371,168 73.7 25 SCHEDULES OF EMPLOYER CONTRIBUTIONS RE Employer Contributions SREHP SURHP Year Annual Annual Ended Required Percentage Required Percentage June30 Contribution Contributed Contribution Contributed 19W9 $535,307 54.3% $29,047 100% 20X0 501,102 66.9 31,056 100 20Xi 542,812 64.3 32,123 100 20X2 577,180 62.0 33,639 100 RE RFP Checklist for OPEB Actuarial Valuation Government Finance Officers Association Committee on Retirement and Benefits Administration January 2006 In 2003 the Government Accounting Standards Board issued pronouncements 43 and 45 requiring governments to report the actuarial value of their "other post - employment benefits" (OPEB) liability'. With the first implementation deadline of December 2006 approaching, many entities are in the process of procuring actuarial professional services to determine their OPEB liability'. This document is a checklist for the development of a request for proposals (RFP) for the procurement of these services. It should be construed neither as an RFP itself, not as establishing mandatory items £orinclusion in a RFP. Rather, the checklist is a document that recommends items for consideration based on sample RFP's and the collective knowledge of the Government Finance Officers Association (GFOA) members. Furthermore, the checklist is not meant as a stand -alone document but should be utilized in conjunction with GASB Statements 43 and 45 and the related implementation guide. One should look to these documents for guidance on definition of terms and specific requirements. We encourage GFOA members to provide feedback on this document, as it is intended to be updated periodically to reflect evolving views. The GFOA Committee on Retirement and Benefits Administration thanks committee members Denise Bell, Richard DeCleene, Karl Greve, Mike Kier and Catherine Walker for developing the checklist. In addition, the committee appreciates the efforts of the CAAFR committee in reviewing the document, especially Karen Hawkins, Michele Levine and Bob Scott as well as Michael Genito and Perry James, GFOA Committee on Retirement and Benefits Administration January 2006 ' For details, see Gauthier, Stephen J. An Elected Official's Guide; Employer's Accounting for Pensions and Other Post - Employment Benefits (OPEB). GFOA, 2005 'For simplicity the term "OPEB liability" or "liability" is used throughout the document. When that term is used it generally refers to the actuarial accrued liability for OPEB Table of Contents I. INTRODUCTION ......................................................................... ............................... 4 H. STANDARD RFP LANGUAGE ................................................ ............................... 4 III. PLAN DESCRIPTION .............................................................. ............................... 4 IV. SCOPE OF SERVICES ............................................................. ............................... 6 V. INFORMATION ABOUT THE FIRM ..................................... ............................... 8 VI. PROCESS ..................................................................................... ..............................9 VII. COST AND TERMS OF AGREEMENT ................................ .............................10 VIII. OTHER ISSUES FOR CONSIDERATION .......................... .............................11 IX. SUGGESTED RFP APPENDICES 11 X. OTHER RESOURCES ................................................................. .............................12 Noce: This document is intended to be advisory in nature only, and should not be construed as containing mandatory provisions. I. Introduction The following items should be consideredfor inclusion in an introductory section of the RFP. 0 Include a brief description of the entity, such as type of government, location, date established, number of full time employees, population, budget, etc. ® Summary information on the bid process including evaluation criteria. ® Contact information. II. Standard RFP Language Entities should include their standard "boilerplate " RFP language including information on the selection process, indemnity, liability insurance, conformance with any applicable local or state statutes, protest procedures, terms and conditions, etc. III. Plan Description It is important that entities describe the plan whose liability the firm will be evaluating. In the RFP, entities should: © Provide a complete list of benefits whose liability are to be evaluated. This may require entities to inventory benefits prior to issuing the RFP to ensure a complete list of benefits. The benefits may include: ➢ Health ➢ Dental ➢ Vision ➢ Life Insurance ➢ Other ® Describe the type of plan. A Single employer ➢ Agent multiple - employer plan ➢ Multiple- employer cost sharing plan ❑ Describe the size and composition of the plan assets and the provisions of the trust, noting whether or not the trust is an irrevocable trust. g /(oA•w Page 4 of 12 ❑ Describe the benefits and coverage levels that are provided, including historical changes that have taken place to modify these amounts. Benefits and coverage levels may be included in written plans or may be the result of on -going practices.3 Benefits can be formal or informal, set up by charter, employment agreement or simply by governing board action. The description of the benefits should include: ➢ Details on whether each plan is self insured or fully insured. ➢ An indication of what the benefits of the age 65 and over group are and how they coordinate with Medicare. Examples of this detail would include descriptions of elements like having a contribution for a supplemental Medicare policy or having continued benefits within the existing plans after retirement. ➢ Current eligibility criteria for post retirement group insurance. ➢ Cost subsidy policies after retirement. ➢ Required employee contribution rates (if any). Ll Identify the beneficiaries (all employees, certain unions, retirees, etc). Describe the demographics of the beneficiaries (such as population size, number of covered lives, breakdown of active, retiree members, and number of Medicare eligible beneficiaries.) This is commonly referred to as the "census of plan members ". Ll Identify what information about the covered population will be readily available to the consultant for analysis. (Availability of information could impact the cost of the study). ❑ Provide any current documentation describing the plan which may include: ➢ A copy of the plan or a summary plan description ➢ State or local laws ➢ Union contracts ➢ Employee manuals ➢ Trust document ➢ Other documents such as communication of plan benefits with members ❑ Identify the appropriate contacts for providing information about the plan. ' It is important to remember that a written agreement is not required for an OPEB to exist. GASB clarified that OPEB were to be recognized based upon the substantive plan (i.e. the plan as understood by employers and employees.) <Page 5 of 12 IV. Scope of Services Before completing this section, an entity must determine for itself what the desired scope of services will be. GFOA has attempted to differentiate between what it considers "standard" and "optional" items (although depending on local circumstances, an "optional" item may be critically important). Most of the "optional' items (indicated below as such) are related to consulting services that may be available for addressing, and potentially lowering, the OPEB liability. No matter which items an entity chooses to include, the scope should be delineated as clearly and specifically as possible. In the RFP the entity should: ® Clarify whether the contract is annual, a series of annual contract, a three -year contract, a five -year contract, etc. This would include specifying if proposals are sought for varying contract periods rather then selecting a contract period. Further, the contract period would need to be coordinated with the frequency of the actuarial valuation and the government should specify how changes would be handled in "off' years when the frequency is less than annual. This should clearly indicate whether the actuarial services are necessary to meet the requirements for an OPEB plan (i.e., a trust or its equivalent) or an employer that provides OPEB benefits. ❑ Indicate the desired completion date of the study. Indicate whether the actuary will be required to make a formal presentation to a governing body. In their RFP, entities should request that firms: 0 Analyze the data to assess any inconsistencies and make recommendations for enhancing data quality. ❑ Prepare an actuarial valuation following GASB 43 and GASB 45 standards. Note that in the year of the initial implementation of GASB 45, the actuarial valuation must be prepared early enough so that it can provide the Annual Required Contribution of the employer for that fiscal year. Accordingly, the actuarial valuation will most likely be as of a date no later than the start of the fiscal year of implementation. Include the following information: ➢ The actuarial present value of total projected benefits. ➢ Actuarial accrued liability. A Actuarial value of assets. ➢ The unfunded actuarial accrued liability. ➢ Normal cost. s %Eiit Page 6 of 12 Annual required contribution of the employer(s) -as a level dollar amount and as a level percentage of covered payroll. ➢ Net OPEB obligation (for employer disclosure under GASB statement 45 if necessary). ❑ Prepare the necessary material for the Comprehensive Annual Financial Report to comply with GASB OPEB reporting and disclosure requirements. ® Prepare the annual gain/loss analysis to determine reasons for changes in the unfunded actuarial accrued liability, whenever a prior actuarial valuation is available to support this. ❑ Determine the implicit rate subsidy, if any, and the impact it would have on the OPEB liability. ® Prepare an analysis to determine how establishing a trust or equivalent arrangement would affect the interest rate assumption. Timing considerations of establishing the trust should also be considered. © Prepare a cash flow analysis (the "pay -as- you -go- cost "). - (optional). ® Prepare a sensitivity analysis showing the impact of alternative assumptions on the employer's contributions (healthcare trend rates and investment rate assumptions) — (optional) 0 If there is not a trust established, determine the difference in liability based upon the investment returns under a diversified portfolio versus a short-term fixed income portfolio (optional). Li As appropriate, provide recommendations on managing the OPEB liability. This may include changes in plan design (optional). ® As appropriate, review and update plan documents and design. Make recommendations as to formalizing informal plans (optional). ❑ List any other non - routine services. r/� Page 7 of 12 V. information about the Firm As OPEB valuations require complex actuarial calculations and the liability must be reported in the entity's financial statements, it is critical that a firm with the appropriate experience and expertise be utilized. The following items will solicit general information about the firm but also information helpful in differentiating between proposers. ® The firm should provide its name, address of the office which would provide the services requested, telephone number, fax, e-mail address and website, if applicable. ® The firm should provide a general description of its business, including size, number of employees, number of credentialed actuaries, primary business, other business or services offered and review any past or contemplated changes in the ownership structure of the firm ® The supervising actuary who will be assigned to the engagement should be identified and their contact information provided. 0 Other actuaries and other personnel who will have key roles in the work should also be identified. ❑ The firm should list the number and percent of consulting staff who have left each of the past five years. ❑ Brief resumes should be furnished for the key professional staff who will be assigned to this engagement. Summary information should be provided covering the professional qualifications and experience of the supervising and support actuaries and other personnel who would perform the requested work. ® The firm should provide a description of its experience in providing actuarial and consulting services for governmental entities /plans and a list of governmental entities /plans for which it has performed services similar to those identified under "Scope of Services." Describe the firm's experience with retiree healthcare and other post - employment benefit plans for other public entities. Recognizing the value of firm experience with PASB OPEB valuations, firms should also describe their private sector OPEB valuation experience. LJ For the firm's office that will be responsible for the work, the firm should provide a list of the most significant engagements performed in the last five years that are similar to the engagement described in this request for proposal. The list of engagements can be both in the private or public sector but must be clearly labeled as such. % g Page 8 of 12 ❑ For the engagements listed above, indicate the scope of the work, date, supervising actuaries, and the name and telephone number of the principal client contact who would serve as a reference for the firm. © The firm should list any clients that have been Iost in the last five years. ❑ The firm should provide an affirmative statement that it is independent of the governmental entity /plan and that it is unaware of any potential conflicts of interest if it were selected to perform the requested work. ❑ The firm should describe any limits on liability that the firm requests from its clients due to negligence of its firm. ® The firm should warrant that the firm maintains errors and omissions insurance that provides a prudent amount of coverage for negligent acts or omissions insurance that provides a prudent amount of coverage for negligent acts or omissions and that its coverage is applicable to the work requested in this proposal. ❑ The proposal should include an example of a job arrangement letter or contract that the firm would require covering this engagement if it were successful in winning the engagement. ® The response to the request for proposals should be signed by a representative of the firm with the acknowledgement that this individual is authorized to contractually bind the firm. ® The firm should indicate if there are any pending legal actions against it. VI. Process Governments may consider the following items for inclusion in a section of the OPEB Request,for Proposal on the process that will be used to complete the actuarial valuation. ® Approach — State the overall approach of the valuation, including objectives, scope of work to be performed and methodologies to be used. ❑ Describe how the firm will work with the government to determine the proper actuarial cost method, actuarial asset valuation method, amortization method and key assumptions to the valuation based on relevant accounting and actuarial standards. Some key assumptions (not all of them applicable) to consider as part of this discussion are: ➢ Turnover Retirement Age f sPage 9of12 ➢ Disability retirement age ➢ Mortality ➢ Projected salary increase A Inflation rate ➢ Healthcare cost trend data for appropriate region y Amortization timeframe ➢ Investment return ➢ Post retirement benefit changes A Actuarial assumptions associated with the method (projected unit credit, entry age normal, etc.) ❑ Provide an analysis of allowed actuarial methods and amortization methods with the pros and cons of each method and recommend the most appropriate or commonly used one or two methods for this type of study. ❑ Describe how the firm would assist in the interpretation of the plan and value the associated costs in situations where there is ambiguity related to the substantive plan. ® Timeline — The firm will identify the major tasks in the valuation engagement and the suggested timeline for completion. Note: If the government has key deadlines for development of this valuation they should be identifzed in the scope of services. ❑ Data Requirements — The actuarial firm should list all data requirements, other than what has been identified in the RPP, that they require to complete the valuation and in what type of format that data must be provided ❑ Support — Provide the support that is required of the government's staff. 0 Sample Report — Include in the Appendix of the firm's response a copy of a sample report. VII. Cost and Terms of Agreement Governments may consider the following items for inclusion in a section of the OPEB Request for Proposal related to the cost of performing the requested actuarial services for this engagement. 0 Cost Proposal — The firm will provide the cost of the engagement detailing out the cost of the valuation and any optional consulting services included in the scope of services. The proposal should include estimated hours, hourly rates and expenses, as well as a total, not -to- exceed cost that should be clear and concise. Note: it A,� y (� ?age 10 of 12 may be helpful in evaluating proposals to include a cost -sheet template with the RFP. ® Costs for the any of the services indicated as "optional" in the Scope of Services section of this document should be requested as separate from the cost of the valuation as these services can be expensive. ® Terms of Agreement — The Government should identify any required general terms or conditions that must be met as part of this engagement contract. VIII. Other Issues for Consideration Prior to developing their RFP, entities should consider the following items as they may potentially impact how the entity proceeds in valuating its OPEB liability and what requirements are included in the RFP document. ® Consideration should be given to using the same firm as your current health or pension actuary (may result in administrative efficiencies and cost savings). ❑ Consideration should be.given to consistency between the pension and health care assumptions and methods, unless characteristics of population or plans require differences. ❑ Consideration should be given as to whether or not a trust should be created, if there is not a trust already in place. ❑ Consider having a proposers conference or facilitating processes for answering questions from proposers. ® Ensure that employee information is provided in a manner that does, not violate any privacy rights or limitations on the use of social security numbers. IX. Suggested RI+'P Appendices ® HIPPA Business Associate Requirements ® Include a sample showing the form of contract required by the governmental entity. Describe insurance required for firms that provide professional services to the governmental entity. Consideration should be given to including the RFP and the proposal with the final contract signed with the firm ® Cost proposal template 'lO'Oage 11 of 12 X. Other Resources ❑ The Governmental Accounting Standards Board website at www. ag sb.org where GASB maintains an implementation guide and "plain language summary" to statements 43 and 45. LJ For details on OPEB accounting, see Gauthier, Stephen J. An Elected Official's Guide: Employer's Accountingfor Pensions and Other Post - Employment Benefits (OPEB). GPOA, 2005 A�. p�N�Page 12 of 12 NFWW FLORIDA LEAGUE OF CITIES, INC. 301 South Bronough Street, Suite 300 ® Post Office Box 1757 ® Tallahassee, FL 32302 -1757 (850) 222 -8684 ® Fax (850) 222 -3806 ® Web site: www.ficities.com November 10, 2010 Mr. Pablo R. Velez, Esq. Purchasing Manager City of South Miami Re: Preparation of GASB 45 Disclosures for the City of South Miami Dear Mr. Velez: Pursuant to your request, I have set forth below our fee to provide the actuarial calculations required by Governmental Accounting Standards Board Statement No. 45 (GASB 45), along with a detailed listing of the services covered by the fee. It is my understanding that the City currently: (i) has approximately 140 active employees who potentially may become eligible for post - employment benefits; (ii) has approximately 3 individuals who are receiving post - employment healthcare coverage; and (iii) provides fully- insured post - employment healthcare benefits. Based on our email conversation and my understanding of the number of employees and retirees entitled to post- employment benefits,. as well as the type of post - employment benefits currently offered by the City of South Miami, I have prepared the following fee quotation. Our fixed retainer fee will be $5,250.00 for the following services: 1. Preparation of an annual actuarial valuation report as of October 1, 2010 which will be used to develop the GASB 45 liabilities and expense for the fiscal years ending September 30, 2010 and September 30, 2011, complete with all necessary calculations, information, and disclosures as required by GASB 45 and other applicable actuarial professional standards, including the following: a. A summary of current plan provisions; b. A summary of all assumptions and methods applied in developing the plan expense and liabilities; c. Liabilities and expenses by employee group based on covered medical benefits; d. Liabilities by active, deferred vested, retiree, and beneficiary status; and e. A projection of the cash flows to provide a forward- looking estimate of the financial impact to the City of South Miami of retiree health care costs, liabilities, and contributions. 2. Up to 15 bound copies of the final valuation report prepared as described in item 1. 3. Miscellaneous telephone calls between our actuary, Charles Carr at Southern Actuarial Services and any City employees or other professionals connected with the cited work, including conference telephone calls as needed to discuss the assumptions used in the calculations and to explain the results of the valuation to City officials. The report will be provided approximately 12 weeks from the date on which we receive all necessary information, including but not limited to employee and retiree data, claims experience (if applicable), retiree premiums, City contributions and/or premiums, and other information set forth in our standard data request letter. In addition, if you would like for the actuary to attend a meeting in person to discuss the results of the valuation, the fee will be $2,500.00. The cited meeting attendance fee includes all associated travel expenses. The $2,500.00 fee is in addition to the fixed retainer fee of $5,250.00. If you have any questions concerning the above, please do not hesitate to call me. If you agree to this proposal, please have this signed and dated by the appropriate official and send a copy to me. Signature Printed Name Sincerely, Dustin Heintz Investment and Retirement Services Manager Florida League of Cities, Inc. P.O. Box 1757 Tallahassee, FL 32302 800- 616 -1513 x 3614 Title Date FLORIDA LEAGUE OF CITIES, INC. 301 South Bronough Street, Suite 300 ® Post Office Box 1757 ® Tallahassee, FL 32302 -1757 (850) 222 -9684 9 Fax (850) 222 -3806 o Web site: www,ficities.com November 10, 2010 Mr. Pablo R. Velez, Esq. Purchasing Manager City of South Miami Re: GASB 43/45 Disclosures for the City of South Miami Dear Mr. Velez: Pursuant to your request, I have described below the information that we will need in order, to prepare accounting disclosures in accordance with Statement No. 45 of the Governmental Accounting Standards Board (GASB 45). I assume that the City's prior fiscal year ends on September 30, 2010. Unless you instruct otherwise, we will prepare the GASB 45 disclosures as of September 30, 2010 and September 30, 2011 based on a October 1, 2010 actuarial valuation. If this is correct, then all of the following information should be provided as of October 1, 2010. Please let me know if you would like to use an alternative valuation date. First, we will need general information about the post - retirement benefits offered and the current costs associated with providing those benefits, as follows: (1) Please provide a brief summary of all post - employment benefits that are currently provided or that are scheduled to be provided to employees or former employees after their employment has terminated. . These benefits include medical, dental, vision, hearing, and other health - related benefits; life insurance; disability benefits; long -term care benefits; and any other similar post - employment benefits. You may exc /ude any benefits that are provided through a defined benefit pension plan. (2) We assume that any post - employment benefits being offered are not being pre- funded through a trust arrangement. If this is not the case, please provide relevant information related to the benefit trust. (3) Please provide complete information concerning the amounts currently paid on behalf of active, or former employees for post - employment benefits. If benefits are provided through a fully- insured plan, please provide information concerning the premiums paid on behalf of such individuals, including any scheduled increases in the premiums after September 30, 2010. If the employees or former employees are required to contribute to the plan or make a periodic payment in order to receive such benefits, please provide complete information as to the amount of the employee or retiree contribution, including any scheduled increases in such contributions after September 30, 2010, Information concerning the employer and employee contributions and /or premiums should be provided as a schedule of contributions and /or premiums by type of employee to the extent the rates differ between employees or retirees. (4) Please provide information concerning the monthly or annual administrative expenses of providing the post- employment benefits to the extent such expenses are separately accounted for. (5) Please provide information concerning the aggregate claims separately for employees and retirees for each of the past three years if the benefits are self- insured. (6) Please provide summary information related to the retirement benefits provided to each active or former employee. This information will be used to derive assumed rates of retirement for purposes of the valuation. In addition, we will need certain individual information for each covered employee, former employee, and retiree, as follows: (1) Record identifier, such as name, social security number, and/or employee number; (2) Sex, (3) Date of birth; (4) Date of employment or other information needed to determine the length of service of the employee (active employees only); (5) Annual rate of compensation (active employees only); (6) Beneficiary information to the extent that benefits are provided to individuals other than the employee or former employee; (7) Individual claims for each of the last three years, if available (Individual claims information is not required for any fully - insured benefits.); (8) Retirement plan from which the individual will receive pension benefits; and (9) Any other relevant information that is needed to determine benefit eligibility, such as type of employment, retiree status, length of service, and so forth. Please provide the individual employee and former employee information electronically in the excel file provided. Thank you for your assistance in gathering the information needed to perform the GASB 45 valuation. If you have any questions concerning the above, do not hesitate to call me. Sincerely, Dustin Heintz Investment and Retirement Services Manager Florida League of Cities, Inc. P.O. Box 1757 Tallahassee, FL 32302 800 -616 -1513 x 3614 Gabriel Roeder Smith .. &'Citnpany One East B1,rowaid Blvd. H54:$27106 0ione Gansuitants.3c ticttiaiiiES Suite 5U$ 954.52S.Q083 faac Ft. I..aviierdale, F1:3330f 3.SO4 %"NIg ctr? r.cont . November 3, 2010 Mr. Alfredo Riveml Chief Financial Officer City of South Miami 6130 Sunset Drive South Miami, Florida 33143 Re: Retiree Heaitb Care Program —Actuarial Valuation as of September 30, 2010 Dear Alfredo: As requested, Gabriel, Roeder, Smith & Company (GRS) is pleased to present this Lngagement Letter for professional actuarial and consulting services to provide an Actuarial Valuation for the City of South Miami Retiree Health Care Program under Governmental Accounting Standards Board Statement Numbers 43 and 45 (GASB 43 and 45). We are enthusiastic about extending our existing relationship with the City on this important assignment. We have a long - standing commitment and experience with working on behalf of public sector benefit programs. Our philosophy of developing a partnership with our clients emphasizes the collaborative nature of the GRS working relationship. We strive to cam your trust as your advisor. We will continue to work together with you in the best interest of the interested parties. Description of Services The professional services would be provided under the supervision of Larry Wilson, A.S.A., a Senior Consultant and Actuary with over 25 years of experience in employee benefit plans, Pete Strong, A.S.A., a Consultant and Actuary with over 13 years of experience with employee benefit plans and fen Borregard, a Senior Analyst with over ten years of experience with retirement systems. The following provides a brief description of our understanding of the requested services that will be provided as a part of this actuarial valuation. B Costs and liabilities will be developed under the following scenarios: • Scenario 1— Pay -as- you -go approach using a 4.0% discount rate. • Scenario 11— Advance funding using a 7.5% discount rate. Mr. Alfredo Riverol November 3, 2010 Page 2 ➢ Please advise whether current year costs and liabilities should be allocated among Enterprise Units (e.g. Water & Sewer, Solid Waste, etc.), and provide a list of Enterprise Units, if applicable. ➢ Please advise whether a three -year projection of costs and liabilities should be allocated among Enterprise Units. Our report will add value by including: ➢ Primer on available funding vehicles 3 -year projections for both scenarios (including separate projections for each Enterprise Unit, if requested) ➢ Sensitivity analysis of the health trend rates Data Requirements Upon engagement, we understand the City will provide census data, medical insurance information and other information needed generally in electronic (spreadsheet) form. We expect information relating to coverages and eligibilities will be provided in hard copy — Plan Documents / member booklets. ® Census Data Requirements Please see the attached request for retiree census information as of September 30, 2010 needed in order to complete the valuation. If the City has its own Fire Department, we will need complete census data for any City Firefighters. ® Plan Document and Financial Information o Please provide the following information: ➢ Current summary plan description (booklet) for each benefit ➢ Any changes being considered ➢ Fiscal year 2010 total claims paid and an average head count of covered participants (for 12 -month period ending September 30, 2009) — see attached ➢ ScheduIe of premiums / contributions — see attached Please update the attached sample Summary of Benefits by filling in the Summary of Benefits as of September 30, 2010 for the City of South Miami. Ga1i e1, Roeder Smith 4 Go,,. O* Mr. Alfredo Riverol November 3, 2010 Page 3 Fees Our fees will depend on whether costs, liabilities and projections will be allocated among Enterprise Units. If no allocation is requested, we anticipate our not -to- exceed fee for the entire project will be $8,420. If allocation is requested among Enterprise Units, we anticipate our not -to- exceed fee for the entire project will be $9,864. Please see the attached Scope of Services Exhibit for a detailed explanation of the services that are included in this fee. Timing The Actuarial Valuation will be delivered within sixty (60) days following direction to proceed and receipt of all necessary member census data, medical insurance information and plan documentation. We look forward to your response and to the opportunity to work with you on this important project. Please do not hesitate to contact us should you have any questions or require additional information. Sincerest regards, . .. L Lawrence F. Wilson, A.S.A. Senior Consultant and Actuary Enclosures P,;& Peter N. Strong, A.S.A. Consultant and Actuary Gabdil Roeder SaRth & Gompauy CITY OF SOUTH MIAMI OTHER POST -E+ MPLoYmENT BENEFITS DATA REQUEST OPED Initial Per - Capita Cost Information Please provide all data electronically, where available. I. Please provide a summary of health Care Coverage Plan Provisions for each health care option. For example, please list co -pays, and deductibles for each PPO option, HMO option, etc. If a summary is not available, a member booklet should suffice. 2. Please provide us with the 2008, 2009 and 2010 fully- insured monthly active and retiree premium rates for one - person and two - person coverage. For the retirees, we would like both pre -65 (regular premium rates) and post -65 (complementary premium rates). If available, it would be helpful to have the premium rate broken down by coverage component (i.e., medical, prescription drug, life, and/or vision). For all Rate Sheets submitted, please indicate the full period these rates are effective. Billing statements do not contain the information needed; therefore they are not necessary to send. 3. Please explain which groups /suffixes are available for future retirees. If more than one group /suffix is available, please explain what would cause a retiree to choose one type of coverage over another. 4. Please provide the following health care claims information. a. Monthly healthcare claims experience by group /suffix, i. Incurred 10/01/07 to 09/30/08 and paid through September 30, 2010 ii. Incurred 10/01/08 to 09/30/09 and paid through September 30, 2010 iii. Incurred 10/01/09 to 09/30/10 and paid through September 30, 2010 iv. Please note that separate claim reports for regular and comprehensive members should be provided. b. Monthly exposure data by group /suffix for the periods corresponding to the above claim experience periods. 5. Please explain any major changes that have occurred to the retiree health plan (e.g., changes in co pays, deductibles, change from self - insured to fully- insured, switching to high deductible health plans, etc.) in the past three years. 6. For all Suffixes with dental coverage, please provide the following. a. Monthly dental claims experience by group /suffix, i. Incurred 10/01/07 to 09/30/08 and paid through September 30, 2010 ii. Incurred 10/01/08 to 09/30/09 and paid through September 30, 2010 iii. hicurred 10/01/09 to 09/30/10 and paid through September 30, 2010 iv. Please note that separate claim reports for regular and comprehensive members should be provided. Gabriel Roeder Smith &Company CITY OF SOUTH MIAMI OTHER LOST -E+ MPLOYMENT BENEFITS DATA REQUEST OPEB Initial Per- Capita Cost Information (continued) b. Monthly exposure data by group /suffix for the periods corresponding to the above claim experience periods. c. Please provide the illustrative premiums for the dental groups /suffix. 7. Monthly dental administrative fee per contract as of September 30 2010 (the valuation date). 8. For any life insurance benefits, please provide premiums, eligibility conditions, and groups for whom these benefits are available. If the City provides any other retirement benefits please provide premiums, eligibility conditions, and groups for whom these benefits are available. 9. Please provide utilization data for the past three (3) years. This should include a listing of everyone who has retired from the City of South Miami over the past three (3) years. For each retiree, please indicate (a) if the retiree was eligible for health and/or other post - employment benefits, and (b) if they chose to enroll in health or other post - employment benefits. 10. Please advise whether retirees are required to enroll in Medicare Part A, Part B or both upon reaching age 65. Calirtcl ltweder Smith & Coriipany CITY OF SOUTH MIAMI OTHER POST - EMPLOYMENT BENEFITS DATA REQUEST Derno¢ranhic Data Requirements The actuarial valuation will be performed using data as of September 30, 2010. We will be calculating one contribution rate. Enclosed is a CD -ROM with an Excel© file which contains the active'and inactive member census data reported for the South Miami Pension Plan as of October 1, 2009. Please update the data in the ExcelQ file with the information below for active employees and retirees as of September 30, 2010. (If you are submitting data via e -mail and you choose to use Social Security numbers as the unique identifier, for the protection of your members, you should consider password protecting or encoding this identifier.) 1) For active employees as of the valuation date, please update / review the attached ExcelQ file including the following information. • Unique identifier (i.e., employee number or Social Security number) • Name • Gender (M or F) • Date of birth • Date of hire • Annual salary • Employment group (General, Police) • Enterprise Unit (e.g. Water & Sewer, Solid Waste, etc.) • Health group code (if applicable. Please furnish a list of codes.) • Active health coverage category (HMO, PPO) • Type of coverage (i.e., single, employee plus spouse, family, etc.) • Spouse date of birth, spouse gender • Member contribution • Dental (Y/N), vision (Y/N) and life (Y/N) • Life insurance coverage amount (if applicable) • Life insurance premium paid by member (if applicable) 2) For retired employees and beneficiaries as of the valuation date, please update / review the attached ExcelQ file including the following information. • Unique identifier (i.e., employee number or Social Security number) • Name • Gender (M or F) • Date of birth • Date of hire • Date of retirement • Employment group (Fire, General, Police) • Enterprise Unit from which the member retired (e.g. Water & Sewer, Solid Waste, etc.) Gabriel Roeder Smith &Company CITY OF SOUTH MIAMI OTHEER POST - EMPLOYMENT BENEFITS DATA REQUEST Demographic Data Requirements (continued) • Health group code (if applicable. Please furnish a list of codes.) • Retiree health care coverage category (HMO, PPO, etc.) • Type of coverage (retiree only, retiree plus spouse, family, two regular contracts, one complementary contract, etc.) • Does coverage continue for beneficiary after retiree's death? (Y or N) • Beneficiary gender • Beneficiary date of birth • Member contribution e Dental (Y/N), vision (YIN) and life (Y/N) ® Life insurance coverage amount (if applicable) ® Life insurance premium paid by member (if applicable) 3) For former employees who are not yet retired, but who will be eligible for retiree health care benefits, please update / review the attached Excel© file including the following information. • Unique identifier (i.e., employee number or Social Security number) • Name • Gender (M or F) • Date of birth • Date of hire • Date of termination • Date or age at which person becomes eligible for retiree health care benefits • Employment group (Fire, General, Police) • Enterprise Unit from which the member terminated (e.g. Water & Sewer, Solid Waste, etc.) • Health group code (if applicable. Please furnish a list of codes.) • Dental (Y/N), vision (Y/1) and life (YIN) • Life insurance coverage amount (if applicable) • Life insurance premium paid by member (if applicable) Gabriel RoL4cr Sdrigh 8r Goriijrarip SAMPLE MONTHLY SUBSCRIPTION RATE SHEET IU MS CI,USIEIi DISt, NU 1 0500 40 I PERSONS COVERED SERVICE CODE TOTAL AMOUNT RATES BEGINNING CO,MMOM IMC(P ONE PRRSONREGULAR TWO PERSON REGOLAR M- TILYREOWAR SPO,Y'SORED DEPENDENT ONE COMPLEMENTARY TWOCOMPLE.MENTARY THEM COMPLEMENTARY 1 PERS. REG & 1 COMP. x PERS. REG& I COMP. FAMILY REG& 1 COMP. 1 PER& REG & 2 COMP. 2 PERS. REG & 2 COMP. PA311LV REG &2COMP. 1 PERS. RRG & 3 COMP. 2 PERS. REG & 3 COMP. FAmDLV REG &3 CO3IP. 7 L M 7 7 L M 7 7 L M 7 7LM7 7 LM $ 7 L M 8 7 LM8 L M 8 7L418 7L M8 7 L M 8 T L M 8 acmes TL m18 7 L M 8 7LM8 O39GC 01 G0 H0GC 02 G0 M 9GC 03 G0 M 9GC 0001 M9GE 04GO M9GE 0860 M9GE ODGO M9GD 05GO M9GD 0600 M 900 0 7 G 0 M9GD 0960 M90D O8G0 .vi 9G0 0CG0 M9G❑ DECO M9GD OTGO M9GD OCGO 440.W 930.00 1,080.0 430.00 480.00 960,00 1,440.00 920.00 1,180.00 1,210.00 1,140.00 1,180.00 1,210.00 1,180.00 1,180.0 1,210.00 14U.VOH IWOUKU 3V.UV.MM 3V.WUrv! .< Ml 310.0011 22000DRG MADAM 70.00DNT 230.00P 360,00H 250.001)RG 120.00MM 90.00DNT 260.0OP 170,000 120.000RG 130.0088 110,00H 240.00DRG HAOMM 30.00DNT 70.00? 220.011 490.001)RG 60.OM31 70.00DNT 120.06P 340.000 730.001)RG 100.00MM MOMENT 170.00? 260.0811 350.00DAG 80.00MM 70,000NT 160.90P 350.00H 370.00DRG IC0.00MM 90.00DNT 260.0OP 360.0011 380.00DRG 120.00MM 90.00DNT 260.007 350.0H 370.00DRG 110.00MM 90.01)NT 220.00? 350.00H 370.00DRG 110.001MM 90,00DNT 260.00P 360.000 380.00DRG 120.06MM 90.00DNT - 260-OOP 350.008 370A0DRG 110.00MM 90000NT 260.0OP 350.0OD 370.00DRG 110.00MM 90.00DNT MAU 360.011 380.001)RG 120.00MM 90.00DNT 260.007 - MCMVN89RC"S$ KFAMILY CONTINUATIONOR - DC- DCCR RIDER SBPONSORED DEPENDENT Gabriel ltoe44,Sinith 8&'Cotp,p t q SAMPLE RETIREE HEALTH CARE PLAN SUMMARY OF BENEFITS AS OF SEPTEMBER 309 2010 THIS IS A SAMPLE SUMMARY OF BENEFITS PLEASE FILL IN THE SUMMARY OF BENEFITS FOR THE CITY OF SOUTH MIAMI PLAN PARTICIPANTS Employees of the Sample Retiree Health Care Plan are eligible to receive retiree health care benefits. NORMAL RETIREMENT BENEFITS Normal retirement eligibility conditions for retiree health care benefits are as follows: Members retired on or before mm/ddlyyyy Health Care Benefit Eligibility Conditions Age X with X years of service. Members retired after mm /dd /yyyy Health Care Benefit Eligibility Conditions Age X with X years of service. All Members Health Care Benefit Provided by Plan Member: City pays X% of the base coverage. Member must cover any additional cost in excess of base coverage. Spouse: City pays X% of base coverage as long as the spouse continues to receive a pension under Act 345 and does not remarry. Dependent: City pays X% of base coverage as long as dependent is under age X or a full -time college student up to age X. EARLY RETIREMENT BENEFITS Members retiring under early retirement conditions are / are not eligible for retiree health care. DEFERRED RETIREMENT BENEFITS Deferred retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefit Eligibility Conditions Any age with X years of service, benefit commences when member would have been eligible for normal retirement. Health Care Benefit Provided by Plan Member: City pays X% of the base coverage. Member must cover any additional cost in excess of base coverage. Gabriel Rodddr Guth SG:'CorriQariy SAMPLE RETIREE HEALTH CARE FLAN SUMMARY OF BENEFITS AS OF SEPTEMBER 30, 2010 THIS IS A SAMPLE SUMMARY OF BENEFITS PLEASE FILL IN THE SUMMARY OF BENEFITS FOR THE CITY OF SOUTH MIAMI DUTY DEATH IN SERVICE RETIREMENT BENEFITS Duty Death retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefit Eligibility Conditions Any age with X years of service, benefit commences immediately. Health Care Benefit Provided by Plan Member: City pays X% of the base coverage. Member must cover any additional cost in excess of base coverage. NON -DUTY DEATH IN SERVICE RETIREMENT BENEFITS Non -Duty Death retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefit Eligibility Conditions Any age with X years of service, benefit commences when member would have been eligible for normal retirement. Health Care Benefit Provided by Plan Member: City pays X% of the base coverage. Member must cover any additional cost in excess of base coverage. DUTY DISABLED RETIREMENT BENEFITS Duty Disability retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefit Eligibility Conditions Any age with X years of service, benefit commences immediately. Health Care Benefit Provided by Plan Member: City pays X% of the base cost in excess of base coverage. coverage. Member must cover any additional NON -DUTY DISABLED RETIREMENT BENEFITS Non -Duty Disability retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefit Eligibility Conditions Any age with X years of service, benefit commences when member would have been eligible for normal retirement. Health Care Benefit Provided by Plan Member: City pays X% of the base coverage. Member must cover any additional cost in excess of base coverage. Gabriel Roeder Sriiith. & Go*0y SAMPLE RETIREE HEALTH CARE PLAN SUMMARY OF BENEFITS AS OF SEPTEMBER 309 2010 THIS IS A SAMPLE SUMMARY OF BENEFITS PLEASE PILL IN THE SUMMARY OF BENEFITS FOR THE CITY OF SOUTH MIAMI BENEFITS FOR SPOUSES OF RETIRED EMPLOYEES Spouses of retired employees are eligible to receive retiree health care benefits. Coverage continues to surviving spouses of deceased retirees. NON - MEDICARE AND MEDICARE — ELIGIBLE PROVISIONS Retirees are / are not required to enroll in Medicare Part A / Part B / both once eligible. Retiree pays Medicare premiums. VISION COVERAGE Health Care Benefit Eligibility Conditions Members who retire after mm /dd/yyyy and meet retiree health care eligibility conditions may receive vision benefits. Health Care Benefit Provided by Plan Member: City pays X%o of the base vision coverage. Member must cover any additional cost in excess of base coverage. DENTAL COVERAGE Health Care Benefit Eligibility Conditions Members who retire after mm /dd/yyyy and meet retiree health care eligibility conditions may receive dental benefits. Health Care Benefit Provided by Plan Member: City pays X% of the base dental coverage. Member must cover any additional cost in excess of base coverage. LIFE INSURANCE COVERAGE City pays for $X,XXX of life insurance coverage for retirees up to age X. RETIREE OPT -OUT Retirees who decide to opt -out of health care plan will be eligible to receive $X,XXX in any year in which they receive coverage from another source. G9briel Roeder Sinrth & Goirigany A detailed analysis of the work plan for this project. WORT{ PLAN Having performed over 1 80 OPEB actuarial valuations under GASB 45, GRS has a well - established track for the process. Prior to completing Step 1, the process starts with a meeting (or conference call) with the Benefits Manager, Benefits Consultant, and a member from the Financial Reporting department. This results in a detailed data request letter to our client. Step I - Collect Benefit Plan Data Information on the Benefit Plans, loss ratios, renewal reports, experience_ rating, worksheets, rate charts, etc., will be required from the respective health plan vendors in order to develop the initial per capita cost for the benefit types. Step 2 - Collect Employee and Retiree Census Data Census data will be requested from the City, who will in turn need to request certain data from its own personnel / payroll system, possibly its Pension Boards, and from the health plan vendors. The employer will need to massage or supplement the data obtained from these sources (if necessary) to provide us with clean data files (consolidated) and certify the data as to completeness and accuracy. Step 3 - Draft and Approve Substantive Plan Provisions GASB 45 requires the actuarial valuation of the employer- provided other post - employment benefits, as constituted in the substantive plan — the plan terms as understood by the parties (the City and the members). This is an important step of the whole process. It requires us to obtain memoranda, documents, etc., which describe all the benefits provided. We must identify those benefits that qualify as employer - provided other post - employment benefits and the eligibilities and conditions under which they are made available. We will draft a written version of the substantive plan and request the City to sign off their agreement before proceeding. Step 4 - Develop Initial Per Capita Costs Each relevant benefit type needs an initial per capita cost for the group. This is the baseline starting point for the project and requires short -term health actuarial expertise. We call it short -term because the initial per capita costs for each benefit type are the total underlying costs (not necessarily the premium) expected for the year following the valuation date for all employees and retirees for the respective benefit types. The initial Goliriel 4b&A ,Sttlith & Crilnjiariy composite per capita costs are then converted to a whole table of age - gender - specific initial per capita costs for each benefit type (including before and after age 65). Step 5 — Calculate All Projected Benefits and Present Values Expected costs for all currently covered retirees and dependents is projected based on select and ultimate health care trend assumptions for each benefit type. We will set up our long -term actuarial modeling system based upon the Summary of Substantive Plan Provisions. Part of this step is recognition of how the City's Pension Plans play an integral part in its OPEB obligation. Naturally, we will use all the retirement eligibility requirements of each Pension Plan for normal, early, duty and non -duty disability and death, as applicable, initially, we use all of the demographic actuarial assumptions (such as turnover, retirement, disability, and mortality rates) used by the respective Pension Plans because we believe it is not proper to simply pull such rate tables off the shelf when the Pension Plans typically perform actuarial experience studies to set the rate tables based on the City's own demographic experience. Use of the Pension Plan's demographic assumptions should be considered minimum requirements for a proper actuarial valuation of the City's OPEB costs and liabilities. In the end, the assumptions and methods employed are the City's assumptions and methods. They are to be adopted by the City because they are the basis for entries in the City's financial statements. We will advise City staff concerning the assumptions and methods. To that end, we will conduct conferences with key staff regarding these actuarial assumptions and methods to be used in the valuation. All future years' benefit costs are projected and taken back to today's dollars in a present value. These actuarial present values of expected benefits payable form the basis for the accounting entries and disclosures required under GASB 45. We will advise City officials (particularly those in finance and treasury) concerning how they would be setting the discount rate. Ultimately, all actuarial assumptions and methods are chosen or adopted by the City. Part of our role is to advise the officials on such matters. Step 6 — Calculate Expense and Liabilities GASB 45 permits the use of several actuarial cost methods to apply in deriving the final expense and disclosure numbers. We will calculate these expense and liability disclosures under a level cost method. Gabriel Roeder Smith & Company Step 7 – Prepare Draft Report for Review GRS will prepare a draft version of our Actuarial Valuation Report and submit it to the City for initial review and comments. The draft report will include an Executive Summary, tables or charts presenting the development of the results, a description of all primary actuarial assumptions and methods, and a summary of the plan benefits. Our report will include the issuance of a Statement of Actuarial Opinion (SAO) in accordance with the Qualification Standards of the American Academy of Actuaries. In addition, GRS will be available to meet with City officials, as necessary, for education, presentation of results, planning, and other purposes. We pride ourselves on the effort that we make to deliver reports in plain - English, rather than simply compiling page after page of numbers. We ensure accuracy of our actuarial services by following the GRS Quality Control Assurance Process. Under the Quality Control Assurance Process, one team member develops the plan costs and another verifies each value. The supervising actuary will review everything as the valuation process continues to ensure that results not only look reasonable—but are correct. Another supervising actuary will review all work completed by the other team members as a final check. We use this Quality Control Assurance Process on all services that we provide to our clients. Step 8 – Finalize Report After discussion regarding the draft report, we will make changes and issue our formal bound Report to the client. Various telephone conferences may be required or advisable as the project proceeds — for the purposes of clarification, education (of GRS and City personnel), and decisions by the City as to the usage of certain assumptions and methods. Finally, we will present the results to staff and/or committees in person to explain the GASB requirements and implications and to review our Report and any recommendations or options there may be. Gabriel Roeder Smith '& co'riipa,'ny Milliman November 4, 2010 PabloP, Velez, Esq. Purchasing Manager City of South Miami 6130 Sunset Dive South Mimi, Florida 33143 -5093 n , 11.11 045 E. Paces Forty Road NE Suite 20oo Atlanta, GA 3032U-1262 USA Mein +1404 237 7000 Fax +1 404 237 6984 n0liman corn As requested, we have enclosed Milliuran's proposal to perform a GAS13 45 actuarial valuation ofthe City's post rethcroent health benefits program. our proposal provides background information about our firm, descn'bes the contcmplatcd actuarial services, including our foes, and contains our standard consulting services agreement. Three (3) copies of our proposal have been cnolosed. 1 would be happy to answer any questions you may have about our proposed actuarial services. Think you again for calling me and I can assure you of Millitnan's best quality efforts on the City's behalf. Sincerely, Michael A. McGrath, P.S.A. Follow, Society of Actuaries MAM:tclpdb Enclosure r+tw�unroesanueaunnaseonnc Wwo In Nominal O tiea Worldwide Proposal 3k Ilk I J:n Millimen Protwsai TABLE OF COMTEMTS 'A. MiiiimeWs, Actuarial Consoling Services B. GASS45 Analysis - ProjectSteps C. Project Team D. Fee Schedule Exhibit 1 - Mliliman 2010 Fact Sheet Exhibit 2 - Sample OHM List Exhibit 3 - Requested Information ^ Exhibit 4 - Service Agreement Exhibit 5 - Business Associate Agreement (HIPAA Compliance) Props 9G ProposaF tv ProNde Inidsl GASa 4e Analysis lot the Coy of SouU7 Miami Novembef 9. 2010 .:d�{L•:. ; fir . .. .. ,. . , � F,i Fgr;i}�;F {L�' i.j.i.. �. ..... ,': "�= .. � ..J r:E.,.' . 3 6 8 9 10 13 i6 7B z tMinman Proposal A, MILLIMAN'S ACTUARIAL CONSULTING SERVICES miliman differentiates knell in the delivery of actuarial consulting services by seeking out and developing professionals who are not only technically sound, but who can also communicate complex actuarial and accounting concepts In an understandable way. As a result, we bring measurable value to our client's ability to make sound dadslons. Public Sector Experience Milliman is natkrnaliy recognized for our substantial commitment to the public sector, which Milliman has clients across Includes publication of our PERiScope nawsietter, active participation in national meetings the entire spectrum of public and advisory committees, and the funding of specialized research. With one of the largest sector organizations, groups of public - sector clients in the U.S., our consultants are extremely well versed in the including: GAM standards relating to post - employment borrelk arrangements. They are also mindful " C Count and Slate of the impact that state and local law has on public employer benefn plans as they consider GoveCounty and analyze the effect that applicable law may have on current and future liabilities. We have been retained by numerous public employers to perform GASB 45 valuations and " school Districts consult on issues related to CaASB 43 and 45 (piaoso see Exhibit 2 for a representative " Law Enforcement client list). Agencies Milliman also provides a broad range of other services to public plan sponsors, including ■ Hospital Districts actuarial services, benefits consulting, compliance, recardkeeping, employee a Transportation communication and investment advisory services. Authorities Health and Welfare Expattis0 " Power and Utilities organizations Por many years, our Health Practice has been considered the premier provider of health actuarial services in the U.S. This expertise and experience are particularly important since employers' GASB 451iab0fty is highly dependent on the cost structure of the health plan offered to its retirees and due to anticipated medical inflation. In addition to serving as actuary for soma of the nation's larger healthcare providers, MUilman's healthcare group publishes the Heaifhcere Cost Guidelines, an invaluable too] for developing per capita claims costs and medical inflation assumptions for post - employment medical benefit vatuatiens. The Guidelfneswere first developed in 1964 as a result of Mitiiman's continuing research on heafthoare costs and the publication has been updated and expanded annually ever since and are comtnuatly monitored as they are utilized in measuring the experience and evaluating the rates of our clients, and comparing the information to other data sources. The Guldafines also provide a flexible but consistent basis for the determination of claim costs for a wide variety of health berisf t plans and may be used to estimate future claim levels, set provider budgets, set service category budgets, evaluate past sxperle3`10e, and establish interrelationships between different health coverages. Independence Recognized as an industry leader, Milliman is an Independent firm of consultants and actuaries. We are not affiliated with other organizations that might impair our objectivity or our focus on your needs. We deliver top-quality service because our fItWbie Internal structure allows us to assemble collaborative project teams that provide broad expentse under the guidance of an assigned consultant who understands the City of South Miami and your unique needs. eASe 45 PropoSII to Provide Inhiai GASS 45 Analyst forthe City of South Miami November a. Mo Mllliman Proposal stain- ambe-lcrt Valuation System Milliman has developed a state -al-the-ad valuation system for GASB 45 valuations that allows our consultants to effectively analyze and maintain data, pmduoo valuation results and project anticipated future GASS costs, Seoause no two plans are alike, our system is flexible. Accordingly, we are equipped to serve all types of clients with a broad spectrum of plan designs. client Commitment We have worked hard to Sam the trust of our public -SWOr Clients by being very approachable and accessrole, using technology to simplity and support all services, and by delivering on our commibnems. We Intend to follow the same client service modal for the City of South Miami and earn the same high level of trust. LASS 45 Proposaito Provide InhWI GASS 45 AnalyeM for the 91ry of South MWDI Novemb0r e, 2010 Miliiman Proposal B. GASB 45 ANALYSIS —PROJECT STEPS Assess Your Needs The initial phase of the analysis is expected to accomplish the following objectives: 1. Data Caileollon —We Wit gather requested Information from the City of South Miami related to other post - employment benefits (OPESs) offered to rotimes. 2. Valuation— WevAll perform calculations In accordance vrith GASB guidance and current actuadal standards of practice. Key computations will Include the initial OPEB liability, the annual required contribution, and projected future benefit payments. 3. SenstfivityAnabrols— We will provide sensitivity analysis to demonstrate the impact of variation in the assumed discount We and other key assumptions, This information Wig be valuable in identifying the key drivers of expected cost associated with providing OPM to retirees. 4. Meeting to Present Results— We will meet with you via W ebEx or Conference Cali to present valuation results and discuss Important Issues. Strategy and Implementation Based on conclusions drawn from ttte initial valuation, we will be ready to discuss next steps. Those next steps typically include analysts of strategies you may want to explore prior to the effective date of disclosing GASB 46 Information in employer financial statements. Key considerations may Inoludet • The effect of potential plan design changes on GASB cost • The impact of changes in employee cost - sharing provisions • Whether advance funding of benefits In a trust Is appropriate Ongoing Reporting After completion of the initial valuation and additional analysts, as needed, we will be weli- positioned to provide OPEB valuations on an ongoing basis as required under GASS 45. The steps involved in performing ongoing valuations will be similar to the steps described above for the initial valuation. Following completion of the valuation, ws will meet with you to discuss results and follow with issuance of a formal valuation report. Services Agreement A service agreement is provided as Exhibit 4. if you wish to engage us to providathe GASB 45 consulting services as described herein, please sign this document and return the agreement to us. We vAl then sign the agreement. provide a copy to you and begin work on the project To complete the Initial valuation, we will need certain census and plan Information. The enclosed Exhibit a provides a list of this information. Timing for Completion of Initial Valuation From the time we receive the requested Information and a completed service agreement, we expect to complete the initial valuation within six to eight weeks and schedule a meefing to discuss the results with you. GASB 45 Proposal to Provide Intdal OASa 45 Ananyele for the My of Boulh Mimi Navembe10,2010 Miturnan Proposal C. PROJECTTEAM Consulting Actuary Mr, McGrath is s principal and the Employee Benefits practice leader In the Atlanta office of Milliman. Ho joined the firm in 1862, His areas of expattisa indudo pension, savings programs, and post retirement medical plans. His consulting activities focus on design, funding, Implementation, and ongoing administratron of these ernployeo benefit plans, Mr. McGrath also has exten$ive experlence with cthertAmv of omployee benefit plans, including life, medloaf, and disability programs. His clients include a variety of public and private organizations. He Is a frequent speaker on employee benefit plans before professional groups and trade organizations, including lecturing on retirement plans for Georgia State University under the Ger ied Employes Benefits Specialist curriculum. Professional Designations • Fellow, Socloty of Actuaries • Enrolled Actuary under ERISA • Member, American Academy of Actuaries Degrees • BS (Management Soience) - Georgia Institute of Technology Support Actuary Mr. Jaramillo Is an actuarial associate with the Atlanta office of Milliman. Mr. Jammiilo practices in the employee benefits field, working with defined benefit and port-retirement medical plans In addition to preparing and analyzing actuarial valuations, Mr. Jaramilio assists pension and post - retirement madloai plan sponsors In quantifying the financial risk associated with such plans. Professional Des(gnations • Associate, Society of Actuaries • Member, American Academy of Aowatles Degrees • BS (Mathemat'ios), Tulane University GASS as Proposal to Provide IOW GAGS 45Analysls fortha City of Somh Miam! November 9, 2010 ..w.,.�, .. .: .: �...:.� .. Viz•. CC+,:;�E': Mike McGrath, FSA, MAAA, EA Consulting Actuary Sebastian Jaramilio, ASA, MAAA Support Actuary Mititman Proposal Health Actuary Mr. Speer is a Consulting Actuary with the Employee Benefits Health and Welfare practice In Omaha. As a credenttaled actuary, Jason is responsible for actuarial reports and analyses for medical, dental, life, disability, pail time off, and other ancillary plans. in addition to his actuarial duties, Mr. Speer also has rssponsibilitiea.tor project management and delivery of services within the H &W practice. Jason's prior experience Includes six years as an actuary and consultant with Deloilla and Touohe In Minneapolis, two years as an actuary and consultant with Miiliman, and two years as Senior Manager Retirement Plans at ConAgra Foods Inc. Jason has extensive experlence in c6nouiting with clients on employee benefits Issues, Including assisting with the implementation of a full replacement consumer driven health plan for a Fortuna 100 employer: He has worked with a wide variety of private and public clients in the following areas: ■ selling budgets and premium equivalent rates ■ implementing consumer - driven health plans • assessing rate renewals from insurance carriers • calculating IBNR reserves • preparing Income and expense reports ■ selecting Insurance carriers (RFP process) ■ benchmarking plan designs and recommending changes • calculating the value of plan design changes • performing retiree medical valuations (FAMOASS) • measuring provider discounts • assessing the feasibility of sell- funding professional Uasignations • Fellow, Society of Actuaries • Enrolled Actuary, ERISA • Member, American Academy of Actuaries Educaflor. • BS, Actuarial Science, University of Nebraska, Lincoln GASS 45 Proposal to Provide Inhiai GASa 45Anslysis for tho rV of South Miami November9. 2010 Jason Speer FSA, EA, UAAA Health Actuary 7 Mitiiman Proposal D. FEE SCHEDULE Fee Assumptions The estimated fee$ are used on the following assumptions: • There are approximately 200 active employees • There are approximately 10 retirees and beneficiaries • There is one medical option available to retirees • Data provided is usable without audit or significant follow up Estimated Fees • Initial Valuation' • Plan Design and Funding Analysis 01M Provided as needed and based on scope if a malarial difference in few becomes evident duo to a change in the scope of the assignment, we will advise you. Travel and other out-of- pocket expenses are billed separately. 'if you prefer that Milliman make an on -site final presentation, our fees will be an additional $1,000 (out -of- pocket travel expenses to be billed separately). rroppooa m t ravitle Initial13ASS 4$ Metyais for Ihs City of South Miami Nevembere,2010 U Miliiman Proposal EXHIBIT 1— MILLIMAN FACT SHEET Miliiman 1 2010 Fact Sheet Miliiman is a firm of.ocnsultants and actuaries serving the full spectrum of business, governmental, and financial organizations. Founded in 1947, the firm has 52 offices in principal cities in the United States and woddwida. Miiliman's revenues were $610 million in 2009. Practice areas • Employee benefits, investment, and compensation consulting services • Health consulting services • Life and financial consulting services • Property /casualty consulting services Offices Albany Hartford New York San Juan, PR Amsterdam Hong Kong Norwalk Sao Paulo Atlanta Houston Omaha Seattle Bermuda Indianapolis Paris Seoul Boise London Philadelphia Shanghai Boston Los Angeles Phoenix Sydney Bucharest Madrid Portland, ME Tampa Chicago M6Aoo City Portland, OR Tokyo Columbus ._ Moan Princeton, NJ WairrutCreok, CA Dallas Milwaukee St, Louis Warsaw Denver Minneapolis salt Lake City Washington Dubai Munich Ban Diego Woodland Park, NJ Dublin New Delhi San Francisco Zurich Organization Miiiman is owned and managed by approximatay 300 principals, who have been elected in recognition of their technical, professional, and business achievements. teadership Patrick J. Grannan, president and CEO Bradley M. Smith, chairman Employees Miliiman has approximately 2,400 employees, including a consulting staff of 1,100 qualified consultants and actuades. GAS845 Proposal to Provide WHO GASS 46 AnW rei0 for the City of SO* NAM] NowmberS,2010 Milliman Proposal EXHIBIT 2 — REPRESMAnvE GASB 45 CLIENTS IN YOUR AREA Alabama • City of Athens • City of Florence • Ctty of Gadsden • City of Montgomery • Montgomary County Arkansas • Arkansas Tech University • State of Arkansas • Little Rock Waste Water Florida ■ Bay County • City of Apopka • City of Dania Beach • City of Eustis • City of Fort Myers • City of Haines City • City of Ocoee • City of Pon St. Lucie • Escambia County • North Naples Fire Control & Rescue • Gulf County • Jacksonville Aviation Authority • North Naples Fire Control & Rescue • Okaloosa County • Pinellas Juvenile Welfare Board • Putnam County GASS 40 Propgaxi to Pmvido Initial GASB 0 Anaryeraior 010 city or South muuni, Novembaf s, 2010 • Santa Rosa County School Board • St. John River Water Management District • St. Lucie County School Board • State of Florida • Southwest Florida Water Management • tnllago of North Palm Beach Georgia ■ Barlow county It Camden County • City of College Park • Cfiy of Smyrna ■ Consolidated Government of Columbus • Georgia Ports Authority • Gordon County • Troup County Loulslana • Acadia Parish School Board • Allen Parish School Board • Allen Parish Sheriffs office IN Caddo Parish School Board • Calcasieu Parish Police Jury • Calcasieu Parish Sheriffs OHics • Calcasieu Parish School Board a Caldwell Parish School Board • City of Abbeville • City of Baton Rouge • City of Lake Charles • City of DeFttdder to Milkman Proposal Louisiana (Corwd) • St. Charles Pariah Sheriff's Office • Claiborne Parish Schools ■ St. James Parish Sheriffs Office • Concordia Parish School Board • St. John the Baptist Parish Sheriffs Office • DeSoto Parish Schools • St. Landry Parish Sherff's Office • East Baton Rouge Pariah Sheriff's Office ■ St. Martin Parish Schools • Franklin Parish School Board • St, Martin Parish Sheriff's Office • Grant Parish School Board ■ St. Mary Parish School Board • Greater New Orleans Expressway Commission ■ Tangipahoa Parish Government • Iberia Parish SherffPs Office ■ Tangipahoa Parish Con. G. D. Dist, #1 • Jackson Parish School Board ■ Tenses Parish School Board • Lafayette Parish School System • Union Parish. School Board • Lafayette Parish Sheriffs Department • Vermillion Parish Police Jury • Cake Charles Harbor & Terminal District • Vernon Parish Government • LaSalle Parish School Board • Vernon Parish School Board • Lincoln Parish School Board ■ West Baton Rouge Parish School Board • Livingston Palish Sheriffs Office • West Carroll Parish School Board • Louisiana Assessor's Association (50 offices) ■ Winn Parish School Board Madison Parish School Board Nobraska ■ Madison Parish Sheriffs Office ■ Douglas County • Monroe City Schools • University of Nebraska ■ Morehouse Parish School Board Oklahoma • Ouachita Parish Police Jury ■ Grand River Darn Authority • Ouachita Parish School Board a Oklahoma County Commission • Plaquemine$ Parish School Board • City of Owasso • Plaquemine% Parish Shsrlffs Office South Carolina • Rapides Parish Police Jury • City of Aiken • Richland Parish School Board Taxes • St. Charles Parish School Board ■ Bowie County case as Nopoeat to Prwide tniflw GASa 45 Analysis 19t the Gtty at south Mures November 9, 2010 It Mltilman Proposal Texas (Coned) • Port of Houston Authority • Brazos County ■ Potter County • Brownsville Public Utilities Board • San Jacinto River Authority • Cameron County ■ Texarkana Water Utilities • City of Amarillo • Travis County • City of Brenham ■ Trinity River Authority • City of Dear Park • Williamson County • City of Denton • Winkler County • City of Euless • City of Katy • City of Laredo • City of Midlothian ■ City of Mount Pleasant • City of Piano ■ City of Port Arthur • City of Temple ■ City of Webster • Collin County • Fort Bend County • Golf Coast Waste Disposal • Hidalgo County • Hidalgo County Drainage District • Jefferson County _ • Lower Neches Valley Authority • Metropolitan Transit Authority of Harris County • North Texas Municipal Water District • Northeast ISO San Antonio • Peace County • Port of Corpus Christi Authority OASS 45 Proposatto Provide 101at 42ASS 44 Analple for the My or South Miami NommUr 9, 2010 42 Mliliman Proposal EXHIBIT 3 — REQUESTED INFORMATION care is pre&ved in an alactmfo format wheaeverposslBle. 1. AeUvo efmloys&lrefiree infomlation (seal"ufbdow) G0.SS 45 PMppeel m Prodde WraIQASe bSAnafyaio for tho City of South Miamt Novembora, 2010 ti4�n��[v, ... ♦ ..0 I .. v. .. .a,- YtiO�%tLrdAYiwu i:F•roZ.. ... 'iGti.: �• , .. .. , ... .. .. ' to tdorllIDnaUon Number Af�tre/NumCri6 �,�� Gender A"._._. __._.....,.,.,,...�_� Data of Pah'Se CBaJylh�t7la) ,_ _ mm�d _.,.,_._„.,..______.�..,,..� Bmeacovaragee (mec2oal pier ff more than ons, dental elc.) k y(Employse OtUy, Employees Spouse, AlphalNumedc �. •� Anmaai Campanrmdon (B ) eee898 -99 IdmdUOallon Number AlphalN ana Pu Gmup Code C.r�) _ AlploMmartc ......�. _._. Gender Alpfla _ —J �� u� Daze of Bldtr mmJddryyyy �_ Da�ofTOrminaUon mmtdd(M BonoetCovemgm _ Alpha _ Tcer(Empky000nly,Empkyae& Spouse, etc.) AlpfieMUmaric LifatY6Ufmce(9�p5tswe) 9s8ass5a IdenlikcdW Numbe_v mo1m �, Gard6t ,A1�11� Date of Birit ItIme am Cmrhibtdion Rate Banofit _ A�;ha _ Ttar (EmplDyae OnN. Emrdoyoe & Spouse, Ammer90 I.de InaG1:1Ir1Ce BonolWm Memi ficatlan Number AlphaMUM060 _...,,. BonertctatY Date aF Bidh mmld my G0.SS 45 PMppeel m Prodde WraIQASe bSAnafyaio for tho City of South Miamt Novembora, 2010 ti4�n��[v, ... ♦ ..0 I .. v. .. .a,- YtiO�%tLrdAYiwu i:F•roZ.. ... 'iGti.: �• , .. .. , ... .. .. ' to Miliiman Proposat 2. Summary of plan provisions Pilo any plan changes over the past three years. • Type of Insuranos: self insured, fully insured or partially, insured (ASO agreement) • Medical benefits • Prescription drug benefits • Other post-employment benefits (other than retirement), Including life Insurance, vision, dental, etc. • For Medicare eligible retirees Are all rellrees required to enroll in Medicare Parts A and 5? Part D? — How does the Plan co- ordinate, with Medicare? --- Do retirees over 65 continue to roceiva life insurenoe, vision, dental, etc? 8, Retiree contribution schedule (or Include in active employee/retires information above, If by Individuaq 4. . Employer contribution schedule tffnsurO 5. Claims information (rfaeHfnsaratq • Employee groins – actWe and tetireeslbeneflclarles • Type of benefit – medical, prescription drug, other • Time period – information for the most recent full year needed; claims information for prior three years preferred • Data should Include: — Monthlylannuaf employee counts or membership — Claim lags (groups over 2000) or annual paid claims State if claims are net of stop loss recoveries Specific and Aggregate Stop Loss premiums and recoveries (ff not adjusted in claims) — Administrative expenses 6. Groups not covered by'biedleam – ff any 7. Most recent pension valuation report 618va7abfe) a. Name and Contact Intamtatlon of your Auditor aABn 45 PrOpostt to PrOVlde 1AW OASS 45 Analpitt for the city of SOUth Miami Nov bar A. MO "kl..W,: V . 14 Milliman Proposal EXHIBIT A — CONsuLTnlG Si;RVICES AGREEMENT This document wits serve as the Service Agreement between Milliman and the City of South Miami for the provision of actuarial services required to meet G,ASS 43/46 requirements and other services, as requested. Terms and Conditions Y. tJmnaMdc of�ilabitfiv. Miiliman will pe fomi an services in accordance with applicable profossichat stem da. The parties agree that Millman, its officers, directors, agents and ampiayees, shall not bs liable to the C'Ity of South Miami, under any theory of taw including rregl genre, tort, and breach of contract or otherwise, for any damages which exceed 3 times the total pprofessional fees paid in the preJous t & month pater. In no event shall Milkman be liable for lost ora ire of the City of Soutlt Miaml or any other type of incidental or oonsequsmist damages. The foregoing Itm am shall not apply In the event of the re 11 fraud ar vciIfful ml$wndbat of Milliman. 2. Digoidag In the event of any dispute arising out of or relating to the engagement of Miiliman by the City of South Miami, the parties agree that the dispute will be resolved by final and binding arbitration under the Commerolal Arbitration Rules of the American Arbitration Association. The arbitration shalt take place befare a panel of three arbitrators. Within 30 days of the commencement of the arbitration, each party shall designate in writing a single neutral and independent arbitrator. The two arbitrators designated by the parties shall then select a third arbitrator. The arbitrators shall have a background in either insuranea, actuarial science or law. The arbitrators shall have the authority to permit limited discovery, including depositions, prior to the arbitration hearing, and such discovery shall be conducted consistent with the Federal Rules of Civil Procedure. The arbitrators shall have no r or authority to award punitive or exemplary damages. The arbitrators may, in their discretion, award the cost of the arbitration, including reasonable allomey fees, to the prevailing party. Any award made may be confirmed in any court having jurisdiction. Any atish afion shall be confidential, and except as required by law, neither party may disclose the content or results of any arbitration heraunder without the prior written consent of the other parties, except that disclosure Is parmitted t4 a partys auditors and legal advisors. 3. Choic�nf Law. The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of Now York without regard to tts conflict of laws provisions. in the event anyy provision of this agreement is unenforceable as a matter of law, the remaining provisions shall stay In full force and aHad. 4. No Third Party button Mlllimares work is prepared solely for the internal business use of the City of South Miami. Milkman's work may not be provided to third parties without Miliimen's prior written consent. Milliman does not Intend to benefit any third parry reciplerd orbs work product, even it Millman consents to the release of its work product to such third party. 5, Terms of Agreement, ?his Agreement will become effective upon the signature of both parties, and will remain in effect until terminated by either party as provided herein. Either party may terminate this Agreement upon ninety (90) days prior written notice. Miiliman will retain any records it has relating the Services provided under this Agreemant for a period of three years following the termination of this Agreement. This Service Agreement will take effect upon the signature of both patties below. CITY OF SOUTH MIAMI I have read and agree to the terms and conditions of this Agreement. Accepted by: Printed Name: Title: tote: eASa 4S proposal to r iovide Initial GASS 40 Analysts Poi theOiiy or Soute WW NoveO ber %2010 MILLIMAN, INC. i have read and agree to the terms and conditions of this Agreement. Accepted by: Printed Name: Title: Principal Data- 1%^ +{N.: .C,4.i,. 1•a .. Is Milliman Proposal EXHIBIT 6— BUSINESS ASSOCIATE AGREEMENT ( HIPAA COMPLIANCE) MILLIMAN, INC. BUSINESS ASSOCIATE AGREEMENT This BUSINESS ASSOCIATE AGREEMENT ("Agreement) is entered into effective the _ day of 2010 by and between the City of South Miami ("Client°) and Milliman, Inc. ("Mllliman). RECITALS A. Client is a Covered Enthy as defined under the Health Insurance Portability and Acooumabiihy Act of 1996 ('HIPAA ") and is therefore subject to HIPAA and its implementing regulations, including the Standards for Privacy of Individually identifiable Health Information (the *Privacy Rule ") and the Security Standards for the Motion of Electronic Protected Health information (ths "Security Rule ") and Subtitle D of the Health Information Technology for Economic and Clinical Health Act ("HITECH") enacted as part of the American Recovery and Reinvestment Act at 2009 (collectively, HIPAA, the Prhwy Rule, Security Rule and HITECH shall be referred to herein as the " HIPAA Regulations"). a. Protected Health Information received from Client or created or received by Milliman on behalf of Client ("PHI') may be needed for Milliman to perform the services (the "Services ") requested by Client and described in any underlying agreement between the parties (the `Underlying Agreement'): C. To the extent Milliman needs to access PHI to perform the Services, It will be acting as a Business Associate of Client and will be subject to certain provisions of the HIPAA Regulations, D. Mllliman and Client wish to set forth their understandings whir regard to the use and disclosure of PHI by Millman so as to comply with the HIPAA Populations. 4.. XGREEMENTS in consideration of the Recitals and the mutual agreements below, the parties agree as follows: t, Daf'inetl Terms. Capitalized terms used, but not otherwise defined, In this Agreement shall have the same meaning as those terms in the HIPAA Regulations: 2. Milliman's ObHoatlons and Permltted Acts ift as. (a) Milliman agrees to not use or further disclose PHI other than as required to perform the Services, requested by Client or Required By Law, or as otherwise permitted herein. (b) Milliman agrees to use reasonable safeguards to prevent use or disclosure of PHI other than as provided for by this Agreement, and shall develop, implement, maintain and use appropriate administrative procedures, and physical and technical safeguards, to reasonably preserve and protect the confidentiality, integrity and availability of electronic PHI. (o) Milliman agrees to report to Client, without unreasonable delay and in no case later than five (5) business days following actual knowledge by Milliman! (i) Any use or disclosure of PH not provided for by this Agreement. (11) Any Security Incident of which Milliman becomes aware; provided, however, that the parties acknowledge and agree that this section constitutes notice by Milliman to Client of the ongoing existence and occurrence of, attempted but Unsuoosssful Security incdents of which no additional notice to Client shall be required, Unsuccessful Security Incidents shall include, but not be limited to, pings and other broadcast attacks on Mlplman's firawall, part scans, unsuccessful log - on attempts, denials of service and any combination of the above, so tang as such incidents do not result in unauthorized access, use or disclosure of Client's eleetmmo PHI. (ffl) Any Breach of Unsecured PHI, as defined in 45 CPR 164,402. Following the initial notification of any such Breach, Milliman shall provide a report to CGOnt that includes, to the extent possible: (A] a brief description of what GASS 45 1s Proposal to Provide 1nftlatGASS 45 Analysis fW the City of 800h MIMI November 0, 2010 flab; .. .... .. '.C: "... Gyfi t[:ir':!'•ri�� °C,', �. �.li!... � ti"Yv.:,. ... o., .f .. , a M1lfiman Proposal including the names of any Individuals whose PHI has been or is reaaonably believed in have bean accessed. acquired or disclosed and the types of PHI involved (such as full name, social security number, date of birth, home address, account numbers, eto.); and [C) a brief description of what Milliman has done to investigate the Breach, to mitigate harm to Individuals, and to protest against any further Breaches. Milliman also shall provide to Client any other available information Client is required to include in Its notification to affected individual(s). (d) Milliman agrees to ensure that any agent or subcontractor to whom it provides PHI agrees to the same or substantially similar restrictions and conditions as those that apply to Millman through this Agreement with respect to such PHI. (a) . Milliman shall make its internal policies, procedures and records relating to the use and disclosure of PHI reasonably available to the Secretary or tc Client g necessary or required to asaeas Wilmette or the Client's compliance with the HIPAA Regulations. (f) it is not anticipated that Milliman will maintain a Designated Record Set on behalf of Client; however, if Millman maintains a Designated Record Sat on behalf of Client, Milliman agraas to, at Clfenrs written request: (q provide access to such PHI in order to assist Client In meeting its obligations under the Privacy Rule, and (g) make any amendment(s) to such PHI as Client so dbroots or agrees to pursuant to the Privacy Rule. (g) So that Client may mot its disclosure accounting obligations under the HIPAA Regulations, Millman agrees to document disclosures of PHf made by Milliman which are not excepted from disclosure accounting requirements under the HIPAA Regulations. (h) Millman may use PHI for Millimates proper management and administration or to carry out its legal responsibilities. Millman may disclose PHI for Miiliman's proper management and administration, provided that: (h) Milliman obtains reasonable assurances from fie person to whom PHI is disclosed that it will remain oonfldentlai and used or further disclosed only as Required By Law or for the purpose for which it was disclosed to the person; and (11) the person notifies Millman of any instances of which it Is aware in which the confidentiality of PHI has been breached. Millman also may make disclosures that'are required by law. (i) Milliman may use PHI to Provide Data Aggregation sorAcee to Client as permitted by the Privacy Rule. 0 Milliman may, at its option: (1) Doklentify PHI in accordance with the requiremants of the Privacy Rule and maintain such deidantiflad health information Indefinitely; provided that all Identifiers are destroyed or returned in accordance with this Agreement. (Ii) Create a Limited Data Set for the purpose of providing the Services, provided that Millman: [a] Does not use or further disclose PHI contained in the limited Data Set except as necessary to provide the Services or as provided for In this Agreement or otherwise Required By Law; 101 Uses approprtstassfaguards to prevent the use or disclosure of PHI contained in the Limited Data Set other then as provided for by this Agreement; [07 Reports to Client any use or disclosure of PHI contalned in the Limited Data Set of which Milliman becomss aware that is not provided for by this Agreement; (df Ensures that any agents or subcontmdors to whom it provides access to the Limited Data Set agree to the same restrictions and conditions that apply to Milliman under this Agreement; and [e) Does not to-identify PHI or contact the Individuals whose information is contained within the Limited Data SaL �OMWCIU7 .. (ent shall no Rule one Mlihnan Client, use or disclose PHI in any manner that would not be permissible under the Privacy Rule or the (b) Client shall not provide Millman with more PHI than that which is minimally necessary for Milliman to provide the Services and, where possible, Client shall provide any PHI needed by Millimen to perform the Servioes in the form of a Limited Data Set, in accordance With the HIPAA Regulations. GAee 45 Prcrwaal to Provide IrAVAI We 4a Analysis rot the City of $QUdr NOW Novemberolewo �. irF'i:�Ni\ r.l • •.• .� .�;.r'ritl�lia�vn'pv/..rvww ::hT.•t.f"' :.��Jir�r. .�;.,w'tfr'sr \. r v. 'ei.x. • u. .( .. e V Millimen proposal (c) Client shall clearly and conspicuously designate all PHI as such before providing it to Milliman. (d) Client acknowledges and agrees that neither this Agreement nor the Underlying Agreement requires Milliman to make any disclosure for which an accounting would be required under the HIM Regulations. Client further agrees that it shall be solely responsible for tracking and providing Individuals an accounting of any disolosures made by Client to Milliman. (a) Client acknowledges and agrees that the provisions of section 20)(11) of this Agreement shat[ constitute a Data Use Agreement between the parties. 4. Term and Tarrnmation. (a) Term. This Agreement shall be effective as of the date first written above, and shall terminate when all PHI is destroyed or retumed to Client. If Milliman determines, In accordance with subsection 4(c)Qi) below, that 4 is infeasible to return or destroy PHI, the protections of this Agreement with respect to such PHI shall remain in effect until such PHI Is returned ordestroyed. (b) Terming&&_. Upon a party's knowledge of a material breach by the other party, the nonbreaching party shall either: ' (i) Provide an opportunity for the breaching party to cure the breach or end the violation and terminate this Agreement if the breaching potty does not cure the breach or end the violation within the time specified by the nonbreaching party; or (II) immediately terminate this Agreement if the breaching party has breached a material term of this Agreement and cure is not possible. (o) Effect of Terming 'on. (1) Except as cthen+dse provided in subsection 4(c)(it) below, upon termination of this Agreement fur any reason, Mllliman shall return ordWrOy all PHI. This provision shall also apply to PHI that is in the possession of subcontractom or agents of Milliman. (it) If Mllliman determines that returning or destroying any or all PHI Is infeasible, the protections of this Agreement shall 00MMue to apply to such PHI, and Milliman shall limit further uses and disclosures of PHI to those purposes that make the return or destruction infeasible, for so long as Milliman maintains such PHI. Client hereby acknowledges end agrees that Infeasibility includes MlllimaWs need to retain PHI for purposes of complying wfth its work product dooumentation standards. S. Miscellanaaus. (a) Regulatory Referertces. A reference in this Agreement to a section in the HiPAA Regulations means the section as in effect or as amended, and for which compliance Is required. (b) Amendment. Upon the effective date of any final regulation or amendment to the HIPAA Regulations, this Agreement shall be doomed automatically amended so that the obligations It imposes on the pantas remain In compliance with such regulations. Following amendment of the Agreement in this manner, the parties shall, as necessary, work together to defy their rospoctive oligations with respect to any now requirements under the modified HIPAA Regulations. ... (c) Independorn Conkaotors, Milliman and Client are independent contractors and this Agreement will not establish any`relationship of partnership, joint venture, employment, franchise or agency between Milliman and Client. Neither Milliman nor Client will have the power to bind the other or incur obligations on the other pamjs behalf without the other party's prior written consent, except as otherwise expressly provided in this Agreement, (d) Coaffois in the event that any terms of this Agreement are inconsistent with the terms of the Underlying Agreement, then the forms of this Agreement shall comml, (e) Entire Aaraement. This Agreement shall constitute the entire agreement of the patties hereto with respect to the subject matter hereof and supersedes all prior agreements, amt or written, and all other communications between the parties hereto relating to such subject matter. OASa lie - r8 Proposal to Provide initial CASS 45 Analysls for Me airy of South Miami Novembora, 2010 i' ��' . i . . , . . .. • tQ:; iri1 -, {�.1 �. � ?f�.pei'4u't,�i . .� . �.,.y , , n_ . :Al. , Milliman Proposal IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date that mitten above. Ml WMAN, INC. By GASS as PfVbml to ProAde Inaial GASS as Analysis for the Chy of South aMaml Novom64f 9, 2010 CITY OF SOUTH MIAMI sy Tiee "• tr�.;•�i •,., {' .'t h: 1... :' '67iij�`�;'�ii!a5ib3�;kf+iC:F�, .,e.:?...:. ...'t:.;ii` - ... _. , • 14