Loading...
RFP SM-FN 2010-16 GRSGabriel, Roeder, Smith & Company ♦ One East Broward Blvd., Suite 505 ♦ Fort Lauderdale, FL 33301 Contact: Lawrence F. Wilson, A.S.A. Phone Number: (954) 527-1616 ♦ Fax Number: (954) 525-0083 ♦ E-mail: larry.wilson@gabrielroeder.com CITY OF SOUTH MIAMI, FLORIDA RFP NO. SM-FN 2010-16: PROPOSAL FOR ACTUARIAL CONSULTING SERVICES OCTOBER 20, 2010 City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services TABLE OF CONTENTS SECTION PAGES 1 RFP CHECKLIST 2 LETTER OF TRANSMITTAL 3 PROFILE OF PROPOSER 3-1 thru 3-6 4 SUMMARY OF PROPOSER’S QUALIFICATIONS 4-1 thru 4-4 5 PROJECT UNDERSTANDING, PROPOSED APPROACH, AND METHODOLOGY 5-1 thru 5-4 6 REFERENCES 6-1 7 PROJECT TIME SCHEDULE 7-1 8 FEE PROPOSAL 8-1 thru 8-2 APPENDIX A REQUIRED FORMS B STAFF BIOGRAPHIES C SAMPLE PRIOR CALCULATIONS OF BENEFIT STRUCTURES AND / OR ACTUARIAL BENEFIT ADJUSTMENT REPORTS D INSURANCE COVERAGE E GRS PUBLICATIONS F “RESPONDING TO LOCAL GOVERNMENT RETIREMENT- PLAN FUNDING ISSUES” (REPRINT FROM QUALITY CITIES) SECTION 1 RFP CHECKLIST SECTION 2 LETTER OF TRANSMITTAL October 19, 2010 City of South Miami Attn: City Clerk 6130 Sunset Drive South Miami, Florida 33143 Re: RFP No. SM-FN 2010-16, Proposal for Actuarial Consulting Services Dear Sir or Madam: Gabriel, Roeder, Smith & Company (GRS) is proud of our service as actuaries and consultants to the South Miami Pension Plan (Plan) covering General Employees and Police Officers since 2001. As such, we bring to the table a great deal of specific knowledge about the history and nuances of the Plan. We believe this long, mutually rewarding relationship, along with our firm’s expertise in the public sector, will enable the City to best achieve your goals and objectives. We are pleased to have the opportunity to submit a proposal to provide additional professional actuarial consulting services in connection with the Plan. The attached proposal sets forth our understanding of the work to be performed and the overall qualifications and capabilities of the consultants and resources of GRS, while specifically addressing the requirements set forth in RFP No. SM-FN 2010-16. GRS offers you an independent actuarial firm that uniquely specializes in public sector retirement systems; has a nationally recognized reputation; maintains an excellent research center specializing in public employer retirement issues and has a clear understanding of the national, state and local political and legislative environments and processes. Our South Miami Team is highly capable and experienced with you, your Plan and with the public sector arena. We pledge to provide you accurate and timely service, presented in a manner that maximizes its value to you. By using state-of-the-art technology, we will maximize efficiency. SECTION 3 PROFILE OF PROPOSER City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-1 PROFILE OF PROPOSER a. State whether your organization is national, regional or local. Gabriel, Roeder, Smith & Company (GRS) is a national organization with a local full-service office in Fort Lauderdale. GRS is the nation’s largest provider of professional actuarial and consulting services to the public sector retirement community. We provide professional actuarial and consulting services, which encourage sound financing, sensible benefit design, efficient administration and effective communication in employee benefit plans. What makes GRS unique among actuarial consulting firms is our commitment to public employee retirement systems. b. State the location of the office from which your work is to be performed. All work for this project will be done in our full-service Fort Lauderdale office. Local Servicing Office: Gabriel, Roeder, Smith & Company One East Broward Boulevard, Suite 505 Fort Lauderdale, Florida 33301 954.527.1616 c. Describe the firm, including the size, range of activities, etc. Particular emphasis should be given as to how the firm-wide experience and expertise in the area addressed by this Request for Proposal, will be brought to bear on the proposed work. HISTORY OF FIRM, STRUCTURE, AND OWNERSHIP Gabriel, Roeder, Smith & Company (GRS) was incorporated in 1962 from a merger of A.G. Gabriel & Company, a sole proprietorship established in 1938, and another younger sole proprietorship, Roeder & Company. GRS is a private Michigan corporation that is 95% employee owned. Our client base is national in scope—the firm’s growth tends to be steady and constant. GRS is headquartered in Southfield, Michigan, and maintains full-service offices in Fort Lauderdale, Chicago, Dallas and Denver. Some key characteristics of our client base offer an insightful overview of our experience: We provide actuarial and benefit consulting services to over 800 public sector clients; City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-2 Our client base is comprised of post-retirement benefit systems sponsored by state, city, public authority, county, hospital, private-sector and other not-for-profit organizations; Nearly 100% of our client base is in the public sector; Over 95% of our revenue is derived from services to the public sector; GRS provides independent consulting services generated on a fee-for-service basis. We sell no products—our consulting is provided solely in the best interests of our clients. Our philosophy is to deliver high-quality consulting services specifically tailored to each of our client’s objectives; Our services are offered through full-service offices. If retained, your project will be serviced from GRS’ Fort Lauderdale, Florida location; We currently serve as actuary to 21 statewide retirement plans with an average of 50,000 retirees and 110,000 active employees each; Concurrently, we serve as valuation actuary and consultant to 29 statewide retirement plans with an average of $17 billion in assets each; and Most GRS clients have multiple retirement structures. In many cases, our clients have multiple plans because of multiple classes of employees, such as firefighters, police officers, teachers and general employees. Often, different groups of employees are subject to different pension provisions resulting from different collective bargaining agreements. States Where GRS Has Provided Actuarial and Benefits Consulting Services The far-ranging locations of our clients, and the long associations we have enjoyed with them, attest to the quality of our services. We have been associated with more than half of our clients City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-3 for at least 10 years—many for more than 40 years—some for 60 years. Our first client, the City of Detroit, continues to be our client today, after more than 70 years! Our broad experience in diverse geographical and political environments is a substantial asset to our clients. Our commitment to public employee retirement systems is highlighted by the fact that all of our actuaries have experience in public plan benefit design, plan administration and legislative issues—as well as valuation-related services. GRS staff includes other professionals knowledgeable and experienced in providing expertise and support to clients inexecuting the various facets of retirement plan administration. Additionally, GRS has more actuaries and consultants devoted to governmental retirement systems than any other firm in the country. Because all of our actuaries and consultants have extensive public plan experience, the back-up needed to deal with unforeseen circumstances is always available. Our employees are affiliated with numerous governmental groups—from the national Government Finance Officers Association (GFOA) and the National Association of State Retirement Administrators (NASRA) to the Florida Public Pension Trustees Association (FPPTA). Larry Wilson, the Supervising Actuary assigned to the Plan, is a member and former Chair of the Public Plan Committee of the American Academy of Actuaries and a founding member of the Public Plans Committee of the Conference of Consulting Actuaries. GRS’ long history of supporting and educating public sector professionals, governing bodies and other stakeholders on actuarial and benefits consulting topics dates back to the 1930s, when our founders helped governments design their first defined benefit pension plans by providing consulting support, expertise and actuarial services. Today we support hundreds of benefit plans by providing pension, retiree medical (OPEB), health, retirement technology and plan administration services. GRS continues to support the public sector, not only through providing services, but by dedicating our resources to the public sector benefits industry in the form of published articles, conference presentations, surveys, legislative testimony and membership on committees of public sector organizations. RECENTPLANREDESIGNPROJECTS Within the past two years, Larry Wilson’s team has been involved or is currently involved in plan redesign projects for 26 employers in the state of Florida, listed below. All of these projects address the need to stem the increases in pension costs and liabilities that have been occurring over the last several years. These projects have generally determined the financial effect of one or more of the following actions: Reducing benefits for current employees on a prospective basis. (Accrued benefits can not be reduced.) Implementing a lower set of benefits (higher employee contributions) for future employees. Migrating to the Florida Retirement System (FRS). City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-4 Introducing a defined contribution plan. Reviewing actuarial assumptions and methods. Establishing a hybrid plan, i.e., the combination of a modest defined benefit plan and a defined contribution plan. 26 employers in Florida for whom these projects have been / are being performed are: Clearwater Cooper City Coral Springs Dania Beach Delray Beach Fort Meade Hialeah Jupiter Island Key West Utility Board Kissimmee Lake Worth Lakeland Miami Beach Miami Shores Miramar Mount Dora North Miami Beach Orange Park Orlando Utilities Commission Pembroke Pines Plantation Riviera Beach Sarasota Vero Beach West Palm Beach Winter Park In addition, your Team recently completed a Pension Review assignment for the Mobile (Alabama) Housing Authority and was recently retained by the City of Winter Springs, Florida, for plan redesign work. OUR PEOPLE We have 120 employees and five (5) offices. GRS has 44 credentialed actuaries who work exclusively in the areas of public sector pension, health and OPEB programs. All of our employees are involved in serving public sector agencies, from consultants to administrative staff. Our Employees Can Be Categorized Approximately as Follows: Pension / OPEB Practice 76 Health & Welfare Practice 9 Technology Services 6 DB Administration 5 IT Support 2 Corporate & Admin. Support 22 Total 120 City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-5 AVAILABLE SERVICES Our primary business is providing actuarial and consulting services to public employee retirement systems. We also provide retiree medical (OPEB) consulting, health and welfare consulting and software for our clients. The following is a breakdown of the various business units in GRS: Major Consulting COMPONENT PRODUCTS /SERVICESCategories PENSION CONSULTING Actuarial Valuations Actuarial Audits Actuarial Projections Experience Studies Benefit Design HEALTH &WELFARE CONSULTING Health Plan Design Evaluation Financial & Actuarial Analysis Vendor Management Legislative Impact Analysis GASB 43/45 Consulting TECHNOLOGY PRODUCTS/SERVICES Pension Administration Systems Benefit Comparison and Plan-Costing Systems Data Management Systems Projection Tools Web-Based Applications DEFINED BENEFIT PLAN ADMINISTRATIVE SERVICES Recordkeeping and Administration Benefit Calculations Member Education Member Inquiries Required Reporting We would be pleased to provide you with additional information regarding any of these services, upon request. d. Provide a list and description of similar municipal engagements satisfactorily performed within the past two (2) years. For each engagement listed, include the name and telephone number of a representative for whom the engagement was undertaken who can verify satisfactory performance. REFERENCES We are providing the name, title and telephone number for our contact person for five (5) clients similar in scope and size and served out of our Fort Lauderdale offices within the past two (2) years by your Team. We would be pleased to provide contact information for additional clients, at your request. Unlike other actuarial firms, GRS is committed to the public plan market. Actuarial and consulting services for public plans have been our specialty since we were founded in 1938. In fact, 95% of GRS’ revenue is from public plan services. Our clients continue to select GRS because of our commitment and delivery of the highest level of quality services to our public plan clients. Engagement: City of Hialeah Contact Name: William M. Grodnick, Esq., City Attorney Phone:(305) 883-5854 City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 3-6 Engagement: Utility Board of the City of Key West Contact Name: Mr. Jack Wetzler, Assistant General Manager and Chief Financial Officer Phone:(305) 295-1013 Engagement: Town of Orange Park Contact Name: Ms. Connie Wolfe, Finance Director Phone:(904) 278-3017 Engagement: City of Pembroke Pines Contact Name: Ms. Karen H. Warner, Administrator Phone:(954) 431-3124 Engagement: City of Winter Park Contact Name: Mr. Jeff Templeton, Retirement Plan Administrator Phone:(407) 758-3490 e. Have you been involved in litigation within the last five (5) years and is there any pending litigation arising out of your performance? GRS has no current litigation and has had no claims filed against it in the past five (5) years. f. Is your firm or a related firm currently providing any services to the City of South Miami Employees’ Retirement Fund. Gabriel, Roeder, Smith & Company is the current actuary for the South Miami Pension Plan. GRS has provided professional actuarial and consulting service to the Plan in this capacity since 2001. g. Is your firm involved in any litigation that directly effect services provided to the City of South Miami? GRS is not involved in any litigation that directly effect services provided to the City of South Miami. SECTION 4 SUMMARY OF PROPOSER’S QUALIFICATIONS City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 4-1 SUMMARY OF PROPOSER’S QUALIFICATIONS a. Identify the project manager and each individual who will work as part of the engagement. Include resumes for each person to be assigned. The resumes may be included as an appendix. THE GRS TEAM FOR THE CITY OF SOUTH MIAMI The following is the Fort Lauderdale-based GRS Team selected for the services outlined in our proposal. Supervising Actuary: Larry Wilson, A.S.A., Senior Consultant and Actuary Assisting Actuary: Pete Strong, A.S.A., Consultant and Actuary Professional Staff: Jennifer Borregard, E.A., Senior Analyst Alex Smith, Senior Analyst Valmiki Ramsewak, Actuarial Analyst Back-up actuaries and analysts are available in Fort Lauderdale and in GRS’ other offices in Michigan, Colorado, Illinois and Texas. We will also use administrative support, as needed. GRS does not, and will not, utilize subcontractors or sub-consultants to provide the services requested in RFP No. SM-FN 2010-16. Resumes for each of the above-listed Team members are provided in Appendix B. b. Describe the experience in conducting similar projects for each of the consultants assigned to the engagement. Describe the relevant educational background of each individual. Your GRS Team includes Larry Wilson as the Supervising Actuary. He is a Senior Consultant and Actuary who has over 25 years of professional experience in the actuarial profession, including over 20 years of responsible Florida public plan professional actuarial and consulting experience. He is an Associate of the Society of Actuaries (A.S.A.), a Member of the American Academy of Actuaries (M.A.A.A.), a Fellow of the Conference of Consulting Actuaries (F.C.A.) and an enrolled actuary (E.A.). Mr. Wilson provides professional actuarial, consulting and administrative services to public retirement systems. In this capacity, he brings a high level of expertise to his supervision of a GRS team responsible for a number of governmental plans in Florida and other states. City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 4-2 His duties and responsibilities for his accounts include peer reviewing and overseeing actuarial valuations, impact statements and benefit communications; communicating results to clients; and consulting with respect to plan design and experience analyses, asset / liability studies and deterministic and stochastic modeling projections. Larry currently serves as a Team Leader in the Fort Lauderdale office. Mr. Wilson has served as lead actuary and consultant to the South Miami Pension Plan since 2001. Mr. Wilson is a member (and former Chair) of the Public Plans Committee of the American Academy of Actuaries and a founding member of the Public Plans Committee of the Conference of Consulting Actuaries. He holds a Bachelor of Arts degree in mathematics from Binghamton University (State University of New York at Binghamton). Pete Strong is a Consultant with over fourteen years of professional actuarial experience. He will serve as the Assisting Actuary for the City. Pete is an Associate of the Society of Actuaries (A.S.A.), a Member of the American Academy of Actuaries (M.A.A.A.), a Fellow of the Conference of Consulting Actuaries (F.C.A.) and an Enrolled Actuary (E.A.). His duties and responsibilities for other public plan retirement systems include thoroughly reviewing actuarial valuations, impact statements, plan design analyses, experience studies and benefit communications prepared by analysts. He holds a Bachelor of Science degree in mathematical sciences from the University of North Carolina at Chapel Hill. Jennifer Borregard will serve as a Senior Analyst to the City. Jennifer has more than eleven years of professional actuarial experience, including multiple public plan retirement systems. Jen is an Enrolled Actuary (E.A.). Jennifer ensures her accounts are properly staffed so that projects can be completed accurately and efficiently. Jennifer holds a Bachelor of Science degree in mathematics, with a minor in actuarial sciences, from the University of Florida, Gainesville. Alex Smith will also serve as a Senior Analyst to the City. Alex has over two years of professional actuarial experience, including multiple public plan retirement systems. Alex holds a Bachelor of Science degree in accounting from the University of Cape Town, South Africa. He is currently pursuing the Associate designation from the Society of Actuaries. Valmiki Ramsewak will serve as an Analyst to the Fund. Valmiki has more than three years of professional actuarial experience, including multiple public plan retirement systems. Valmiki holds a Bachelor of Science degree in actuarial science, with a second major in finance, from the University of Illinois at Urbana-Champaign. He is currently pursuing the Associate designation from the Society of Actuaries. Larry, Pete, Jen, Alex and Valmiki are all located in the Fort Lauderdale office. Virtually every member of our professional staff has in-depth experience with public employee retirement plans. We believe our knowledgeable, responsive approach permits us to offer the highest level of prompt, informed service and personnel back-up. City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 4-3 c. Describe the organization of the proposed project team, detailing the level of involvement, field of expertise and estimated hours for each member of the team. TEAM ORGANIZATION CHART LARRY WILSON ASA, MAAA Senior Consultant and Actuary Primary Consulting Actuary Overall responsibility for all aspects of GRS services PETE STRONG ASA, MAAA Consultant and Actuary Valuation Actuary JENNIFER BORREGARD Senior Actuarial Analyst Project Manager VALMIKI RAMSEWAK Actuarial Analyst Data Preparation and Computer Set-up ALEX SMITH Senior Actuarial Analyst City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 4-4 Each Team Member will be directly involved in providing services to the City of South Miami. As Project Manager, Larry Wilson will have overall responsibility for all aspects of GRS services. Pete Strong will serve as Actuary to the City and will be directly involved in the review of financial analysis and results. Jen Borregard will serve as Senior Analyst to the City and will be directly involved in the review of financial analysis and results She will be assisted by Alex Smith and Valmiki Ramsewak. We provide services using a team-based approach. Team members keep each other, their Team Leader and their Regional Director apprised of client needs and satisfaction levels. Using these methods, we are able to ensure our clients remain satisfied. Also, we find that these methods produce timely solutions to client needs. GRS has the practices of assigning components of all projects to the lowest time-rated employee who is also capable of performing the work accurately and efficiently. This keeps our fees down and our quality up. Each of these professionals is a highly qualified actuarial technician. What sets them apart, however, is that they are also high-quality consultants who are sensitive enough to listen, experienced enough to provide real alternatives and articulate enough to make themselves understood by any audience on any topic in the retirement area—from actuarial concepts to benefit administration. d. Describe what municipal staff support you anticipate for the project. SUPPORT NEEDED FROM CITY Largely as a result of our position with the Plan, we believe data requirements, if any, will be minimal. We will look to the City for a status update, direction on how to proceed for Phase 1 and direction on how to proceed for Phase 2. We anticipate we already have all census data required for Plan participants. To the extent the City requests inclusion of employees not currently in the data, the City will need to provide pertinent census data for any such employees. SECTION 5 PROJECT UNDERSTANDING, PROPOSED APPROACH, AND METHODOLOGY City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 5-1 PROJECT UNDERSTANDING, PROPOSED APPROACH & METHODOLOGY Please include prior calculations of benefit structures, and if available, any prior actuarial benefit adjustment reports. Four sample prior calculations of benefit structures and/or prior actuarial benefit adjustment reports are provided in Appendix C. Describe your approach to performing the contracted work. This should include the following points: Type of services provided. Discuss your role and that of other parties involved in the data gathering, data analysis and recommendation process. Discuss your project plan for this engagement outlining major tasks and responsibilities, time frames and staff assigned. We would recommend a two phase approach to this assignment. Phase 1 would be qualitative— setting out analysis and available options, including benchmarking. You may have already completed much of this Phase. Phase 2 would be quantitative—30-year actuarial projections under options the City finds worthwhile. GRS will project the effect on State funds under Chapter 185 under the various options to be forecast. The work plan for Phase 1 includes a meeting to discuss the current status of the project. We will discuss how much of the qualitative Phase 1 has been / needs to be completed. Our role would be to determine what information is needed / desired. Upon establishment of the goals and objectives we would provide analysis of the options (pros and cons) along with any benchmarking of current benefit provisions and levels. Upon completion of Phase 1 we would meet to discuss the options the City would like financially modeled. The more options modeled, the higher the fees and the longer the time frame to complete Phase 2. Largely as a result of our position with the Plan, we believe data requirements, if any, will be minimal. We will look to the City for a status update, direction on how to proceed for Phase 1 and direction on how to proceed for Phase 2. GRS understands the tight time constraints associated with this project and is prepared to meet them. Upon setting the goals and objectives for Phase 1, we expect our Report will be available within two to three weeks. Upon direction for Phase 2, we expect our Report will again be available in two to three weeks, following direction on alternatives to be modeled. City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 5-2 Our consultants routinely communicate with Retirement Boards and staff in the normal course of providing services. Such communications occur as a result of meetings, phone calls, email, and letter communications between the Plan and GRS. We find that these methods produce timely solutions to client needs. Given our large Fort Lauderdale office, with numerous experienced public sector actuaries, someone is always available in the event of an emergency or other circumstance involving the lead actuary. Calculate and report the cost of changes in benefit structure for the purpose of runway models and projections. GRS Approach: GRS is distinguished from its competitors because of its unparalleled depth of experience addressing policy and legal issues related to public employee retirement systems across the nation. GRS can assist City staff in analyzing proposed benefit changes. We can also assist the City in developing specific strategies for resolving any policy or administrative problems associated with implementing new benefit proposals. We routinely assist our clients by providing timely financial impact estimates of benefit proposal changes. Because of our extensive background in the public sector, we are aware of the pressures that can occur when benefit proposals must be evaluated during collective bargaining or other budget and planning sessions. We are prepared to expend every resource to meet required deadlines. We are known for our responsiveness and the quality of our work. GRS will deliver on time, while always following generally accepted actuarial standards in all of our work. There are several steps in the process for legislative analysis. The exact steps would depend on the type of analysis. Below is an example. 1.Receive request from the City. Discuss time frame for completion of request. 2.Read the proposed change in conjunction with existing plan and / or current statutes to develop an understanding of the proposal. 3.Discuss the proposal with staff to ensure that GRS’ understanding is accurate. 4.Determine if there are peripheral issues that affect the actuarial costs associated with the proposal. 5.Assess policy and administrative implications. 6.Perform calculations, as needed, to isolate costs. 7.Review calculations for reasonableness. In this step, we will check to see if the proposal has been evaluated in the past and verify that differences between current results and previous results are reasonable. 8.Prepare draft report showing, at a minimum: i.A summary of the statutory changes being considered. ii.A description of, or reference to, the actuarial assumptions and cost method. City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 5-3 iii.A description of the participant groups affected and a summary of the data. iv.A statement of the financial impact of the legislation, including the resulting increase in City normal cost percentage and the percent of payroll that would be required to amortize the increase in actuarial accrued liabilities as a level percent of payroll over a period of years. v.A statement indicating whether the scheduled contributions to the plan, after enactment of the proposed change, are expected to be sufficient to satisfy the funding objectives of the City. vi.Review the draft response with staff / board. During this step, we will discuss policy or administrative problems associated with the proposal and provide advice on resolving those problems if the proposal passes. vii.Incorporate staff suggestions into the report and deliver our final report. Your proposed team members work on at least 20 actuarial valuation studies per year for our clients. Typical plan changes include: Raising the benefit multiplier, Adding a Deferred Retirement Option Plan (DROP), Changing normal or early retirement eligibility, Providing a COLA, Liberalizing vesting requirements, Reducing the number of averaging years in average final compensation, and Providing service purchases. Meet, as necessary, with the Pension Ad Hoc Committee and City Staff to explain changes to the Fund and actuarial assumptions. Based on certain projections or changes. GRS Approach: Our consultants routinely communicate with Retirement Boards and staff in the normal course of providing services. Such communications occur as a result of meetings, phone calls, email, and letter communications between the systems and GRS. We find that these methods produce timely solutions to client needs. As lead consultant, Larry Wilson will attend the meetings of the Ad Hoc Committee. The backup actuary, Pete Strong, will be available to attend should Mr. Wilson be unavailable. Given our large Fort Lauderdale office with numerous experienced public sector actuaries, someone is always available in the event of an emergency or other circumstance involving the lead actuary. City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 5-4 APPROACH & STEPS 1.Our approach to providing general services is: A service is requested by phone, letter, or email—or at a client meeting. A discussion with the appropriate requesting party results in authorization of the work, followed by direction on prioritizing the request among other current requests of the City. The request is assigned to one or more GRS South Miami Team Members. The project is completed and reviewed by a GRS Senior Consultant and Actuary. The finished product is provided to the requestor. 2.GRS has strict quality control procedures to ensure that our clients receive reliable results. All actuarial valuation reports and studies must have a doer, a checker, a reviewing Actuary and a Peer Review Actuary—and must have detailed checklists (work papers) completed. Other services, such as benefit calculations or verifications, also have similar procedures. We believe this considered approach gives our clients a high level of confidence in our final work products. 3.Recommendations for changes in benefit design, administrative policy or retirement law may originate a number of ways: We are asked to comment on specific issues that have come up at a meeting of the Plan governing body or are the result of City staff research. We periodically review the benefit structure to determine whether any issues need to be addressed (usually due to changes in federal law). Our recommendations are generally in the form of a letter, although sometimes an in-depth report is appropriate and other times a telephone call or email is sufficient. 4.Our publications, GRS Insight,News Scan and various research memoranda, are our primary way of communicating changes in federal or accounting standards that may affect the City. These publications can be found at www.gabrielroeder.com. 5.We are readily available, by telephone or in person, on very short notice. In the unlikely event that one of your primary consultants is unavailable, the depth of our staff provides that an experienced back-up is always available. SECTION 6 REFERENCES City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 6-1 REFERENCES Please provide contact information of an employee and Pension Board member or other non- government related contact for each entity. We are providing the name, title and telephone number for an employee and Pension Board member or other non-government related contact for five (5) clients similar in scope and size to the City and served out of our Fort Lauderdale offices within the past two (2) years by the Team assigned to South Miami. We would be pleased to provide contact information for additional clients, at your request. Entity: City of Hialeah Contact Name: William M. Grodnick, Esq., City Attorney Phone:(305) 883-5854 Entity: Utility Board of the City of Key West Contact Name: Mr. Jack Wetzler, Assistant General Manager and Chief Financial Officer Phone:(305) 295-1013 Entity: Town of Orange Park Contact Name: Ms. Connie Wolfe, Finance Director Phone:(904) 278-3017 Entity: City of Pembroke Pines Contact Name: Ms. Karen H. Warner, Administrator Phone:(954) 431-3124 Entity: City of Winter Park Contact Name: Mr. Jeff Templeton, Retirement Plan Administrator Phone:(407) 758-3490 SECTION 7 PROJECT TIME SCHEDULE City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 7-1 PROJECT TIME SCHEDULE Specific Services will be requested as needed. Estimated time of project will be required with an approximate cost associated before work completed. Please provide an estimated cost per runway model study, based on past professional experience. It is GRS practice that fees for services of a non-recurring nature are based upon our hourly rates. These rates apply to any special consulting or actuarial analyses. We normally provide a not-to-exceed fee quote for major special services. Under the not-to-exceed approach, we would charge the lesser of our costs, based upon our hourly rates and the quoted not-to-exceed fee. We will submit invoices for special actuarial services monthly. Our hourly rates are quite competitive in the industry. Unlike some other firms, our hourly rates include our overhead. We do not load our fees for technical and administrative services. Further, we will not increase these hourly rates and fixed fee amounts for two years. In the third and subsequent years, our fees will be increased only by inflation, as measured by the Consumer Price Index. Our fee for completion of Phase 1 will range between $4,000 and $5,000. Estimated cost per runway model study (based on past professional experience) including 30-year projections, is approximately $2,000 per option modeled with a minimum fee of :$12,000 Please see our complete Fee Proposal (Section H), in the format provided by the City of South Miami. SECTION 8 FEE PROPOSAL City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 8-1 FEE PROPOSAL ACTUARIAL CONSULTING SERVICES – PENSION PLAN FOR GENERAL & POLICE EMPLOYEES GENERAL GRS is compensated solely by fees for services performed directly for our clients. We propose separate fee bases for different services. Please address your fee proposal in the following manner: a) With regard to the Actuarial Consulting Services described herein, other than in connection with a transaction, please propose the amount of your proposed fee on a fix annual cost, payable monthly. Our fee for completion of Phase 1 will range between $4,000 and $5,000. Estimated cost per runway model study (based on past professional experience) including 30-year projections, is approximately $2,000 per option modeled with a minimum fee of :$12,000 b) With respect to additional agreed upon services that may be best performed on an hourly basis, please provide your proposed compensation on a time and expense basis, with a list of hourly billing rates for the firm and any proposed charges. HOURLYFEES While the breadth of retainer (fixed fee) services is quite comprehensive, additional services of a non- recurring nature will be based upon our hourly rates. These rates would apply to any special consulting or actuarial analyses. We normally provide a not-to-exceed fee quote for major special services. Under the not-to-exceed approach, we would charge the lesser of our costs, based upon our hourly rates and the quoted not-to-exceed fee. Our hourly rates are determined based upon the experience and abilities of our staff. The following are current hourly rates for City of South Miami Team Members. Title Rate Senior Consultant Larry Wilson $ 325 - $ 388 Consultant Pete Strong $ 230 - $ 250 Senior Analyst Jennifer Borregard, Alex Smith $ 175 - $ 225 Analyst Valmiki Ramsewak $ 125 - $ 175 Administrative Assistant $ 75 - $ 95 City of South Miami RFP No. SM-FN 2010-16: Actuarial Consulting Services 8-2 Our hourly rates are quite competitive in the industry. Unlike some other firms, our hourly rates include our overhead. We do not load our fees for technical and administrative services. Further, we will not increase these hourly rates and fixed fee amounts for two years. In the third and subsequent years, our fees will be increased only by inflation, as measured by the Consumer Price Index. c) Fee Proposal must Itemized in the format provide in the Scope of Services. a. Importing City Employee and Police data and payroll records. Lump Sum Amount - No fee – we already have data for Plan participants b. Provide general advice and counsel on the Plan and benefit structures on possible plan changes and improvements. c. Calculate and report the cost of changes benefit structure for the purpose runway models & projections. d. Meet, as necessary, with the Pension Ad Hoc Committee and City Staff to explain changes to the Fund and actuarial assumptions . Based on certain projections or changes. Our hourly rates are determined based upon the experience and abilities of our staff. The following are current hourly rates for City of South Miami Team Members. Title Rate Senior Consultant Larry Wilson $ 325 - $ 388 Consultant Pete Strong $ 230 - $ 250 Senior Analyst Jennifer Borregard, Alex Smith $ 175 - $ 225 Analyst Valmiki Ramsewak $ 125 - $ 175 Administrative Assistant $ 75 - $ 95 e. Anticipated Expense Structure (i.e. copy per page amount, etc.) All expenses for the project are included in our hourly rates. GRS is local and thus will not need to be reimbursed for travel expense. APPENDIX A REQUIRED FORMS APPENDIX B STAFF BIOGRAPHIES LAWRENCE F. WILSON Larry Wilson is a Senior Consultant and Actuary with Gabriel, Roeder, Smith & Company. Prior to joining GRS, Larry worked as a Consulting Actuary and Director of Public Plan Practice in the Boca Raton, Florida, office of a national consulting firm. EXPERIENCE Mr. Wilson has over 25 years of employee benefits consulting experience for public pension retirement systems, corporations and tax-exempt organizations. His responsibilities have included valuations for funding and accounting purposes, cost analyses of proposed plan changes, experience studies, actuarial audits, stochastic projections, ERISA reporting and disclosure and defined contribution plan allocations. PROFESSIONAL ASSOCIATIONS Mr. Wilson is an Associate of the Society of Actuaries (A.S.A.), a Member of the American Academy of Actuaries (M.A.A.A.), a Fellow of the Conference of Consulting Actuaries (F.C.A.) and an Enrolled Actuary (E.A.) under ERISA. PROFESSIONAL ACTIVITIES Larry is a Member (and former Chair) of the Public Plans Subcommittee of the American Academy of Actuaries and a founding Member of the Public Plans Committee of the Conference of Consulting Actuaries. He is a frequent guest speaker at meetings of employee benefit professionals, including the Enrolled Actuaries Meeting and the Florida Public Pension Trustees Association. He recently spoke on OPEB GASB requirements at a recent Stars and Stripes forum and on the effective communication of actuarial results at the 41st Annual Police Officers’ and Firefighters’ Pension Conference sponsored by the State of Florida Department of Management Services – Division of Retirement. Larry is active in the community, serving as a frequent volunteer and a member of the YATC Advisory Board. In the past, his community commitments have included serving as Broward County’s Director for the Project MEGSSS Program for secondary mathematics education. EDUCATION Larry holds a Bachelor of Arts degree in mathematics from the State University of New York, Binghamton (Binghamton University). PETER N. STRONG Pete is a Consultant in GRS’ Fort Lauderdale, Florida, office. He provides actuarial and consulting services for public employee retirement systems and OPEB. Pete is responsible for the preparation and presentation of valuations and plan design studies. His clients include cities, counties, hospitals and public authorities. EXPERIENCE Pete has 14 years of actuarial and benefits consulting experience. Early in his career, he gained a strong background in the development of valuation liabilities and modeling techniques for long-term disability programs and life insurance reserve calculations. He further strengthened this valuation and modeling experience while working on middle market pension plans. Pete’s pension plan experience includes defined benefit plans and hybrid arrangements, covering plan design features such as final average pay, career average pay, target benefit, and early retirement windows. Pete’s actuarial modeling experience also includes asset/liability studies using deterministic and stochastic approaches. His pension plan administration experience includes a thorough understanding of the Pension Protection Act of 2006 and Internal Revenue Code Section 401(a), 410 and 415 testing. Pete has many years of experience with retiree health valuations, derived from providing clients with FAS 106 valuations. This experience has prepared Pete to provide GASB 45 valuations in the public sector. Pete’s knowledge of actuarial software is an added strength. In addition to experience with GRS’ internal actuarial software, he has many years of experience working with ProVal and other actuarial valuation systems. He also has experience converting actuarial valuations and models from one valuation system to another. His conversion experience is valuable in transitioning new clients in an efficient and timely fashion, including ensuring that initial replication work is produced seamlessly. PROFESSIONAL ASSOCIATIONS Mr. Strong is an Associate of the Society of Actuaries (A.S.A.), a Member of the American Academy of Actuaries (M.A.A.A.), a Fellow of the Conference of Consulting Actuaries (F.C.A.) and an Enrolled Actuary under ERISA (E.A.). EDUCATION Pete holds a Bachelor of Science degree in mathematical sciences from the University of North Carolina at Chapel Hill. JENNIFER M. BORREGARD Jennifer Borregard is a Senior Analyst with Gabriel, Roeder, Smith & Company. Prior to joining GRS, Jennifer worked as an Actuarial Analyst in the Boca Raton, Florida, office of a national consulting firm. EXPERIENCE Jen has over ten (10) years of employee benefits consulting experience for public retiree health care and pension systems, corporations and tax-exempt organizations. Her responsibilities have included valuations for funding and accounting purposes, cost analyses of proposed plan changes, benefit calculations, client data maintenance, benefit statements, ERISA reporting and disclosure and defined contribution plan allocation. PROFESSIONAL ASSOCIATIONS Ms. Borregard is an Enrolled Actuary under ERISA (E.A.). She is currently pursuing the Associate designation through the examinations sponsored by the Society of Actuaries. EDUCATION Jennifer holds a Bachelor of Science degree in mathematics, with a minor in actuarial sciences, from the University of Florida, Gainesville. ALEXANDER SMITH Alex Smith is a Senior Analyst with Gabriel, Roeder, Smith & Company. Prior to joining GRS, Alex worked for seven years as an Accountant / Finance Manager. EXPERIENCE Alex is currently gaining invaluable employee benefits consulting experience for public pension retirement systems, corporations and tax-exempt organizations. His responsibilities have included valuations for funding and accounting purposes, benefit calculations, client data maintenance and benefit statements. PROFESSIONAL ASSOCIATIONS Mr. Smith is currently pursuing the Associate designation through the examinations sponsored by the Society of Actuaries. EDUCATION Alex holds a Bachelor of Science degree in accounting from the University of Cape Town, South Africa. VALMIKI N. RAMSEWAK Valmiki N. Ramsewak is an Analyst with Gabriel, Roeder, Smith & Company. Prior to joining GRS, Valmiki was an undergraduate student at the University of Illinois. EXPERIENCE Valmiki is currently gaining invaluable employee benefits consulting experience for public retiree health and pension systems, corporations and tax-exempt organizations. His responsibilities have included valuations for funding and accounting purposes, benefit calculations, client data maintenance and benefit statements. PROFESSIONAL ASSOCIATIONS Mr. Ramsewak is currently pursuing the Associate designation through the examinations sponsored by the Society of Actuaries. EDUCATION Valmiki holds a Bachelor of Science degree in actuarial science, with a second major in finance, from the University of Illinois at Urbana-Champaign. APPENDIX C SAMPLE PRIOR CALCULATIONS OF BENEFIT STRUCTURES AND / OR ACTUARIAL BENEFIT ADJUSTMENT REPORTS 1 As prepared by Town Actuary May 4, 2010 Ms. Jane Doe Finance Director Town of Anytown 123 Park Avenue Anytown, Florida 12345 Re: Town of Anytown – Pension Cost Reduction Study Dear Jane: As requested, we have reviewed the most recent actuarial valuation reportsfor the: •Town of Anytown General Employees’ Pension Plan •Town of Anytown Police Officers’ Retirement System1 •Town of Anytown Firefighters’ Retirement Plan1 in order to offer ways to reduce the cost of the Plans. According to the latest actuarial valuation, the minimum required Town contributions for the: •General Employees for the fiscal year ending September 30, 2010 is $608,487 or 25.7% of covered payroll. •Police Officers for the fiscal year ending September 30, 2011 is approximately $340,463 or 28.29% of covered payroll. •Firefighters for the fiscal year ending September 30, 2011 is approximately $159,627 or 17.02% of covered payroll. This represents an increase in costs from the prior year of: •General employees: $94,831 / 4.4% of covered payroll. •Police Officers: $105,261 / 6.89% of covered payroll. •Firefighters: $45,369 / 4.71% of covered payroll. 2009 State contributions in fiscal year 2009 were: •Police Officers: $184,974 •Firefighters: $116,578 State contributions on behalf of the Police Officers decreased by $50,686 (21.5%) in 2009. State contributions on behalf of the Firefighters decreased by $43,834 (27.3%) in 2009. There are three distinct approaches to cost reduction: •Approach I -- changing the benefit provisions / funding of the existing plans. This approach can bring an immediate and long term reduction in cost if plan changes apply to current members as well as new hires. •Approach II -- changing the type of plans. This approach can bring a greater long term reduction, but often the short term cost is increased. •Approach III -- changing the methods and / or assumptions used to determine contribution requirements for the plans. This approach does not change the long term cost of the plans but can change the incidence of cost. Ms. Jane Doe May 4, 2010 Page 2 A combination of approaches may well provide the best solution. Review of October 1, 2009 Valuation Reports Actuarial assumptions and the actuarial cost methods are used to determine the current funding requirements of the Plan. Assumptions determine the size of the liabilities. Cost methods allocate the difference between the liabilities and the assets over future years. Some of the actuarial assumptions used in the most recent valuations may be too optimistic, and as a result the total liability may be artificially low. The actuarial cost method used in all of the valuation of the Town’s pension plans is the Entry Age Normal funding method. Under the Entry Age Normal funding method, experience gains and losses are determined at each valuation date and amortized separately over a period of time not exceeding 30 years. The Entry Age Normal funding method is the most commonly used funding method for Florida plans. We suggest the assumptions be addressed to give you a better handle on where the Plan stands at this point, before making changes to the Plan. Actuarial Assumptions An actuarial assumption that causes us concern is: The mortality table currently being used for actuarial valuation purposes for Police Officers and Firefighters is the 1983 Group Annuity Mortality Table. The RP 2000 Combined Mortality Table with generational improvements is a more current mortality table which has the advantage of projecting future improvements in mortality rates. For example, the RP 2000 Combined Mortality Table with generational improvements reflects a longer life expectancy for a person who will reach age 55 in 2020 than for a person who is age 55 today. Many of our clients have updated their mortality tables, although there are a few who are postponing the change due to the short term cost increase associated with it. The overall trend is that people are living longer and an updated mortality table should be used to reflect this in the calculation of pension cost. We note the mortality table for General Employees has already been updated to the RP 2000 Combined Mortality Table with generational improvements. There may be valid reasons to continue using the above actuarial assumptions; however, we think you should discuss the matter with the Plan actuaries. If the mortality table assumption was updated, the pension liability could increase significantly from the figures shown in the most recent Police Officers and by the Firefighter Plans actuarial valuation reports; however, the higher amount may be a more accurate measure of the true liability of the Plans and a better starting point for implementing change. It may make sense to perform an experience study to determine whether the remaining actuarial assumptions should be updated. Actuarial Cost Methods Actuarial cost methods include the amortization of the unfunded liability and the asset valuation method as well as the overall funding method. State rules generally require amortization of each experience gain and loss, plan amendments and changes in assumptions and methods separately over a period of time not Ms. Jane Doe May 4, 2010 Page 3 exceeding 30 years. The amortization periods currently in place are: •General Employees: All bases are amortized over 30 years. •Police Officers and Firefighters: Changes in actuarial methods are amortized over 20 years and experience gains and losses are amortized over 10 years. The shorter periods used by the Police Officers and by the Firefighter Plans are less than the expected number of years members are expected in the Plans, and therefore, a conservative method of calculating cost. It is important that amortization bases for benefit changes not exceed the expected number of years members are in the Plans. Shorter amortization periods can add contribution volatility as well as increase current Town funding requirements. For General Employees, the unfunded liability is currently funded as a level dollar amount (like a mortgage). For Police Officers and Firefighters, the unfunded liability is currently funded as a percent of payroll, which is assumed to grow 3% (Police Officers) and 5% (Firefighters) per year, respectively. Under this approach the amortization payment is expected to increase each year with the payroll growth assumption. If the Plan is closed or frozen, the unfunded liability should be funded as a level dollar amount, which would increase the amortization payments for Police Officers and Firefighters in the short term. For purposes of being able to compare the effect of alternatives on the same basis, the amortization should be calculated on a level dollar amount for the existing Police Officers and Firefighters Plans as well as the alternatives. For General Employees, the actuarial value of assets equals the book value of the New York Life contact. For Police Officers and Firefighters, the actuarial value of assets is determined by increasing the prior year’s actuarial value of assets by the average annual market value rate of return over the most recent four (4) years, with a ceiling of 120% of market value. We would generally expect a floor of 80% of market value. Spreading investment gains and losses, with a 20% corridor around market value, is a commonly accepted practice. However, the method used by the Police Officers and Firefighters Plans would not be eligible for automatic IRS approval under the automatic approval regulations for corporate plans pre Pension Protection Act of 2006. In addition, under the method employed the actuarial value of assets would not equal the market value of assets even if the fund were to earn exactly 8% over the four (4) year averaging period. In any event it may be useful to look at the contribution based on market value for purposes of making decisions about Plan changes. We suggest reviewing the allocation of assets. One might expect higher investment returns with a prudently allocated portfolio including a significant equity exposure. Approach I: Changing the Benefit Provisions of the Existing Plans The General Employees Plan can be changed prospectively without affecting State funds since the General Plan does NOT receive State funds. Exhibit 1 compares the General Employee Plan to the Florida Retirement System (FRS) for general employees. Any of the following provisions can be changed in order to reduce pension cost while still equaling FRS benefits: Ms. Jane Doe May 4, 2010 Page 4 1.The current benefit rate of 2.5% can be lowered to 1.6% (or any level between 1.6% and 2.5%) for future accruals. 2.The period for calculating average final compensation can be changed from three (3) years to five (5) years. Exhibit 2 compares the current Town of Anytown Police Officers’ Retirement System provisions with the Chapter 185 provisions. We understand reduction of benefits below the March 12, 1999 levels will eliminate ALL State contributions under current State (unwritten) rules. Any of the following provisions can be changed in order to reduce pension cost while still meeting the Chapter 185 requirements: 1.The current benefit rate of 3.75% can be lowered to 2.0% (or any level between 2.0% and 3.75%) for future accruals. It appears the accrual rate was 3.25% as of March 12, 1999. 2.The period for calculating average final compensation can be changed from three (3) years to five (5) years. It appears average compensation was based upon a three (3) year average as of March 12, 1999. 3.Remove accrued sick leave and vacation pay from pensionable compensation. It appears accrued sick leave and vacation pay was not included in pensionable compensation as of March 12, 1999. 4.With regard to future retirees: Eliminate the COLA (currently linked to the Consumer Price Index (CPI) with 3% cap commencing at age 55). Alternatives to complete elimination of the COLA include: Reduce the cap on the COLA. Start the COLA a minimum of five years after retirement. Start the COLA at age 65. Reduce the COLA and delay the starting date. It appears the COLA was linked to the Consumer Price Index (CPI) with 3% cap commencing at age 55 as of March 12, 1999. 5.Change early retirement date (ERD) to age 50 with ten (10) years of service; currently ERD is age 45 with ten (10) years of service. It appears ERD was age 45 with ten (10) years of service as of March 12, 1999. 6.Remove the $200 monthly supplemental benefit for future retirees. It appears the supplemental benefit was $100 month per month as of March 12, 1999. 7.Increase the 3% member contribution rate – F.S., Chapter 185 member contribution rate is 5%. It appears the member contribution rate was 1% as of March 12, 1999. 8.Reduce the service incurred disability benefit to 42% of final average compensation; currently service incurred disability benefit is 50% of pay at disability. It appears the service connected disability benefit was 50% of pay at disability as of March 12, 1999. Ms. Jane Doe May 4, 2010 Page 5 9.Reduce the non-service incurred disability benefit to 25% of final average compensation; currently non-service incurred disability benefit is 25% of pay at disability. It appears the non- service service connected disability benefit was 25% of pay at disability as of March 12, 1999. 10.Reduce the service incurred survivor’s benefit to the vested accrued benefit payable for ten (10) years certain at normal retirement date or reduced commencing at ERD; currently the service incurred survivor’s benefit is 50% of pay at death. It appears the service connected death benefit was 50% of pay at death as of March 12, 1999. 11.Reduce the non-service incurred survivor’s benefit to the vested accrued benefit payable for ten (10) years certain at normal retirement date or reduced commencing at ERD; currently the non- service incurred survivor’s benefit is the vested accrued benefit. It appears the non-service connected death benefit was the vested accrued benefit as of March 12, 1999. 12.Provide for sharing of costs above a certain level with members (i.e. to the extent Town contribution requirements exceed X%, the excess will be shared equally with the members). It appears there was NO Town contribution required as of March 12, 1999. Exhibit 3 compares the current Town of Anytown Firefighters’ Retirement System provisions with the Chapter 175 provisions. We understand reduction of benefits below the March 12, 1999 levels will eliminate ALL State contributions under current State (unwritten) rules. Any of the following provisions can be changed in order to reduce pension cost while still meeting the Chapter 175 requirements: 1.The current benefit rate of 3.0% can be lowered to 2.0% (or any level between 2.0% and 3.0%) for future accruals. It appears the accrual rate was 2.5% as of March 12, 1999. 2.The period for calculating average final compensation can be changed from three (3) years to five (5) years. It appears average compensation was based upon a three (3) year average as of March 12, 1999. 3.Change normal retirement date (NRD) to the earlier of age 55 with ten (10) years of service or age 52 with 25 years of service; currently NRD is the earlier of age 55 with ten (10) years of service or 25 years of service. It appears NRD was the earlier of age 55 with ten (10) years of service or 25 years of service as of March 12, 1999. 4.Increase the 3% member contribution rate – F.S., Chapter 175 member contribution rate is 5%. It appears the member contribution rate was 1% as of March 12, 1999. 5.Reduce the service incurred survivor’s benefit to the vested accrued benefit payable for ten (10) years certain at normal retirement date or reduced commencing at ERD; currently the service incurred survivor’s benefit is the vested accrued benefit payable, reduced actuarially, for the beneficiary’s lifetime. It appears the service connected death benefit was vested accrued benefit payable, reduced actuarially, for the beneficiary’s lifetime as of March 12, 1999. 6.Reduce the non-service incurred survivor’s benefit to the vested accrued benefit payable for ten (10) years certain at normal retirement date or reduced commencing at ERD; currently the non- service incurred survivor’s benefit is the vested accrued benefit payable, reduced actuarially, for Ms. Jane Doe May 4, 2010 Page 6 the beneficiary’s lifetime. It appears the non-service connected death benefit was vested accrued benefit payable, reduced actuarially, for the beneficiary’s lifetime as of March 12, 1999. 7.Provide for sharing of costs above a certain level with members (i.e. to the extent Town contribution requirements exceed X%, the excess will be shared equally with the members). It appears there was NO Town contribution required as of March 12, 1999. There are three basic ways these types of changes can be made. One is to apply the change(s) to new members only. That approach is discussed below under Creating a Two Tier System. Another approach is to apply the change(s) to all members for future accruals only. It may make sense to reduce future member contributions at the same time. The third approach is to apply the change to all benefits but not allow benefits to be less than the amount accrued up to the date of change. This can put some members in the position of not accruing benefits until the new formula catches up with the former accrual, and would provide the greatest cost reduction, but also probably cause the greatest backlash. Under some current legal interpretation, the Plan may be restricted from reducing future accruals for members who are currently eligible for normal retirement. You will want to check with the Plan Attorney(s) on this issue. There will also be some complications with regard to the receipt of State money. In particular, benefits in effect in March 12, 1999 might have to be protected as well as any benefits adopted after March 12, 1999 that are funded with Chapters 175 and 185 revenue. However, using a Stop / Start approach to certain Plan provisions may provide justification for maintaining the allowable State contribution at the current level. Alternatively, some or all of the state money could be used for a Share Plan to offset the effect of lowering benefits. Approach II: Changing the Type of Plan for New and/or All Members Creating a Two Tier System Under this benefit structure, the benefits for current members (Tier 1) would not change. The benefit for new members (Tier 2) would be reduced. The reduced benefits for Tier 2 could be as follows: Reduce the benefit multiplier from 2.5% (General Employees), 3.75% (Police Officers) and 3.0% (Firefighters), respectively to 1.6%, 2.0% and 2.0%. Increase the period for calculating the average final compensation from three (3) years to five (5) years Change the 25 and out (Firefighters) normal retirement to age 52 with 25 years of service Eliminate the COLA for Police Officers Eliminate the monthly supplemental benefit for General Employees and Police Officers Unlike the other options, creating a two tier system will not require a change in the funding method or the method used to amortize the unfunded accrued liability since the Plans would still be expected to exist in perpetuity. However, the savings generated from a Tier 2 design will be slow to materialize since cost reductions will be recognized only as new employees are hired. Furthermore, our experience has shown that over time the Tier 2 members tend to bargain for the Tier 1 benefits. If the Tier 2 members are eventually granted the Tier 1 benefit structure, any savings will be eliminated. Ms. Jane Doe May 4, 2010 Page 7 A number of cities have implemented a two tier structure for general employees, but the Division of Retirement has put restrictions on a two tier structure for fire and police plans under Chapters 175 and 185. To date, a handful of cities have implemented a two tier system for a fire and police plans without losing state money. This was accomplished under a narrow set of circumstances which was approved by the Division of Retirement. We understand all tiers must provide benefits at not less than the levels in effect on March 12, 1999 in order to receive any State funds. Florida Retirement System FRS is the retirement system that covers State, county and public school employees as well as employees of many other entities including some cities here in Florida. There are approximately 680,000 employees covered by the system and another 300,000 receiving benefits. Assets are in the area of $99 billion as of June 30, 2009. The portability of FRS benefits and service to other FRS covered employers is generally attractive to plan members. For example, an Anytown police officer could leave and work for the City of Anycity with no interruption or effect on his/her retirement benefits. Although this is a benefit to employees, it could result in higher turnover for the Town. Probably the most important consideration other than cost is a matter of philosophy. If members join the FRS plan the Town will relinquish control over this valuable part of the employees’ benefit package. A decision to join FRS is irrevocable meaning that once a city joins FRS it may never withdraw. As is the case with closing the plan, if the Town decides to join FRS future State money will no longer be provided to fund the existing plan. There would still be an ongoing cost to fund the benefits already accrued under the current plan. In fact the cost would increase in the near term due to the method and assumption changes that would be necessary to properly fund a closed plan. Upon joining FRS: •The Town would simply send money to FRS each payday. •Pension issues would not be part of the collective bargaining process. •All plan provision decisions and investment decisions would be handled by FRS. •All pension questions would be directed to FRS. •There would be no Board of Trustees and related meetings, minutes, etc. after the current plan goes away (which may not be possible for some time). On the other hand, the Town would have no control over the mandates of the State and would not be able to use the local retirement plan to accomplish management goals and objectives. A case in point is the so-called rate stabilization reserve that FRS established a few years ago. The use of this reserve has been very successful in keeping the FRS cost stable over the past few years while nearly all other plans have had dramatic drops followed by cost increases. There has been pressure at times from employee groups who feel that employers have benefited from the reserve at the expense of employees. These groups have pushed to raise benefits. Based upon the results of the July 1, 2009 Actuarial Valuation, FRS is in a deficiency position and the surplus has been eliminated. The Town of Anytown would have virtually no say in this battle. Exhibit 1 shows a comparison between FRS benefits and the Town of Anytown General Employees’ Pension Plan. Exhibit 4 shows a comparison between FRS benefits and the Town of Anytown Police Ms. Jane Doe May 4, 2010 Page 8 Officers’ Retirement System. Exhibit 5 shows a comparison between FRS benefits and the Town of Anytown Firefighters’ Retirement Plan. Options for Transitioning to FRS Employees entering FRS are treated as new entrants under that system. Past service with the Town is not counted for FRS purposes unless this past service is purchased. Once members enter FRS, the Town must pay a percentage of payroll (20.92% for Special Risk Class Employees and 9.85% for Regular Class Employees for the year beginning July 1, 2009, and it looks like it will be at least 27% and 12%, respectively, starting the following year). The multiplier for prior service benefits for Police Officers and Firefighters is limited to 2.0%. Additionally, members entering FRS must be covered by Social Security. This is not a change since the Town of Anytown and the General Employees, Police Officers and Firefighters currently make this payment into Social Security. Under one option, only new hires would enter FRS and current members would continue to accrue benefits under the existing Plans. Under another option all current and future members would be transferred into FRS. Accrued benefits for existing participants would be frozen and going forward the Town would pay the required FRS contribution. It would take six (6) years to vest in FRS. Members expecting to work fewer than six (6) more years would not do well under this scenario, so a third approach might be to allow members within six (6) years of retirement to remain in the Anytown Plans. Under all of these options, the initial cost for the existing Plans – whether closed or frozen – will likely increase as the future funding period is shortened, the investment return assumption is lowered and the State money is no longer provided to the existing defined benefit plans for Police Officers and Firefighters. Another consequence of closing the Police Officer and Firefighter Plans to new hires is that the payment of the unfunded accrued liability will have to be changed to a level dollar amount rather than a level percent of payroll, increasing the amortization payments in the short term and decreasing the ones farther in the future. If the existing Plans are closed but not frozen, the short term required contributions by the Town would most likely be greater as the more expensive, longer service employees continue in the current Plans while the less expensive new hires are moved into FRS. Implementing a Defined Contribution Plan One way to implement this plan design is for current members to continue accruing benefits under the existing plan provisions while providing new participants with defined contribution plans in lieu of the existing pension plans. Under another option, accrued benefits for current members under the existing plans would be frozen. New hires and current members would both enter the defined contribution plans. Although this design can provide long term cost savings to the Town (depending on the design of the DC plans), initially the required contribution by the Town would increase, as described above. Ms. Jane Doe May 4, 2010 Page 9 Approach III: Changing the Methods and/or Assumptions Under this scenario, the Plans are maintained with the current provisions but the funding methods are changed. The Entry Age Normal funding method is currently used for all Anytown Plans to determine the minimum required contribution each year. We do not recommend changing the funding method. It may be worth looking at the effect of changing the asset valuation method to spread the difference between actual investment return and the assumed return, as compared to the current method which spreads actual market value return. Income Replacement in Retirement One factor to be aware of when considering plan changes is the adequacy of total retirement benefits for your employees. It has generally been held that a retiree needs to replace at least 70% of preretirement income to maintain his/her standard of living. Currently, a General Employee retiring at age 62 with 20 years of service would have 50% of final 3 year average earnings (slightly less than 50% of preretirement income) replaced by the Plan. A Police Officer retiring at age 52 with 25 years of service would have 93.75% of final 3 year average earnings (slightly less than 93.75% of preretirement income) replaced by the Plan, plus a supplemental benefit of $200 per month. A Firefighter retiring with 25 years of service would have 75% of final 3 year average earnings (slightly less than 75% of preretirement income) replaced by the Plan. In addition, since the members are covered under Social Security they might expect to have 30% to 40% of their income replaced from this benefit stream when they reach Social Security retirement age. Based on these simple calculations it appears your current plan is more than adequate for members who retire after 20 to 25 years of service with the Town. Employee Morale It is very important to consider how the changes in the pension plans may impact the morale of employees. For example if the plans were changed to defined contribution plans and we experience another market decline similar to what occurred over the past few years it could impact morale and performance for employees who are close to retirement. Only a defined benefit plan places the investment risk on the employer rather than the employee. This Study describes optional benefit changes on the respective Plans, from a neutral perspective. The analysis is based upon assumptions regarding future events. However, the Plans’ long term costs will be determined by actual future events, which may differ materially from the assumptions that were made. The analysis is also based upon present Plan provisions that are outlined in each of the respective October 1, 2009 Actuarial Valuation Reports. If you have reason to believe the assumptions that were used are unreasonable, the Plan provisions are incorrectly described, important Plan provisions relevant to this Study are not described or that conditions have changed since the calculations were made, please do not hesitate to contact the undersigned. In addition, if you have reason to believe the information provided in this Study is inaccurate, or is in any way incomplete or if you need further information in order to make an informed decision on the subject matter of this Study, please do not hesitate to contact the undersigned. Ms. Jane Doe May 4, 2010 Page 10 We appreciate the opportunity to have performed this important assignment on behalf of the Town and look forward to further discussion. If you should have any questions concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, Lawrence F. Wilson, A.S.A. Senior Consultant and Actuary Enclosures Exhibit 1 Comparison of Anytown General Employees’ Benefits And Benefits in the Florida Retirement System That Apply to General Employees Benefit Provision Town of Anytown Pension Plan for General Employees Florida Retirement System (Regular Class) Averaging Period for AFC 3 Years 5 Years Normal Retirement Date Age 65 with 10 years of service or age 62 with 20 years of service Age 62 with 6 years of service or 30 years of service Normal Retirement Benefit 2.5% of AFC per year of service 1.60% to 1.68% of AFC per year of service Supplemental Benefit $5 per month per year of service $5 per month per year of service COLA None 3% per year Duty Disability Benefit No separate disability benefit Greater of accrued benefit and 42% of AFC Non-Duty Disability Benefit No separate disability benefit Greater of accrued benefit and 25% of AFC Member Contributions None None Exhibit 2 Comparison of Town of Anytown Police Officers’ Benefits And Chapter 185 Minimum Benefits Benefit Provision Town of Anytown Police Officers’ Retirement System Chapter 185 Minimum Benefits Averaging Period for AFC 3 Years 5 Years Compensation Cash remuneration in the form of base pay, overtime pay, commissions and bonuses including accrued sick leave and vacation pay Total cash remuneration including up to 300 hours of "overtime" paid by the primary employer Normal Retirement Date Age 55 with 10 years of service or age 52 with 25 years of service Age 55 with 10 years of service or age 52 with 25 years of service Normal Retirement Benefit 3.75% of AFC per year of service, reduced by amount entitled to under New York Life GA-893 2% of AFC per year of service Supplemental Benefit $200 per month, upon normal retirement None Normal Form of Payment 10-Year Certain and Life Annuity 10-Year Certain and Life Annuity Early Retirement Date Age 45 with 10 years of service Age 50 with 10 years of service Early Retirement Reduction 3.0% per year 3.0% per year COLA CPI based (cap of 3%), each October 1 after age 55 None Duty Disability Benefit Greatest of (a) 2% x Service x AFC or (b) 42% of AFC or (c) 50% of base pay (provided the disability benefit plus worker’s comp cannot exceed AFC, and disability benefit is reduced by amount entitled to under New York Life GA-893) Greater of accrued benefit or 42% of AFC Non-Duty Disability Benefit Greatest of (a) 2% x Service x AFC or (b) 25% of AFC or (c) 25% of base pay (provided the disability benefit plus worker’s comp cannot exceed AFC, and disability benefit is reduced by amount entitled to under New York Life GA-893) Greater of accrued benefit or 25% of AFC Member Contributions 3% of compensation 5% of compensation Exhibit 3 Comparison of Town of Anytown Firefighters’ Benefits And Chapter 175 Minimum Benefits Benefit Provision Town of Anytown Firefighters’ Retirement Plan Chapter 175 Minimum Benefits Averaging Period for AFC 3 Years 5 Years Compensation Fixed monthly remuneration for actual services rendered, including salary and wages, longevity pay, overtime pay, shift differentials and pay for vacation, holiday and sickness; excluding assignment pay, bonuses and pay for accrued vacation and sick leave Fixed monthly remuneration Normal Retirement Date Age 55 with 10 years of service or 25 years of service Age 55 with 10 years of service or age 52 with 25 years of service Normal Retirement Benefit 3% of AFC per year of service 2% of AFC per year of service Supplemental Benefit None None Normal Form of Payment 10-Year Certain and Life Annuity 10-Year Certain and Life Annuity Early Retirement Date Age 50 with 10 years of service Age 50 with 10 years of service Early Retirement Reduction 3.0% per year 3.0% per year COLA None None Duty Disability Benefit Greater of accrued benefit or 42% of AFC (provided the disability benefit plus worker’s comp cannot exceed AFC) Greater of accrued benefit and 42% of AFC Non-Duty Disability Benefit Accrued benefit (provided the disability benefit plus worker’s comp cannot exceed AFC) Greater of accrued benefit and 25% of AFC Member Contributions 3% of compensation 5% of compensation Exhibit 4 Comparison of Anytown Police Officers’ Benefits And Benefits in the Florida Retirement System That Apply to Police Officers Benefit Provision Town of Anytown Police Officers’ Retirement System Florida Retirement System (Special Risk Class) Averaging Period for AFC 3 Years 5 Years Normal Retirement Date Age 55 with 10 years of service or age 52 with 25 years of service Age 55 with 6 years of service or 25 years of service Normal Retirement Benefit 3.75% of AFC per year of service, reduced by amount entitled to under New York Life GA-893 3% of AFC per year of service Supplemental Benefit $200 per month, upon normal retirement $5 per month per year of service COLA CPI based (cap of 3%), each October 1 after age 55 3% per year Duty Disability Benefit Greatest of (a) 2% x Service x AFC or (b) 42% of AFC or (c) 50% of base pay (provided the disability benefit plus worker’s comp cannot exceed AFC, and disability benefit is reduced by amount entitled to under New York Life GA-893) Greater of accrued benefit or 65% of AFC Non-Duty Disability Benefit Greatest of (a) 2% x Service x AFC or (b) 25% of AFC or (c) 25% of base pay (provided the disability benefit plus worker’s comp cannot exceed AFC, and disability benefit is reduced by amount entitled to under New York Life GA-893) Greater of accrued benefit or 25% of AFC Member Contributions 3% of compensation 0% of compensation Exhibit 5 Comparison of Anytown Firefighters’ Benefits And Benefits in the Florida Retirement System That Apply to Firefighters Benefit Provision Town of Anytown Firefighters’ Retirement Plan Florida Retirement System (Special Risk Class) Averaging Period for AFC 3 Years 5 Years Normal Retirement Date Age 55 with 10 years of service or 25 years of service Age 55 with 6 years of service or 25 years of service Normal Retirement Benefit 3% of AFC per year of service 3% of AFC per year of service Supplemental Benefit None $5 per month per year of service COLA None 3% per year Duty Disability Benefit Greater of accrued benefit or 42% of AFC (provided the disability benefit plus worker’s comp cannot exceed AFC) Greater of accrued benefit or 65% of AFC Non-Duty Disability Benefit Accrued benefit (provided the disability benefit plus worker’s comp cannot exceed AFC) Greater of accrued benefit or 25% of AFC Member Contributions 3% of compensation 0% of compensation PRIVILEGED AND CONFIDENTIAL ATTORNEY- CLIENT COMMUNICATION INFORMATION DEVELOPED FOR COLLECTIVE BARGAINING - NOT A PUBLIC RECORD October 31, 2008 John Smith, Esq. Smith Smith Smith One Sample Tower 2 S. Sample Boulevard, Suite 1234 ABC, Florida 12345 Re: Proposed Police Officer System Changes Dear John: As requested, we have performed an Actuarial Study to determine the effect on the minimum required annual contribution requirement of the Police Officer group proposed improvements to the Retirement System for the City of ABC (“System”). We understand the proposed improvements will apply solely to active Police Officers and not to current retirees, DROP participants, disableds, beneficiaries and terminated vested members. Background – Based upon information in the latest System Actuarial Valuation Report, we understand current System provisions as applicable to Police Officers include: 1.Police Officers do not contribute to the System. 2.Normal retirement benefit factor is 3.0% of final average compensation for each year of credited service, capped at 75% of final average compensation. 3.Overtime is limited to 600 hours per annum. 4.DROP eligibility requirements are the earlier of (1) attainment of age 65 or (2) satisfaction of the Rule of 70 with completion of 25 years of credited service. The most recent data reported to us is the census data as of October 1, 2006. The System actuary prepared an actuarial valuation as of October 1, 2006, which is the basis for our baseline results. The following are System assumption changes first recognized in the October 1, 2006 Actuarial Valuation for Police Officers: 1.Retirement rates were changed to 30% when points (equal to age plus service) are at least 70, but no more than 79. John Smith, Esq. October 31, 2008 Page 2 2.Retirement rates were changed to 100% when points (equal to age plus service) are equal to 80 or more. Retirement rates are also 100% at age 65, regardless of points or years of service. Proposed Changes Item 1: All current active Police Officers will contribute five percent (5%) of their gross pay (excluding uniform allowances) to the System. Item 2: All current active Police Officer members shall receive a benefit factor of 3.5% for each year of future credited service, capped at 87% of final average pay. We note future years’ costs would be expected to be higher since newly hired Police Officers will have their entire benefit calculated under the 3.5% benefit factor. Item 3: All current active members are eligible to enter the DROP upon the earlier of (1) satisfaction of the Rule of 70 or (2) attainment age 65. The current completion of 25 years of credited service requirement is removed from the Rule of 70 eligibility requirement for the DROP. Item 4: Future overtime compensation will be limited to 500 hours per year. Item 5: Combined results of Items 1-4 above. Results – We have attached an Exhibit with the key financial results of our Study. The following sets out the estimated increase / (decrease) in minimum annual required contribution as a dollar amount and as a percentage of covered payroll. We recommend the user of this Study exercise caution with respect to our findings due to the use of October 1, 2006 data. John Smith, Esq. October 31, 2008 Page 3 Incremental Proposed Change Annual Cost/(Savings) Covered Payroll (Police Officers in 2006)$13,940,380 Item 1 - 5.0% Officer Contribution, 3.0% Multiplier - 75% Cap ($685,590) (4.9%) Item 2 - No Officer Contribution, 3.5% Multiplier - 87% Cap,$527,215 future service only3.8% Item 3 - No Officer Contribution, 3.0% Multiplier - 75% Cap,$68,783 DROP Eligibility at the Earlier of (1) Rule of 70 or 0.5% (2) Attainment of Age 65 Item 4 - No Officer Contribution, 3.0% Multiplier - 75% Cap,($61,540) Future Overtime Limited to 500 Hours Per Year(0.4%) Item 5 - All Items Combined - 5.0% Officer Contribution, 3.5%($171,242) Multiplier - 87% Cap (Future Service Only), DROP Eligibility at(1.2%) the Earlier of (1) Rule of 70 or (2) Attainment of Age 65 and Future Overtime Limited to 500 Hours Per Year Actuarial Assumptions and Methods, Financial Data, Member Census Data and System Provisions – The actuarial assumptions and methods, financial data and member census data employed for purposes of our Study are the same actuarial assumptions and methods, financial data and member census data used for the October 1, 2006 System Actuarial Valuation. We note the actuarial assumptions and methods remain unchanged in the October 1, 2007 System Actuarial Valuation. As previously noted, the retirement assumptions for Police Officers were changed effective October 1, 2006 from (1) the earlier of attainment of age 65 or satisfaction of the Rule of 70 to (2) rates of 30% when points (equal to age plus service) equal 70 to 79 and 100% when points are 80 or more or age is 65 or more, effective in the October 1, 2006 Actuarial Valuation. System retirement rates have been revised to reflect expected higher rates of retirement due to implementation of Item 3 above, changing the DROP eligibility to the earlier of (1) satisfaction of the Rule of 70 or (2) attainment age 65. We have reflected revised retirement rates as 35% when points (equal to age plus service) equal 70 to 79 and 100% when points are 80 or more or age is 65 or more for purposes of our Actuarial Study. John Smith, Esq. October 31, 2008 Page 4 All remaining actuarial assumptions remain unchanged from the actuarial assumptions and methods used in the October 1, 2006 and 2007 Actuarial Valuations. Overtime payments were reported only for the three (3) most recent periods prior to October 1, 2005, actual overtime hours were not available for these periods. Each Police Officer’s hourly rate was computed using annual rates of pay and assuming 2080 of regular hours per year. The total overtime hours for each year were then derived by dividing the overtime pay by 150% of the computed hourly rate. We adjusted the October 1, 2006 gross pay rate by loading 10% to the average number of hours of overtime worked in the most recent three (3) periods worked prior to October 1, 2006 and capped this number at 600 hours and 500 hours, respectively. The 10% load reflects a member’s tendency to work more overtime in the last years before retirement based upon our experience. The difference between the two capped hours is then multiplied by 150% of the hourly rate for the most recent period. This is the overtime payment in excess of 500 hours included in the pension earnings in the last period. The adjusted October 1, 2006 gross pay rate is the current pay rate minus the projected overtime pay between 500 and 600 hours. All remaining System provisions utilized in our Study are the same as the System provisions utilized in the October 1, 2006 System Actuarial Valuation. This Actuarial Study describes the financial effect of the proposed changes on the System, from a neutral perspective. These calculations are based upon assumptions regarding future events. However, the System’s long term costs will be determined by actual future events, which may differ materially from the assumptions made. These calculations are also based upon present and proposed System provisions that are outlined or referenced in this Actuarial Study. If you have reason to believe the assumptions used are unreasonable, the System provisions are incorrectly described or referenced, important System provisions relevant to this proposed Actuarial Study are not described or that conditions have changed since the calculations were made, you should contact the undersigned prior to relying on information in this Actuarial Study. If you have reason to believe that the information provided in this Actuarial Study is inaccurate, or is in any way incomplete, or if you need further information in order to make an informed decision on the subject matter of this report, please contact the undersigned prior to making such decision. John Smith, Esq. October 31, 2008 Page 5 In the event that more than one System change is being considered, it is very important to remember that the results of separate actuarial valuations cannot generally be added together to produce a correct estimate of the combined effect of all of the changes. The total can be considerably greater than the sum of the parts due to the interaction of various System provisions with each other, and with the assumptions that must be used. The undersigned are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. If you should have any question concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, Lawrence F. Wilson, A.S.A. Senior Consultant and Actuary Peter N. Strong, A.S.A. Consultant and Actuary Enclosure Ch a n g e F u t u r e C h a n g e D R O P L i m i t 5% M u l t i p l i e r E l i g i b i l i t y t o F u t u r e A l l Cu r r e n t P o l i c e t o 3 . 5 % w i t h R u l e o f 7 0 O T H o u r s C h a n g e s Pl a n Co n t r i b u t i o n s 87 % M a x or A g e 6 5 to 5 0 0 Combined Mu l t i p l i e r 3 . 0 % 3 . 0 % 3 . 0 % / 3 . 5 % 3 . 0 % 3 . 0 % 3 . 0 % / 3 . 5 % Ma x i m u m B e n e f i t 7 5 % 7 5 % 8 7 % 7 5 % 7 5 % 8 7 % Ma x i m u m A c c r u a l Y e a r s 2 5 y r s 2 5 y r s v a r i a b l e 2 5 y r s 2 5 y r s v a r i a b l e Em p l o y e e C o n t r i b u t i o n 0 . 0 % 5 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 5 . 0 % Ac t i v e P a r t i c i p a n t s 1 7 8 1 7 8 1 7 8 1 7 8 1 7 8 1 7 8 Pa y r o l l 1 3 , 9 4 0 , 3 8 0 1 3 , 9 4 0 , 3 8 0 1 3 , 9 4 0 , 3 8 0 1 3 , 9 4 0 , 3 8 0 1 3 , 8 0 1 , 6 3 0 1 3 , 8 0 1 , 6 3 0 Pr e s e n t V a l u e o f F u t u r e B e n e f i t s Ac t i v e P a r t i c i p a n t s 6 5 , 7 5 1 , 4 4 9 6 5 , 8 5 4 , 4 7 4 7 1 , 2 7 7 , 2 5 3 6 6 , 0 9 2 , 7 4 3 6 5 , 1 3 0 , 9 8 1 7 0 , 8 0 5 , 9 6 1 In a c t i v e P a r t i c i p a n t s 7 2 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72,596,341 To t a l 1 3 8 , 3 4 7 , 7 9 0 1 3 8 , 4 5 0 , 8 1 5 1 4 3 , 8 7 3 , 5 9 4 1 3 8 , 6 8 9 , 0 8 4 1 3 7 , 7 2 7 , 3 2 2 1 4 3 , 4 0 2 , 3 0 2 Ac t u a r i a l A c c r u e d L i a b i l i t y Ac t i v e P a r t i c i p a n t s 4 3 , 2 3 2 , 6 4 7 4 3 , 2 0 7 , 8 9 9 4 6 , 4 8 8 , 8 9 2 4 3 , 7 3 3 , 5 1 5 4 2 , 7 7 9 , 5 8 6 4 6 , 2 9 1 , 5 7 5 In a c t i v e P a r t i c i p a n t s 7 2 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72 , 5 9 6 , 3 4 1 72,596,341 To t a l 1 1 5 , 8 2 8 , 9 8 8 1 1 5 , 8 0 4 , 2 4 0 1 1 9 , 0 8 5 , 2 3 3 1 1 6 , 3 2 9 , 8 5 6 1 1 5 , 3 7 5 , 9 2 7 1 1 8 , 8 8 7 , 9 1 6 Ac t u a r i a l V a l u e o f A s s e t s 69 , 0 6 7 , 3 2 5 6 9 , 0 6 7 , 3 2 5 6 9 , 0 6 7 , 3 2 5 6 9 , 0 6 7 , 3 2 5 6 9 , 0 6 7 , 3 2 5 6 9 , 0 6 7 , 3 2 5 Un f u n d e d A c t u a r i a l A c c r u e d L i a b i l i t y 46 , 7 6 1 , 6 6 3 4 6 , 7 3 6 , 9 1 5 5 0 , 0 1 7 , 9 0 8 4 7 , 2 6 2 , 5 3 1 4 6 , 3 0 8 , 6 0 2 4 9 , 8 2 0 , 5 9 1 To t a l M i n i m u m F u n d i n g R e q u i r e m e n t No r m a l C o s t 2 , 5 8 0 , 6 9 9 2 , 5 9 3 , 2 9 8 2 , 8 0 7 , 8 6 0 2 , 6 0 4 , 2 1 4 2 , 5 6 0 , 0 5 7 2 , 8 1 5 , 9 7 2 Am o r t i z a t i o n o f U A L 3 , 9 5 7 , 1 9 7 3 , 9 5 5 , 2 0 5 4 , 2 1 9 , 3 3 1 3 , 9 9 7 , 5 1 8 3 , 9 2 0 , 7 2 5 4 , 2 0 3 , 4 4 6 In t e r e s t 5 0 6 , 6 8 7 50 7 , 5 0 9 54 4 , 6 0 7 51 1 , 6 3 4 50 2 , 2 6 1 544,005 An n u a l R e q u i r e d C o n t r i b u t i o n ( A R C ) 7 , 0 4 4 , 5 8 3 7 , 0 5 6 , 0 1 2 7 , 5 7 1 , 7 9 8 7 , 1 1 3 , 3 6 6 6 , 9 8 3 , 0 4 3 7 , 5 6 3 , 4 2 3 St a t e 9 3 , 5 5 9 9 3 , 5 5 9 9 3 , 5 5 9 9 3 , 5 5 9 9 3 , 5 5 9 9 3 , 5 5 9 Me m b e r s 0 69 7 , 0 1 9 0 0 0690,082 Ci t y 6 , 9 5 1 , 0 2 4 6 , 2 6 5 , 4 3 4 7 , 4 7 8 , 2 3 9 7 , 0 1 9 , 8 0 7 6 , 8 8 9 , 4 8 4 6 , 7 7 9 , 7 8 2 Ci t y C o s t / ( S a v i n g ) N/ A ( 6 8 5 , 5 9 0 ) 5 2 7 , 2 1 5 6 8 , 7 8 3 ( 6 1 , 5 4 0 ) ( 1 7 1 , 2 4 2 ) Pe r c e n t o f P a y r o l l N / A ( 4 . 9 % ) 3 . 8 % 0 . 5 % ( 0 . 4 % ) ( 1 . 2 % ) CI T Y O F A B C R E T I R E M E N T S Y S T E M Ac t u a r i a l S t u d y - P o l i c e O f f i c e r s ( a s o f O c t o b e r 1 , 2 0 0 6 ) Pr e p a r e d : O c t o b e r 3 1 , 2 0 0 8 Ga b r i e l R o e d e r S m i t h & C o m p a n y CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL FORECAST AS OF OCTOBER 1, 2009 March 2, 2010 March 2, 2010 Mr. Steve Jones Human Resources / Risk Management Director City of Example City 54321 City Blvd. Example City, Florida 12345 Re: Actuarial Projection Study Dear Steve: As requested, we are pleased to enclose three (3) copies of our updated 30-year Actuarial Projections beginning October 1, 2009 illustrating the financial impact of the following potential changes to the City Pension Fund for Firefighters and Police Officers in the City of Example City (Fund): For Future Employees Only: 1.Change the pension formula multiplier from 4.0% of Average Monthly Earnings (AME) per year of service to 3.0% of Average Monthly Earnings (AME) for the first 20 years of service and 4.0% of Average Monthly Earnings (AME) for the next 5 years of service (years 21 through 25). 2.A 2.0% annual Cost-of-Living-Adjustment (COLA) will begin five (5) years following retirement or DROP entry. (The COLA is currently 3.0% and commences on the October 1st – Police Officers / April 1st – Firefighters immediately following retirement or DROP entry.) 3.The normal form of payment will be the ten (10) year certain and life form of payment. (The normal form of payment is currently ten (10) years certain and life thereafter with 100% of the benefit continuing to the spouse for one year and 50% of the benefit payable to the spouse thereafter until death.) 4.Average Monthly Earnings (AME) will be based on the average of the highest four (4) years of continuous service. (AME is currently based on the average of the highest two (2) years of continuous service.) 5.The maximum retirement benefit will be 80% of Average Monthly Earnings (AME) after 25 years of service. (The current maximum retirement benefit is 98% of Average Monthly Earnings (AME).) 6.Overtime pay eligible for pension compensation will be limited to 300 hours per year. (This does not have a measurable impact on expected future pension costs.) 7.No individual contracts will be established. (This does not have a measurable impact on expected future pension costs.) Mr. Steve Jones March 2, 2010 Page 2 8.The longevity pay plan will no longer exist. (The current longevity pay plan awards a 4.0% compensation increase upon completion of 10 years of service and a 2.0% compensation increase upon completion of each of 15 and 18 years of service.) 9.DROP participation will be limited to a maximum of five (5) years, and there will be no guarantee on the rate of return (Fund return - no floor). DROP account balances will earn the same rate of return as the underlying assets of the Fund, and they must be withdrawn upon termination of employment. (The current DROP includes an option of a guaranteed rate of return of 8.0%, and account balances do not have to be withdrawn upon termination of employment. Because the Fund is assumed to earn 8.0% per year, this does not have a measurable impact on expected future costs.) 10.Either (A) accrued sick leave will be capped at 120 hours and accrued holiday / vacation leave will be capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640, or (B) accumulated leave time will no longer be included in the calculation of Average Monthly Earnings (AME). (Currently, accumulated leave time accruals for pension purposes are subject to the overall limit of 1,000 hours.) 11.The employee contribution rate (for future employees) will be either (A) not changed - 10.4% or (B) changed to 7.0% of pensionable earnings. We understand the employee contribution rate under Chapters 175 / 185 is 5.0%. For Current Employees: 12.Overtime pay will be changed to begin at 43 hours (from 40 hours). (This does not have a measurable impact on expected future pension costs.) 13.The overtime pay calculation will be based on hours actually worked, not including comp time. (This does not have a measurable impact on expected future pension costs.) 14.Comp time will be limited to a maximum pension accrual of 40 hours, with the remainder being paid out at the end of the fiscal year. (Currently, comp time accruals for pension purposes are subject to the overall limit of 1,000 hours.) 15.The longevity pay plan will be changed to give 2.0% longevity-based compensation increases upon attainment of 15 years and 18 years of service only, for a total of 4.0%. The net effect will be a 4.0% reduction in expected total longevity pay increases for all current employees with less than 10 years of service. (The current longevity pay plan awards a 4.0% compensation increase upon completion of 10 years of service and 2.0% compensation increases upon completion of 15 and 18 years of service.) 16.Either future accrued sick leave will be capped at (A) 240 hours or (B) 120 hours. Future accrued holiday / vacation leave will be capped at 100% of the first 320 hours, 75% of the next 320 hours (321-640) and 50% of the hours in excess of 640. (Up to 1,000 hours of accumulated leave time is currently included in the calculation of AME.) Mr. Steve Jones March 2, 2010 Page 3 The results of the following 30-year Forecasts are included in this report: Combination #1: All of the potential changes discussed on the previous two (2) pages combined, with 10(A) – accrued sick leave for future employees capped at 120 hours and accrued holiday / vacation capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640; 11(A) – employee contribution rate unchanged; and 16(A) – Future accrued sick leave for current employees capped at 240 hours. Combination #2: All of the potential changes discussed on the previous two (2) pages combined, with 10(A) – accrued sick leave for future employees capped at 120 hours and accrued holiday / vacation capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640; 11(A) – employee contribution rate unchanged; and 16(B) – Future accrued sick leave for current employees capped at 120 hours. Combination #3: All of the potential changes discussed on the previous two (2) pages combined, with 10(B) – accumulated leave time for future employees will no longer be included in the calculation of Average Monthly Earnings (AME); 11(A) – employee contribution rate unchanged; and 16(A) – Future accrued sick leave for current employees capped at 240 hours. Combination #4: All of the potential changes discussed on the previous two (2) pages combined, with 10(B) – accumulated leave time for future employees will no longer included in the calculation of Average Monthly Earnings (AME); 11(A) – employee contribution rate unchanged; and 16(B) – Future accrued sick leave for current employees capped at 120 hours. Combination #5: Combination #1 with 11(B) instead of 11(A) – 7.0% employee contribution rate for future employees. Combination #6: Combination #2 with 11(B) instead of 11(A) – 7.0% employee contribution rate for future employees. Combination #7: Combination #3 with 11(B) instead of 11(A) – 7.0% employee contribution rate for future employees. Combination #8: Combination #4 with 11(B) instead of 11(A) – 7.0% employee contribution rate for future employees. Mr. Steve Jones March 2, 2010 Page 4 Actuarial Assumptions and Methods, Financial Data and Member Census Data – The actuarial assumptions and methods utilized in the preparation of this forecast are the same as those utilized for the October 1, 2009 Actuarial Valuation, with the following exceptions: •To estimate the impact of the changes in the longevity pay plan, the salary increase assumption for members with seven (7) or more years of service is reduced from 5.0%. per annum to 4.4%, per annum for future employees (who will not receive any longevity pay increases), and reduced from 5.0%, per annum to 4.64%, per annum for current employees with less than 10 years of service (who are only expected to receive 4.0% future longevity pay increases, rather than 8.0% future longevity pay increases). This assumption is based on projected pay to expected retirement date with current expected future longevity pay increases versus projected pay to expected retirement date with reduced future longevity pay increases. •Current employees are assumed to accrue future hours of sick, vacation and holiday leave for the remainder of their expected working lifetime at the maximum annual rate. The maximum annual accruals were provided by the Board and are as follows: 96 hours of sick leave, 120 hours of holiday leave and 176 hours of vacation leave. •For future employees, average monthly earnings (averaged over a 4-year period) for retirements and DROPs are increased 4.0% to reflect additional (overtime and other) earnings during the averaging period. Under alternative 10(A), average monthly earnings for retirements and DROPs are increased 14.56%, based upon the expectation that future employees will accrue the maximum possible pensionable leave time under the new caps. •For current employees, average monthly earnings for retirements and DROPs are increased between 5.5% and 28.0%, based upon expected accumulated leave at the time of retirement or DROP entry. For each current employee, expected accumulated leave at the time of retirement or DROP entry was calculated based upon accumulated leave as of February 22, 2010 provided by the City, and taking into account maximum accrued hours based upon the proposed payout schedule for future holiday and vacation accruals and the proposed cap on future sick leave accruals. •For future employees, the assumed annual cost-of-living increase has been changed from 3.0% to 2.0% with a five (5) year delay. •For future employees, the retirement rates have been changed in conjunction with the new benefit formula. With a 3.0% multiplier now applying in years 1-20, and a 4.0% multiplier applying in years 21-25, one might expect many future employees will retire or enter the DROP upon completion of 25 years of service rather than 20 years of service. The updated retirement rates are shown in the Actuarial Assumptions on page 48. •State contributions are expected to increase 3% per annum. The member census data and asset data utilized is the member census data and asset data reported as of October 1, 2009, as provided by the Board. The City provided data for Mr. Steve Jones March 2, 2010 Page 5 accumulated leave as of February 22, 2010. Maximum annual accruals of sick, vacation and holiday leave were provided by the Board. During the first two years of the forecast period, the number of active Police Officers is expected to decrease by four (4), as directed by the City. Throughout the remainder of the forecast period, new employees are assumed to be hired each year at a rate sufficient to maintain a constant active employee headcount. New employees are assumed to have the same average demographic characteristics (age, gender, salary – adjusted each year for inflation) as those of active members hired over the past five (5) years. This Actuarial Forecast is intended to describe the estimated future financial effects of the proposed Fund changes and is not intended as a recommendation in favor of any changes nor in opposition to any changes. These calculations are based upon assumptions regarding future events. However, the Fund’s long term costs will be determined by actual future events, which may differ materially from the assumptions made. These calculations are also based upon present and proposed Fund provisions that are outlined or referenced in this Actuarial Forecast. If you have reason to believe the assumptions used are unreasonable, the Fund provisions are incorrectly described or referenced, important Fund provisions relevant to this proposed Actuarial Forecast are not described or that conditions have changed since the calculations were made, you should contact the undersigned prior to relying on information in this Actuarial Forecast. If you have reason to believe that the information provided in this Actuarial Forecast is inaccurate, or is in any way incomplete, or if you need further information in order to make an informed decision on the subject matter of this report, please contact the undersigned prior to making such decision. The undersigned are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. If you should have any question concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, Lawrence F. Wilson, A.S.A. Peter N. Strong, A.S.A. Senior Consultant and Actuary Consultant and Actuary Enclosures CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 TABLE OF CONTENTS Page I. Executive Summary...........................................................................................1 II. Forecast Results under the Entry Age Normal Cost Method.............................6 III. Outline of Principal Provisions of the Retirement Fund..................................39 IV. Actuarial Assumptions and Actuarial Cost Methods Used..............................46 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 1 - EXECUTIVE SUMMARY At the request of the City of Example City, 30-year Actuarial Forecasts have been prepared to illustrate the impact of the following potential plan changes: 1.For future employees only, change the pension formula multiplier from 4.0% of Average Monthly Earnings (AME) per year of service to 3.0% of Average Monthly Earnings (AME) for the first 20 years of service and 4.0% of Average Monthly Earnings (AME) for the next five (5) years of service (years 21 through 25). 2.For future employees only, a 2.0% annual Cost-of-Living-Adjustment (COLA) will begin five (5) years following retirement or DROP entry. (The COLA is currently 3.0% and commences on the October 1st – Police Officers / April 1st – Firefighters immediately following retirement or DROP entry.) 3.For future employees, the normal form of payment will be the ten (10) year certain and life form of payment. (The normal form of payment is currently ten (10) years certain and life thereafter with 100% of the benefit continuing to the spouse for one year and 50% of the benefit payable to the spouse thereafter until death.) 4.For future employees, the Average Monthly Earnings (AME) will be based on the average of the highest four (4) years of continuous service. (AME is currently based on the average of the highest two (2) years of continuous service.) 5.For future employees, the maximum retirement benefit will be 80% of Average Monthly Earnings (AME) after 25 years of service. (The current maximum retirement benefit is 98% of Average Monthly Earnings (AME).) 6.For future employees, overtime pay eligible for pension compensation will be limited to 300 hours per year. (This does not have a measurable impact on expected future pension costs.) 7.No individual contracts will be established for future employees. (This does not have a measurable impact on expected future pension costs.) 8.The longevity pay plan will no longer exist for future employees. (The current longevity pay plan provides a 4.0% compensation increase upon completion of 10 years of service and a 2.0% compensation increase upon completion of each of 15 and 18 years of service.) 9.For future employees, DROP participation will be limited to a maximum of five (5) years, and there will be no guarantee on the rate of return (no floor). DROP account balances will earn the same rate of return as the underlying assets of the Fund, and they must be withdrawn upon termination of employment. (The current DROP includes an option of a guaranteed rate of return of 8.0%, and account balances do not have to be withdrawn upon termination of employment. Because the Fund is assumed to earn 8.0% per year, this does not have a measurable impact on expected future costs.) CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 2 - 10.For future employees, either (A) accrued sick leave will be capped at 120 hours and accrued holiday / vacation leave will be capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640, or (B) accumulated leave time will no longer be included in the calculation of Average Monthly Earnings (AME). (Accumulated leave time is currently included in the 1,000 cap calculation of AME.) 11.The employee contribution rate (for future employees) will be either (A) not changed (from 10.4%) or (B) changed to 7.0% of pensionable earnings. We understand the employee contribution rate under Chapters 175 / 185 is 5.0%. (The current employee contribution rate is 10.4% of pensionable earnings.) 12.For current and future employees, overtime pay will be changed to begin at 43 hours (from 40 hours). (This does not have a measurable impact on expected future pension costs.) 13.For current and future employees, the overtime pay calculation will be based on hours actually worked, not including comp time. (This does not have a measurable impact on expected future pension costs.) 14.For current and future employees, comp time will be limited to a maximum pension accrual of 40 hours, with the remainder being paid out at the end of the fiscal year. (Comp time accruals for pension purposes are subject to the overall limit of 1,000 hours.) 15.For current employees, the longevity pay plan will be changed to provide 2.0% longevity-based compensation increases upon attainment of 15 years and 18 years of service only, for a total of 4.0%. The net effect will be a 4.0% reduction in expected total longevity pay increases for all current employees with less than 10 years of service. (The current longevity pay plan provides a 4.0% compensation increase upon completion of 10 years of service and 2.0% compensation increases upon completion of 15 and 18 years of service.) 16.For current employees, future accrued sick leave will be capped at either (A) 240 hours or (B) 120 hours. Future accrued holiday / vacation leave will be capped at 100% of the first 320 hours, 75% of the next 320 hours (321-640) and 50% of the hours in excess of 640. (Accumulated leave time accruals for pension purposes are subject to the overall limit of 1,000 hours.) The results of the following 30-year Forecasts are included in this report: Combination #1: All of the above potential changes, with 10(A) – accrued sick leave for future employees capped at 120 hours and accrued holiday / vacation capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640; 11(A) – employee contribution rate unchanged; and 16(A) – future accrued sick leave for current employees capped at 240 hours. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 3 - Combination #2: All of the above potential changes, with 10(A) – accrued sick leave for future employees capped at 120 hours and accrued holiday / vacation capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640; 11(A) – employee contribution rate unchanged; and 16(B) – future accrued sick leave for current employees capped at 120 hours. Combination #3: All of the above potential changes, with 10(B) – accumulated leave time for future employees will no longer be included in the calculation of Average Monthly Earnings (AME); 11(A) – employee contribution rate unchanged; and 16(A) – future accrued sick leave for current employees capped at 240 hours. Combination #4: All of the above potential changes, with 10(B) – accumulated leave time for future employees will no longer included in the calculation of Average Monthly Earnings (AME); 11(A) – employee contribution rate unchanged; and 16(B) – future accrued sick leave for current employees capped at 120 hours. Combinations #5 through #8: Identical to Combinations #1 through #4, with option 11(B) instead of 11(A) – 7.0% employee contribution rate for future employees. These Forecasts project the census data forward each year from October 1, 2009 to October 1, 2039, assuming all valuation assumptions are fully realized. However, from October 1, 2009 to October 1, 2011, we are assuming the number of active Police Officers will decrease by four (4), as directed by the City. As active members decrement each year due to termination of employment in the DROP, retirement, termination, death or disability; new employees are assumed to be hired to replace them (except for the 2009 – 2011 staff reduction of four (4) Police Officers). New employees are assumed to have the same average demographic characteristics (age, gender, salary – adjusted each year for inflation) as those of active members hired over the past five (5) years (from October 1, 2004 through September 30, 2009). These Forecasts project the market value of assets forward each year from October 1, 2009 to September 30, 2039. The initial market value as of October 1, 2009 was provided by the Board, and is the value used for the October 1, 2009 Actuarial Valuation. The table beginning on the next page shows the sum of the projected minimum annual City funding requirements for the baseline forecast and for each combination described above over the next 5 years and over the next 30 years as dollar amounts ($thousands) and as percentages of the sum of total payroll (including DROPs) over the next 5 years and 30 years, respectively, and as a percentage of the sum of base payroll (excluding DROPs) over the next 5 years and 30 years, respectively. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 4 - Accumulated City Contributions ($thousands) Next 5 Years Next 30 Years Amount Increase / (Decrease) Amount Increase / (Decrease) Baseline (Current Plan) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 136,279 $ 193,965 $ 148,619 70.3% / 91.7% N/A $ 1,339,388 $ 1,941,744 $ 1,507,489 69.0% / 88.8% N/A Combination #1: w/ 240-hr future sick leave cap (current actives); 120-hr sick leave cap & 10.4% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,374 $ 193,654 $ 148,314 67.8% / 88.6% ($ 4,905) (2.5%) / (3.1%) $ 972,925 $ 1,907,176 $ 1,502,820 51.0% / 64.7% ($ 366,463) (18.0%) / (24.1%) Combination #2: w/ 120-hr future sick leave cap (current actives); 120-hr sick leave cap & 10.4% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,301 $ 193,654 $ 148,314 67.8% / 88.5% ($ 4,978) (2.5%) / (3.2%) $ 972,561 $ 1,907,176 $ 1,502,820 51.0% / 64.7% ($ 366,827) (18.0%) / (24.1%) Combination #3: w/ 240-hr future sick leave cap (current actives); No future accrued leave & 10.4% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,144 $ 193,654 $ 148,314 67.7% / 88.4% ($ 5,135) (2.6%) / (3.3%) $ 945,849 $ 1,907,176 $ 1,502,820 49.6% / 62.9% ($ 393,539) (19.4%) / (25.9%) Combination #4: w/ 120-hr future sick leave cap (current actives); No future accrued leave & 10.4% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,070 $ 193,654 $ 148,314 67.7% / 88.4% ($ 5,209) (2.6%) / (3.3%) $ 945,483 $ 1,907,176 $ 1,502,820 49.6% / 62.9% ($ 393,905) (19.4%) / (25.9%) Combination #5: w/ 240-hr future sick leave cap (current actives); 120-hr sick leave cap & 7.0% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,711 $ 193,654 $ 148,314 68.0% / 88.8% ($ 4,568) (2.3%) / (2.9%) $ 1,010,698 $ 1,907,176 $ 1,502,820 53.0% / 67.3% ($ 328,690) (16.0%) / (21.5%) CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 5 - Accumulated City Contributions ($thousands) Next 5 Years Next 30 Years Amount Increase / (Decrease) Amount Increase / (Decrease) Combination #6: w/ 120-hr future sick leave cap (current actives); 120-hr sick leave cap & 7.0% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,637 $ 193,654 $ 148,314 68.0% / 88.8% ($ 4,642) (2.3%) / (2.9%) $ 1,010,329 $ 1,907,176 $ 1,502,820 53.0% / 67.2% ($ 329,059) (16.0%) / (21.6%) Combination #7: w/ 240-hr future sick leave cap (current actives); No future accrued leave & 7.0% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,481 $ 193,654 $ 148,314 67.9% / 88.7% ($ 4,798) (2.4%) / (3.0%) $ 983,618 $ 1,907,176 $ 1,502,820 51.6% / 65.5% ($ 355,770) (17.4%) / (23.3%) Combination #8: w/ 120-hr future sick leave cap (current actives); No future accrued leave & 7.0% ee contrib. rate (future members) - Contribution - Total Payroll - Base Payroll - % of Payrolls $ 131,407 $ 193,654 $ 148,314 67.9% / 88.6% ($ 4,872) (2.4%) / (3.1%) $ 983,253 $ 1,907,176 $ 1,502,820 51.6% / 65.4% ($ 356,135) (17.4%) / (23.4%) The next pages show the detailed results of these forecasts, including year-by-year results. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 6 - FORECAST RESULTS Baseline: No Fund changes. All Plan provisions and actuarial methods and assumptions are the same as those utilized in the October 1, 2009 Actuarial Valuation. Combination #1: All potential changes, as described on pages 1-2, with option 10(A) – accrued sick leave for future employees capped at 120 hours and accrued holiday / vacation capped at 100% of the first 320 hours, 50% of the next 320 hours (321-640) and 25% of the hours in excess of 640; option 11(A) – employee contribution rate unchanged; and option 16(A) - future accrued sick leave for current employees capped at 240 hours. The salary increase assumption has been changed for future employees and current employees with less than 10 years of service to reflect the changes to the longevity pay plan. Retirement rates have been changed for future employees to reflect the estimated probability of retirement in years 20-25. The updated retirement rates are shown in the Actuarial Assumptions on page 48. Combination #2: Same as Combination #1, with option 16(B) instead of option 16(A) – future accrued sick leave for current employees is capped at 120 hours (instead of 240 hours). Combination #3: Same as Combination #1, with option 10(B) instead of option 10(A) – accumulated leave time for future employees will no longer be included in the calculation of Average Monthly Earnings (AME). Combination #4: Same as Combination #2 (future accrued sick leave for current employees capped at 120 hours), with option 10(B) instead of option 10(A) – accumulated leave time for future employees will no longer be included in the calculation of Average Monthly Earnings (AME). Combination #5: Same as Combination #1, with option 11(B) instead of 11(A) – 7.0% employee contribution for future employees instead of 10.4%. Combination #6: Same as Combination #2, with option 11(B) instead of 11(A) – 7.0% employee contribution for future employees instead of 10.4%. Combination #7: Same as Combination #3, with option 11(B) instead of 11(A) – 7.0% employee contribution for future employees instead of 10.4%. Combination #8: Same as Combination #4, with option 11(B) instead of 11(A) – 7.0% employee contribution for future employees instead of 10.4%. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 7 - Comparison of Projected City Contributions: Baseline vs. Combination #1 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 1 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 8 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #1 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 1) Cumulative Reduction 201027,52836,66527,52836,66524,32624,051275275 201128,72737,34228,70337,31825,54325,137406681 201229,70538,69029,65138,63526,83926,0088311,512 201330,25639,99230,16639,90128,74227,4001,3422,854 201432,40341,27632,26641,13530,82928,7782,0514,905 201534,60042,51134,41042,31332,47029,6042,8667,771 201636,57144,00336,32543,74234,09630,2393,85711,628 201736,87345,98736,56545,65635,21630,6564,56016,188 201837,84447,56537,47347,16136,92431,3965,52821,716 201938,52649,98838,08949,50338,49432,2106,28428,000 202040,17052,06839,64951,49140,20032,9797,22135,221 202141,90854,06941,29453,38541,22833,1398,08943,310 202243,22355,73142,63454,91842,31333,1499,16452,474 202343,60757,35943,15156,39744,63734,08310,55463,028 202445,35259,62044,91358,48246,89135,28511,60674,634 202547,44362,23247,05060,89448,97736,33712,64087,274 202649,65264,65249,24463,11447,53333,78613,747101,021 202751,33966,63150,95665,06650,27434,84915,425116,446 202853,69468,47353,23066,94552,76036,13416,626133,072 202956,32771,11255,79069,55155,26137,27317,988151,060 203059,11774,62658,40072,91958,25038,99719,253170,313 203162,20677,71161,28175,91760,70140,65020,051190,364 203265,07280,54864,14378,72062,17542,29319,882210,246 203367,13983,98566,81782,04264,22443,92720,297230,543 203469,29287,87969,44785,73355,84435,25220,592251,135 203571,23792,01371,95089,59051,11329,98321,130272,265 203673,20696,53474,37493,78952,54830,99521,553293,818 203775,328100,70476,77197,99848,39725,29023,107316,925 203878,223104,05279,062102,07349,90726,13023,777340,702 203980,921107,72681,488106,12352,67626,91525,761366,463 148,619193,965148,314193,654136,279131,3744,905 1,507,4891,941,7441,502,8201,907,1761,339,388972,925366,463 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 1 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 9 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #1 ($thousands) for Firefighters only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 1) Cumulative Reduction 201013,71218,03413,71218,03411,45711,308149149 201114,46218,71214,44718,69712,26612,025241390 201215,49219,41615,45919,38312,97712,454523913 201315,51920,22115,46520,16713,87513,1377381,651 201417,00720,70416,92520,62115,00513,7971,2082,859 201518,13421,22318,02121,10716,11014,4421,6684,527 201619,05522,15918,90822,00616,32714,2582,0696,596 201718,25623,37218,07523,17816,96614,5932,3738,969 201819,07024,10418,85523,86818,07015,1632,90711,876 201919,72525,35719,47325,07318,82315,5403,28315,159 202020,64326,40120,34326,06219,91616,1383,77818,937 202121,84127,51921,49127,12120,03415,8944,14023,077 202222,35527,86322,04127,39420,38115,6564,72527,802 202322,00429,04121,82228,49021,78616,2435,54333,345 202422,96930,29722,79929,65522,91916,9355,98439,329 202524,07631,64723,96030,90123,93517,4526,48345,812 202625,24233,06125,13132,21023,06516,0017,06452,876 202725,96933,92225,88333,07524,72416,6038,12160,997 202827,31734,39127,14933,63426,11717,3808,73769,734 202928,77735,91128,57035,12227,38117,8919,49079,224 203030,28737,67329,95636,81628,92118,78010,14189,365 203131,91239,44631,46638,52430,03719,57310,46499,829 203233,35340,55332,94639,66830,46020,37610,084109,913 203334,26042,43134,31441,47431,66521,16810,497120,410 203435,42744,60635,66643,52027,26916,97010,299130,709 203536,22246,74336,92245,51525,13314,41210,721141,430 203637,29349,12338,18647,69426,28814,88011,408152,838 203738,69151,24339,42949,85924,17512,07812,097164,935 203840,27452,90740,57351,94624,78112,54312,238177,173 203941,57954,85441,87754,01926,37612,80613,570190,743 76,19297,08776,00896,90265,58062,7212,859 770,923982,934769,864964,833657,239466,496190,743 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 1 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 10 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #1 ($thousands) for Police Officers only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 1) Cumulative Reduction 201013,81618,63113,81618,63112,86912,743126126 201114,26518,63014,25618,62113,27713,112165291 201214,21319,27414,19219,25213,86213,554308599 201314,73719,77114,70119,73414,86714,2636041,203 201415,39620,57215,34120,51415,82414,9818432,046 201516,46621,28816,38921,20616,36015,1621,1983,244 201617,51621,84417,41721,73617,76915,9811,7885,032 201718,61722,61518,49022,47818,25016,0632,1877,219 201818,77423,46118,61823,29318,85416,2332,6219,840 201918,80124,63118,61624,43019,67116,6703,00112,841 202019,52725,66719,30625,42920,28416,8413,44316,284 202120,06726,55019,80326,26421,19417,2453,94920,233 202220,86827,86820,59327,52421,93217,4934,43924,672 202321,60328,31821,32927,90722,85117,8405,01129,683 202422,38329,32322,11428,82723,97218,3505,62235,305 202523,36730,58523,09029,99325,04218,8856,15741,462 202624,41031,59124,11330,90424,46817,7856,68348,145 202725,37032,70925,07331,99125,55018,2467,30455,449 202826,37734,08226,08133,31126,64318,7547,88963,338 202927,55035,20127,22034,42927,88019,3828,49871,836 203028,83036,95328,44436,10329,32920,2179,11280,948 203130,29438,26529,81537,39330,66421,0779,58790,535 203231,71939,99531,19739,05231,71521,9179,798100,333 203332,87941,55432,50340,56832,55922,7599,800110,133 203433,86543,27333,78142,21328,57518,28210,293120,426 203535,01545,27035,02844,07525,98015,57110,409130,835 203635,91347,41136,18846,09526,26016,11510,145140,980 203736,63749,46137,34248,13924,22213,21211,010151,990 203837,94951,14538,48950,12725,12613,58711,539163,529 203939,34252,87239,61152,10426,30014,10912,191175,720 72,42796,87872,30696,75270,69968,6532,046 736,566958,810732,956942,343682,149506,429175,720 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 1 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 11 - Comparison of Projected City Contributions: Baseline vs. Combination #2 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 2 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 12 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #2 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 2) Cumulative Reduction 201027,52836,66527,52836,66524,32624,038288288 201128,72737,34228,70337,31825,54325,123420708 201229,70538,69029,65138,63526,83925,9938461,554 201330,25639,99230,16639,90128,74227,3851,3572,911 201432,40341,27632,26641,13530,82928,7622,0674,978 201534,60042,51134,41042,31332,47029,5882,8827,860 201636,57144,00336,32543,74234,09630,2223,87411,734 201736,87345,98736,56545,65635,21630,6394,57716,311 201837,84447,56537,47347,16136,92431,3795,54521,856 201938,52649,98838,08949,50338,49432,1926,30228,158 202040,17052,06839,64951,49140,20032,9617,23935,397 202141,90854,06941,29453,38541,22833,1218,10743,504 202243,22355,73142,63454,91842,31333,1329,18152,685 202343,60757,35943,15156,39744,63734,06710,57063,255 202445,35259,62044,91358,48246,89135,27011,62174,876 202547,44362,23247,05060,89448,97736,32212,65587,531 202649,65264,65249,24463,11447,53333,77413,759101,290 202751,33966,63150,95665,06650,27434,83915,435116,725 202853,69468,47353,23066,94552,76036,12616,634133,359 202956,32771,11255,79069,55155,26137,26717,994151,353 203059,11774,62658,40072,91958,25038,99119,259170,612 203162,20677,71161,28175,91760,70140,64420,057190,669 203265,07280,54864,14378,72062,17542,28619,889210,558 203367,13983,98566,81782,04264,22443,92120,303230,861 203469,29287,87969,44785,73355,84435,24520,599251,460 203571,23792,01371,95089,59051,11329,97521,138272,598 203673,20696,53474,37493,78952,54830,98821,560294,158 203775,328100,70476,77197,99848,39725,28223,115317,273 203878,223104,05279,062102,07349,90726,12223,785341,058 203980,921107,72681,488106,12352,67626,90725,769366,827 148,619193,965148,314193,654136,279131,3014,978 1,507,4891,941,7441,502,8201,907,1761,339,388972,561366,827 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 2 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 13 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #2 ($thousands) for Firefighters only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 2) Cumulative Reduction 201013,71218,03413,71218,03411,45711,304153153 201114,46218,71214,44718,69712,26612,021245398 201215,49219,41615,45919,38312,97712,450527925 201315,51920,22115,46520,16713,87513,1327431,668 201417,00720,70416,92520,62115,00513,7921,2132,881 201518,13421,22318,02121,10716,11014,4371,6734,554 201619,05522,15918,90822,00616,32714,2532,0746,628 201718,25623,37218,07523,17816,96614,5872,3799,007 201819,07024,10418,85523,86818,07015,1572,91311,920 201919,72525,35719,47325,07318,82315,5343,28915,209 202020,64326,40120,34326,06219,91616,1323,78418,993 202121,84127,51921,49127,12120,03415,8884,14623,139 202222,35527,86322,04127,39420,38115,6504,73127,870 202322,00429,04121,82228,49021,78616,2385,54833,418 202422,96930,29722,79929,65522,91916,9305,98939,407 202524,07631,64723,96030,90123,93517,4476,48845,895 202625,24233,06125,13132,21023,06515,9977,06852,963 202725,96933,92225,88333,07524,72416,5998,12561,088 202827,31734,39127,14933,63426,11717,3778,74069,828 202928,77735,91128,57035,12227,38117,8909,49179,319 203030,28737,67329,95636,81628,92118,77810,14389,462 203131,91239,44631,46638,52430,03719,57110,46699,928 203233,35340,55332,94639,66830,46020,37410,086110,014 203334,26042,43134,31441,47431,66521,16610,499120,513 203435,42744,60635,66643,52027,26916,96910,300130,813 203536,22246,74336,92245,51525,13314,41010,723141,536 203637,29349,12338,18647,69426,28814,87811,410152,946 203738,69151,24339,42949,85924,17512,07612,099165,045 203840,27452,90740,57351,94624,78112,54112,240177,285 203941,57954,85441,87754,01926,37612,80413,572190,857 76,19297,08776,00896,90265,58062,6992,881 770,923982,934769,864964,833657,239466,382190,857 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 2 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 14 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #2 ($thousands) for Police Officers only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 2) Cumulative Reduction 201013,81618,63113,81618,63112,86912,734135135 201114,26518,63014,25618,62113,27713,102175310 201214,21319,27414,19219,25213,86213,543319629 201314,73719,77114,70119,73414,86714,2536141,243 201415,39620,57215,34120,51415,82414,9708542,097 201516,46621,28816,38921,20616,36015,1511,2093,306 201617,51621,84417,41721,73617,76915,9691,8005,106 201718,61722,61518,49022,47818,25016,0522,1987,304 201818,77423,46118,61823,29318,85416,2222,6329,936 201918,80124,63118,61624,43019,67116,6583,01312,949 202019,52725,66719,30625,42920,28416,8293,45516,404 202120,06726,55019,80326,26421,19417,2333,96120,365 202220,86827,86820,59327,52421,93217,4824,45024,815 202321,60328,31821,32927,90722,85117,8295,02229,837 202422,38329,32322,11428,82723,97218,3405,63235,469 202523,36730,58523,09029,99325,04218,8756,16741,636 202624,41031,59124,11330,90424,46817,7776,69148,327 202725,37032,70925,07331,99125,55018,2407,31055,637 202826,37734,08226,08133,31126,64318,7497,89463,531 202927,55035,20127,22034,42927,88019,3778,50372,034 203028,83036,95328,44436,10329,32920,2139,11681,150 203130,29438,26529,81537,39330,66421,0739,59190,741 203231,71939,99531,19739,05231,71521,9129,803100,544 203332,87941,55432,50340,56832,55922,7559,804110,348 203433,86543,27333,78142,21328,57518,27610,299120,647 203535,01545,27035,02844,07525,98015,56510,415131,062 203635,91347,41136,18846,09526,26016,11010,150141,212 203736,63749,46137,34248,13924,22213,20611,016152,228 203837,94951,14538,48950,12725,12613,58111,545163,773 203939,34252,87239,61152,10426,30014,10312,197175,970 72,42796,87872,30696,75270,69968,6022,097 736,566958,810732,956942,343682,149506,179175,970 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 2 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 15 - Comparison of Projected City Contributions: Baseline vs. Combination #3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 3 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 16 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #3 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 3) Cumulative Reduction 201027,52836,66527,52836,66524,32624,051275275 201128,72737,34228,70337,31825,54325,130413688 201229,70538,69029,65138,63526,83925,9738661,554 201330,25639,99230,16639,90128,74227,3301,4122,966 201432,40341,27632,26641,13530,82928,6602,1695,135 201534,60042,51134,41042,31332,47029,4323,0388,173 201636,57144,00336,32543,74234,09629,9984,09812,271 201736,87345,98736,56545,65635,21630,3684,84817,119 201837,84447,56537,47347,16136,92431,0425,88223,001 201938,52649,98838,08949,50338,49431,8066,68829,689 202040,17052,06839,64951,49140,20032,5127,68837,377 202141,90854,06941,29453,38541,22832,6018,62746,004 202243,22355,73142,63454,91842,31332,5179,79655,800 202343,60757,35943,15156,39744,63733,35211,28567,085 202445,35259,62044,91358,48246,89134,46212,42979,514 202547,44362,23247,05060,89448,97735,43613,54193,055 202649,65264,65249,24463,11447,53332,80314,730107,785 202751,33966,63150,95665,06650,27433,75216,522124,307 202853,69468,47353,23066,94552,76034,93917,821142,128 202956,32771,11255,79069,55155,26135,99119,270161,398 203059,11774,62658,40072,91958,25037,62320,627182,025 203162,20677,71161,28175,91760,70139,20021,501203,526 203265,07280,54864,14378,72062,17540,77021,405224,931 203367,13983,98566,81782,04264,22442,33621,888246,819 203469,29287,87969,44785,73355,84433,59422,250269,069 203571,23792,01371,95089,59051,11328,26022,853291,922 203673,20696,53474,37493,78952,54829,21623,332315,254 203775,328100,70476,77197,99848,39723,46524,932340,186 203878,223104,05279,062102,07349,90724,24925,658365,844 203980,921107,72681,488106,12352,67624,98127,695393,539 148,619193,965148,314193,654136,279131,1445,135 1,507,4891,941,7441,502,8201,907,1761,339,388945,849393,539 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 3 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 17 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #3 ($thousands) for Firefighters only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 3) Cumulative Reduction 201013,71218,03413,71218,03411,45711,308149149 201114,46218,71214,44718,69712,26612,020246395 201215,49219,41615,45919,38312,97712,431546941 201315,51920,22115,46520,16713,87513,1007751,716 201417,00720,70416,92520,62115,00513,7291,2762,992 201518,13421,22318,02121,10716,11014,3441,7664,758 201619,05522,15918,90822,00616,32714,1352,1926,950 201718,25623,37218,07523,17816,96614,4502,5169,466 201819,07024,10418,85523,86818,07014,9853,08512,551 201919,72525,35719,47325,07318,82315,3383,48516,036 202020,64326,40120,34326,06219,91615,9034,01320,049 202121,84127,51921,49127,12120,03415,6284,40624,455 202222,35527,86322,04127,39420,38115,3345,04729,502 202322,00429,04121,82228,49021,78615,8655,92135,423 202422,96930,29722,79929,65522,91916,5116,40841,831 202524,07631,64723,96030,90123,93516,9906,94548,776 202625,24233,06125,13132,21023,06515,4977,56856,344 202725,96933,92225,88333,07524,72416,0328,69265,036 202827,31734,39127,14933,63426,11716,7569,36174,397 202928,77735,91128,57035,12227,38117,22510,15684,553 203030,28737,67329,95636,81628,92118,06510,85695,409 203131,91239,44631,46638,52430,03718,81911,218106,627 203233,35340,55332,94639,66830,46019,58410,876117,503 203334,26042,43134,31441,47431,66520,34011,325128,828 203435,42744,60635,66643,52027,26916,10711,162139,990 203536,22246,74336,92245,51525,13313,51611,617151,607 203637,29349,12338,18647,69426,28813,95612,332163,939 203738,69151,24339,42949,85924,17511,13213,043176,982 203840,27452,90740,57351,94624,78111,56213,219190,201 203941,57954,85441,87754,01926,37611,80514,571204,772 76,19297,08776,00896,90265,58062,5882,992 770,923982,934769,864964,833657,239452,467204,772 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 3 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 18 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #3 ($thousands) for Police Officers only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 3) Cumulative Reduction 201013,81618,63113,81618,63112,86912,743126126 201114,26518,63014,25618,62113,27713,110167293 201214,21319,27414,19219,25213,86213,542320613 201314,73719,77114,70119,73414,86714,2306371,250 201415,39620,57215,34120,51415,82414,9318932,143 201516,46621,28816,38921,20616,36015,0881,2723,415 201617,51621,84417,41721,73617,76915,8631,9065,321 201718,61722,61518,49022,47818,25015,9182,3327,653 201818,77423,46118,61823,29318,85416,0572,79710,450 201918,80124,63118,61624,43019,67116,4683,20313,653 202019,52725,66719,30625,42920,28416,6093,67517,328 202120,06726,55019,80326,26421,19416,9734,22121,549 202220,86827,86820,59327,52421,93217,1834,74926,298 202321,60328,31821,32927,90722,85117,4875,36431,662 202422,38329,32322,11428,82723,97217,9516,02137,683 202523,36730,58523,09029,99325,04218,4466,59644,279 202624,41031,59124,11330,90424,46817,3067,16251,441 202725,37032,70925,07331,99125,55017,7207,83059,271 202826,37734,08226,08133,31126,64318,1838,46067,731 202927,55035,20127,22034,42927,88018,7669,11476,845 203028,83036,95328,44436,10329,32919,5589,77186,616 203130,29438,26529,81537,39330,66420,38110,28396,899 203231,71939,99531,19739,05231,71521,18610,529107,428 203332,87941,55432,50340,56832,55921,99610,563117,991 203433,86543,27333,78142,21328,57517,48711,088129,079 203535,01545,27035,02844,07525,98014,74411,236140,315 203635,91347,41136,18846,09526,26015,26011,000151,315 203736,63749,46137,34248,13924,22212,33311,889163,204 203837,94951,14538,48950,12725,12612,68712,439175,643 203939,34252,87239,61152,10426,30013,17613,124188,767 72,42796,87872,30696,75270,69968,5562,143 736,566958,810732,956942,343682,149493,382188,767 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 3 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 19 - Comparison of Projected City Contributions: Baseline vs. Combination #4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 4 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 20 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #4 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 4) Cumulative Reduction 201027,52836,66527,52836,66524,32624,038288288 201128,72737,34228,70337,31825,54325,115428716 201229,70538,69029,65138,63526,83925,9588811,597 201330,25639,99230,16639,90128,74227,3151,4273,024 201432,40341,27632,26641,13530,82928,6442,1855,209 201534,60042,51134,41042,31332,47029,4153,0558,264 201636,57144,00336,32543,74234,09629,9814,11512,379 201736,87345,98736,56545,65635,21630,3514,86517,244 201837,84447,56537,47347,16136,92431,0255,89923,143 201938,52649,98838,08949,50338,49431,7886,70629,849 202040,17052,06839,64951,49140,20032,4947,70637,555 202141,90854,06941,29453,38541,22832,5838,64546,200 202243,22355,73142,63454,91842,31332,5009,81356,013 202343,60757,35943,15156,39744,63733,33611,30167,314 202445,35259,62044,91358,48246,89134,44712,44479,758 202547,44362,23247,05060,89448,97735,42113,55693,314 202649,65264,65249,24463,11447,53332,79114,742108,056 202751,33966,63150,95665,06650,27433,74116,533124,589 202853,69468,47353,23066,94552,76034,93117,829142,418 202956,32771,11255,79069,55155,26135,98419,277161,695 203059,11774,62658,40072,91958,25037,61720,633182,328 203162,20677,71161,28175,91760,70139,19421,507203,835 203265,07280,54864,14378,72062,17540,76321,412225,247 203367,13983,98566,81782,04264,22442,33021,894247,141 203469,29287,87969,44785,73355,84433,58722,257269,398 203571,23792,01371,95089,59051,11328,25322,860292,258 203673,20696,53474,37493,78952,54829,20923,339315,597 203775,328100,70476,77197,99848,39723,45824,939340,536 203878,223104,05279,062102,07349,90724,24125,666366,202 203980,921107,72681,488106,12352,67624,97327,703393,905 148,619193,965148,314193,654136,279131,0705,209 1,507,4891,941,7441,502,8201,907,1761,339,388945,483393,905 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 4 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 21 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #4 ($thousands) for Firefighters only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 4) Cumulative Reduction 201013,71218,03413,71218,03411,45711,304153153 201114,46218,71214,44718,69712,26612,015251404 201215,49219,41615,45919,38312,97712,426551955 201315,51920,22115,46520,16713,87513,0957801,735 201417,00720,70416,92520,62115,00513,7241,2813,016 201518,13421,22318,02121,10716,11014,3391,7714,787 201619,05522,15918,90822,00616,32714,1292,1986,985 201718,25623,37218,07523,17816,96614,4442,5229,507 201819,07024,10418,85523,86818,07014,9793,09112,598 201919,72525,35719,47325,07318,82315,3323,49116,089 202020,64326,40120,34326,06219,91615,8974,01920,108 202121,84127,51921,49127,12120,03415,6224,41224,520 202222,35527,86322,04127,39420,38115,3285,05329,573 202322,00429,04121,82228,49021,78615,8605,92635,499 202422,96930,29722,79929,65522,91916,5066,41341,912 202524,07631,64723,96030,90123,93516,9866,94948,861 202625,24233,06125,13132,21023,06515,4937,57256,433 202725,96933,92225,88333,07524,72416,0298,69565,128 202827,31734,39127,14933,63426,11716,7539,36474,492 202928,77735,91128,57035,12227,38117,22310,15884,650 203030,28737,67329,95636,81628,92118,06310,85895,508 203131,91239,44631,46638,52430,03718,81711,220106,728 203233,35340,55332,94639,66830,46019,58210,878117,606 203334,26042,43134,31441,47431,66520,33811,327128,933 203435,42744,60635,66643,52027,26916,10511,164140,097 203536,22246,74336,92245,51525,13313,51411,619151,716 203637,29349,12338,18647,69426,28813,95412,334164,050 203738,69151,24339,42949,85924,17511,13013,045177,095 203840,27452,90740,57351,94624,78111,56013,221190,316 203941,57954,85441,87754,01926,37611,80314,573204,889 76,19297,08776,00896,90265,58062,5643,016 770,923982,934769,864964,833657,239452,350204,889 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 4 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 22 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #4 ($thousands) for Police Officers only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 4) Cumulative Reduction 201013,81618,63113,81618,63112,86912,734135135 201114,26518,63014,25618,62113,27713,100177312 201214,21319,27414,19219,25213,86213,532330642 201314,73719,77114,70119,73414,86714,2206471,289 201415,39620,57215,34120,51415,82414,9209042,193 201516,46621,28816,38921,20616,36015,0761,2843,477 201617,51621,84417,41721,73617,76915,8521,9175,394 201718,61722,61518,49022,47818,25015,9072,3437,737 201818,77423,46118,61823,29318,85416,0462,80810,545 201918,80124,63118,61624,43019,67116,4563,21513,760 202019,52725,66719,30625,42920,28416,5973,68717,447 202120,06726,55019,80326,26421,19416,9614,23321,680 202220,86827,86820,59327,52421,93217,1724,76026,440 202321,60328,31821,32927,90722,85117,4765,37531,815 202422,38329,32322,11428,82723,97217,9416,03137,846 202523,36730,58523,09029,99325,04218,4356,60744,453 202624,41031,59124,11330,90424,46817,2987,17051,623 202725,37032,70925,07331,99125,55017,7127,83859,461 202826,37734,08226,08133,31126,64318,1788,46567,926 202927,55035,20127,22034,42927,88018,7619,11977,045 203028,83036,95328,44436,10329,32919,5549,77586,820 203130,29438,26529,81537,39330,66420,37710,28797,107 203231,71939,99531,19739,05231,71521,18110,534107,641 203332,87941,55432,50340,56832,55921,99210,567118,208 203433,86543,27333,78142,21328,57517,48211,093129,301 203535,01545,27035,02844,07525,98014,73911,241140,542 203635,91347,41136,18846,09526,26015,25511,005151,547 203736,63749,46137,34248,13924,22212,32811,894163,441 203837,94951,14538,48950,12725,12612,68112,445175,886 203939,34252,87239,61152,10426,30013,17013,130189,016 72,42796,87872,30696,75270,69968,5062,193 736,566958,810732,956942,343682,149493,133189,016 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 4 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 23 - Comparison of Projected City Contributions: Baseline vs. Combination #5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 5 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 24 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #5 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 5) Cumulative Reduction 201027,52836,66527,52836,66524,32624,051275275 201128,72737,34228,70337,31825,54325,148395670 201229,70538,69029,65138,63526,83926,0607791,449 201330,25639,99230,16639,90128,74227,5031,2392,688 201432,40341,27632,26641,13530,82928,9491,8804,568 201534,60042,51134,41042,31332,47029,8552,6157,183 201636,57144,00336,32543,74234,09630,5883,50810,691 201736,87345,98736,56545,65635,21631,0734,14314,834 201837,84447,56537,47347,16136,92431,9065,01819,852 201938,52649,98838,08949,50338,49432,7915,70325,555 202040,17052,06839,64951,49140,20033,6496,55132,106 202141,90854,06941,29453,38541,22833,9067,32239,428 202243,22355,73142,63454,91842,31334,0488,26547,693 202343,60757,35943,15156,39744,63735,1219,51657,209 202445,35259,62044,91358,48246,89136,45010,44167,650 202547,44362,23247,05060,89448,97737,60911,36879,018 202649,65264,65249,24463,11447,53335,17112,36291,380 202751,33966,63150,95665,06650,27436,39113,883105,263 202853,69468,47353,23066,94552,76037,80914,951120,214 202956,32771,11255,79069,55155,26139,06616,195136,409 203059,11774,62658,40072,91958,25040,91217,338153,747 203162,20677,71161,28175,91760,70142,66518,036171,783 203265,07280,54864,14378,72062,17544,40117,774189,557 203367,13983,98566,81782,04264,22446,12318,101207,658 203469,29287,87969,44785,73355,84437,53418,310225,968 203571,23792,01371,95089,59051,11332,34618,767244,735 203673,20696,53474,37493,78952,54833,43919,109263,844 203775,328100,70476,77197,99848,39727,81320,584284,428 203878,223104,05279,062102,07349,90728,72821,179305,607 203980,921107,72681,488106,12352,67629,59323,083328,690 148,619193,965148,314193,654136,279131,7114,568 1,507,4891,941,7441,502,8201,907,1761,339,3881,010,698328,690 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 5 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 25 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #5 ($thousands) for Firefighters only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 5) Cumulative Reduction 201013,71218,03413,71218,03411,45711,308149149 201114,46218,71214,44718,69712,26612,033233382 201215,49219,41615,45919,38312,97712,489488870 201315,51920,22115,46520,16713,87513,1916841,554 201417,00720,70416,92520,62115,00513,8961,1092,663 201518,13421,22318,02121,10716,11014,5841,5264,189 201619,05522,15918,90822,00616,32714,4371,8906,079 201718,25623,37218,07523,17816,96614,7982,1688,247 201819,07024,10418,85523,86818,07015,4182,65210,899 201919,72525,35719,47325,07318,82315,8282,99513,894 202020,64326,40120,34326,06219,91616,4703,44617,340 202121,84127,51921,49127,12120,03416,2703,76421,104 202222,35527,86322,04127,39420,38116,1114,27025,374 202322,00429,04121,82228,49021,78616,7755,01130,385 202422,96930,29722,79929,65522,91917,5315,38835,773 202524,07631,64723,96030,90123,93518,0995,83641,609 202625,24233,06125,13132,21023,06516,7036,36247,971 202725,96933,92225,88333,07524,72417,3977,32755,298 202827,31734,39127,14933,63426,11718,2467,87163,169 202928,77735,91128,57035,12227,38118,8138,56871,737 203030,28737,67329,95636,81628,92119,7659,15680,893 203131,91239,44631,46638,52430,03720,6089,42990,322 203233,35340,55332,94639,66830,46021,4609,00099,322 203334,26042,43134,31441,47431,66522,2979,368108,690 203435,42744,60635,66643,52027,26918,1439,126117,816 203536,22246,74336,92245,51525,13315,6269,507127,323 203637,29349,12338,18647,69426,28816,13610,152137,475 203738,69151,24339,42949,85924,17513,37610,799148,274 203840,27452,90740,57351,94624,78113,87710,904159,178 203941,57954,85441,87754,01926,37614,18412,192171,370 76,19297,08776,00896,90265,58062,9172,663 770,923982,934769,864964,833657,239485,869171,370 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 5 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 26 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #5 ($thousands) for Police Officers only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 5) Cumulative Reduction 201013,81618,63113,81618,63112,86912,743126126 201114,26518,63014,25618,62113,27713,115162288 201214,21319,27414,19219,25213,86213,571291579 201314,73719,77114,70119,73414,86714,3125551,134 201415,39620,57215,34120,51415,82415,0537711,905 201516,46621,28816,38921,20616,36015,2711,0892,994 201617,51621,84417,41721,73617,76916,1511,6184,612 201718,61722,61518,49022,47818,25016,2751,9756,587 201818,77423,46118,61823,29318,85416,4882,3668,953 201918,80124,63118,61624,43019,67116,9632,70811,661 202019,52725,66719,30625,42920,28417,1793,10514,766 202120,06726,55019,80326,26421,19417,6363,55818,324 202220,86827,86820,59327,52421,93217,9373,99522,319 202321,60328,31821,32927,90722,85118,3464,50526,824 202422,38329,32322,11428,82723,97218,9195,05331,877 202523,36730,58523,09029,99325,04219,5105,53237,409 202624,41031,59124,11330,90424,46818,4686,00043,409 202725,37032,70925,07331,99125,55018,9946,55649,965 202826,37734,08226,08133,31126,64319,5637,08057,045 202927,55035,20127,22034,42927,88020,2537,62764,672 203028,83036,95328,44436,10329,32921,1478,18272,854 203130,29438,26529,81537,39330,66422,0578,60781,461 203231,71939,99531,19739,05231,71522,9418,77490,235 203332,87941,55432,50340,56832,55923,8268,73398,968 203433,86543,27333,78142,21328,57519,3919,184108,152 203535,01545,27035,02844,07525,98016,7209,260117,412 203635,91347,41136,18846,09526,26017,3038,957126,369 203736,63749,46137,34248,13924,22214,4379,785136,154 203837,94951,14538,48950,12725,12614,85110,275146,429 203939,34252,87239,61152,10426,30015,40910,891157,320 72,42796,87872,30696,75270,69968,7941,905 736,566958,810732,956942,343682,149524,829157,320 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 5 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 27 - Comparison of Projected City Contributions: Baseline vs. Combination #6 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 6 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 28 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #6 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 6) Cumulative Reduction 201027,52836,66527,52836,66524,32624,038288288 201128,72737,34228,70337,31825,54325,134409697 201229,70538,69029,65138,63526,83926,0457941,491 201330,25639,99230,16639,90128,74227,4871,2552,746 201432,40341,27632,26641,13530,82928,9331,8964,642 201534,60042,51134,41042,31332,47029,8392,6317,273 201636,57144,00336,32543,74234,09630,5713,52510,798 201736,87345,98736,56545,65635,21631,0554,16114,959 201837,84447,56537,47347,16136,92431,8885,03619,995 201938,52649,98838,08949,50338,49432,7735,72125,716 202040,17052,06839,64951,49140,20033,6316,56932,285 202141,90854,06941,29453,38541,22833,8887,34039,625 202243,22355,73142,63454,91842,31334,0318,28247,907 202343,60757,35943,15156,39744,63735,1059,53257,439 202445,35259,62044,91358,48246,89136,43510,45667,895 202547,44362,23247,05060,89448,97737,59511,38279,277 202649,65264,65249,24463,11447,53335,15812,37591,652 202751,33966,63150,95665,06650,27436,38013,894105,546 202853,69468,47353,23066,94552,76037,80114,959120,505 202956,32771,11255,79069,55155,26139,05916,202136,707 203059,11774,62658,40072,91958,25040,90617,344154,051 203162,20677,71161,28175,91760,70142,65918,042172,093 203265,07280,54864,14378,72062,17544,39517,780189,873 203367,13983,98566,81782,04264,22446,11618,108207,981 203469,29287,87969,44785,73355,84437,52718,317226,298 203571,23792,01371,95089,59051,11332,33918,774245,072 203673,20696,53474,37493,78952,54833,43119,117264,189 203775,328100,70476,77197,99848,39727,80520,592284,781 203878,223104,05279,062102,07349,90728,72021,187305,968 203980,921107,72681,488106,12352,67629,58523,091329,059 148,619193,965148,314193,654136,279131,6374,642 1,507,4891,941,7441,502,8201,907,1761,339,3881,010,329329,059 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 6 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 29 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #6 ($thousands) for Firefighters Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 6) Cumulative Reduction 201013,71218,03413,71218,03411,45711,304153153 201114,46218,71214,44718,69712,26612,029237390 201215,49219,41615,45919,38312,97712,484493883 201315,51920,22115,46520,16713,87513,1866891,572 201417,00720,70416,92520,62115,00513,8901,1152,687 201518,13421,22318,02121,10716,11014,5791,5314,218 201619,05522,15918,90822,00616,32714,4311,8966,114 201718,25623,37218,07523,17816,96614,7932,1738,287 201819,07024,10418,85523,86818,07015,4122,65810,945 201919,72525,35719,47325,07318,82315,8223,00113,946 202020,64326,40120,34326,06219,91616,4643,45217,398 202121,84127,51921,49127,12120,03416,2633,77121,169 202222,35527,86322,04127,39420,38116,1054,27625,445 202322,00429,04121,82228,49021,78616,7705,01630,461 202422,96930,29722,79929,65522,91917,5255,39435,855 202524,07631,64723,96030,90123,93518,0945,84141,696 202625,24233,06125,13132,21023,06516,6996,36648,062 202725,96933,92225,88333,07524,72417,3937,33155,393 202827,31734,39127,14933,63426,11718,2437,87463,267 202928,77735,91128,57035,12227,38118,8118,57071,837 203030,28737,67329,95636,81628,92119,7649,15780,994 203131,91239,44631,46638,52430,03720,6079,43090,424 203233,35340,55332,94639,66830,46021,4589,00299,426 203334,26042,43134,31441,47431,66522,2959,370108,796 203435,42744,60635,66643,52027,26918,1429,127117,923 203536,22246,74336,92245,51525,13315,6249,509127,432 203637,29349,12338,18647,69426,28816,13410,154137,586 203738,69151,24339,42949,85924,17513,37410,801148,387 203840,27452,90740,57351,94624,78113,87510,906159,293 203941,57954,85441,87754,01926,37614,18112,195171,488 76,19297,08776,00896,90265,58062,8932,687 770,923982,934769,864964,833657,239485,751171,488 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 6 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 30 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #6 ($thousands) for Police Officers Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 6) Cumulative Reduction 201013,81618,63113,81618,63112,86912,734135135 201114,26518,63014,25618,62113,27713,105172307 201214,21319,27414,19219,25213,86213,561301608 201314,73719,77114,70119,73414,86714,3015661,174 201415,39620,57215,34120,51415,82415,0437811,955 201516,46621,28816,38921,20616,36015,2601,1003,055 201617,51621,84417,41721,73617,76916,1401,6294,684 201718,61722,61518,49022,47818,25016,2621,9886,672 201818,77423,46118,61823,29318,85416,4762,3789,050 201918,80124,63118,61624,43019,67116,9512,72011,770 202019,52725,66719,30625,42920,28417,1673,11714,887 202120,06726,55019,80326,26421,19417,6253,56918,456 202220,86827,86820,59327,52421,93217,9264,00622,462 202321,60328,31821,32927,90722,85118,3354,51626,978 202422,38329,32322,11428,82723,97218,9105,06232,040 202523,36730,58523,09029,99325,04219,5015,54137,581 202624,41031,59124,11330,90424,46818,4596,00943,590 202725,37032,70925,07331,99125,55018,9876,56350,153 202826,37734,08226,08133,31126,64319,5587,08557,238 202927,55035,20127,22034,42927,88020,2487,63264,870 203028,83036,95328,44436,10329,32921,1428,18773,057 203130,29438,26529,81537,39330,66422,0528,61281,669 203231,71939,99531,19739,05231,71522,9378,77890,447 203332,87941,55432,50340,56832,55923,8218,73899,185 203433,86543,27333,78142,21328,57519,3859,190108,375 203535,01545,27035,02844,07525,98016,7159,265117,640 203635,91347,41136,18846,09526,26017,2978,963126,603 203736,63749,46137,34248,13924,22214,4319,791136,394 203837,94951,14538,48950,12725,12614,84510,281146,675 203939,34252,87239,61152,10426,30015,40410,896157,571 72,42796,87872,30696,75270,69968,7441,955 736,566958,810732,956942,343682,149524,578157,571 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 6 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 31 - Comparison of Projected City Contributions: Baseline vs. Combination #7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 7 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 32 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #7 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 7) Cumulative Reduction 201027,52836,66527,52836,66524,32624,051275275 201128,72737,34228,70337,31825,54325,141402677 201229,70538,69029,65138,63526,83926,0258141,491 201330,25639,99230,16639,90128,74227,4331,3092,800 201432,40341,27632,26641,13530,82928,8311,9984,798 201534,60042,51134,41042,31332,47029,6822,7887,586 201636,57144,00336,32543,74234,09630,3473,74911,335 201736,87345,98736,56545,65635,21630,7844,43215,767 201837,84447,56537,47347,16136,92431,5525,37221,139 201938,52649,98838,08949,50338,49432,3866,10827,247 202040,17052,06839,64951,49140,20033,1817,01934,266 202141,90854,06941,29453,38541,22833,3687,86042,126 202243,22355,73142,63454,91842,31333,4168,89751,023 202343,60757,35943,15156,39744,63734,39010,24761,270 202445,35259,62044,91358,48246,89135,62711,26472,534 202547,44362,23247,05060,89448,97736,70812,26984,803 202649,65264,65249,24463,11447,53334,18813,34598,148 202751,33966,63150,95665,06650,27435,29414,980113,128 202853,69468,47353,23066,94552,76036,61416,146129,274 202956,32771,11255,79069,55155,26137,78317,478146,752 203059,11774,62658,40072,91958,25039,53818,712165,464 203162,20677,71161,28175,91760,70141,21419,487184,951 203265,07280,54864,14378,72062,17542,87819,297204,248 203367,13983,98566,81782,04264,22444,53219,692223,940 203469,29287,87969,44785,73355,84435,87619,968243,908 203571,23792,01371,95089,59051,11330,62420,489264,397 203673,20696,53474,37493,78952,54831,66020,888285,285 203775,328100,70476,77197,99848,39725,98822,409307,694 203878,223104,05279,062102,07349,90726,84723,060330,754 203980,921107,72681,488106,12352,67627,66025,016355,770 148,619193,965148,314193,654136,279131,4814,798 1,507,4891,941,7441,502,8201,907,1761,339,388983,618355,770 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 7 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 33 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #7 ($thousands) for Firefighters Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 7) Cumulative Reduction 201013,71218,03413,71218,03411,45711,308149149 201114,46218,71214,44718,69712,26612,028238387 201215,49219,41615,45919,38312,97712,465512899 201315,51920,22115,46520,16713,87513,1547211,620 201417,00720,70416,92520,62115,00513,8281,1772,797 201518,13421,22318,02121,10716,11014,4861,6244,421 201619,05522,15918,90822,00616,32714,3132,0146,435 201718,25623,37218,07523,17816,96614,6552,3118,746 201819,07024,10418,85523,86818,07015,2402,83011,576 201919,72525,35719,47325,07318,82315,6263,19714,773 202020,64326,40120,34326,06219,91616,2363,68018,453 202121,84127,51921,49127,12120,03416,0044,03022,483 202222,35527,86322,04127,39420,38115,7894,59227,075 202322,00429,04121,82228,49021,78616,3975,38932,464 202422,96930,29722,79929,65522,91917,1075,81238,276 202524,07631,64723,96030,90123,93517,6376,29844,574 202625,24233,06125,13132,21023,06516,2006,86551,439 202725,96933,92225,88333,07524,72416,8277,89759,336 202827,31734,39127,14933,63426,11717,6228,49567,831 202928,77735,91128,57035,12227,38118,1479,23477,065 203030,28737,67329,95636,81628,92119,0519,87086,935 203131,91239,44631,46638,52430,03719,85410,18397,118 203233,35340,55332,94639,66830,46020,6679,793106,911 203334,26042,43134,31441,47431,66521,46910,196117,107 203435,42744,60635,66643,52027,26917,2809,989127,096 203536,22246,74336,92245,51525,13314,73010,403137,499 203637,29349,12338,18647,69426,28815,21211,076148,575 203738,69151,24339,42949,85924,17512,42911,746160,321 203840,27452,90740,57351,94624,78112,89711,884172,205 203941,57954,85441,87754,01926,37613,18313,193185,398 76,19297,08776,00896,90265,58062,7832,797 770,923982,934769,864964,833657,239471,841185,398 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 7 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 34 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #7 ($thousands) for Police Officers Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 7) Cumulative Reduction 201013,81618,63113,81618,63112,86912,743126126 201114,26518,63014,25618,62113,27713,113164290 201214,21319,27414,19219,25213,86213,560302592 201314,73719,77114,70119,73414,86714,2795881,180 201415,39620,57215,34120,51415,82415,0038212,001 201516,46621,28816,38921,20616,36015,1961,1643,165 201617,51621,84417,41721,73617,76916,0341,7354,900 201718,61722,61518,49022,47818,25016,1292,1217,021 201818,77423,46118,61823,29318,85416,3122,5429,563 201918,80124,63118,61624,43019,67116,7602,91112,474 202019,52725,66719,30625,42920,28416,9453,33915,813 202120,06726,55019,80326,26421,19417,3643,83019,643 202220,86827,86820,59327,52421,93217,6274,30523,948 202321,60328,31821,32927,90722,85117,9934,85828,806 202422,38329,32322,11428,82723,97218,5205,45234,258 202523,36730,58523,09029,99325,04219,0715,97140,229 202624,41031,59124,11330,90424,46817,9886,48046,709 202725,37032,70925,07331,99125,55018,4677,08353,792 202826,37734,08226,08133,31126,64318,9927,65161,443 202927,55035,20127,22034,42927,88019,6368,24469,687 203028,83036,95328,44436,10329,32920,4878,84278,529 203130,29438,26529,81537,39330,66421,3609,30487,833 203231,71939,99531,19739,05231,71522,2119,50497,337 203332,87941,55432,50340,56832,55923,0639,496106,833 203433,86543,27333,78142,21328,57518,5969,979116,812 203535,01545,27035,02844,07525,98015,89410,086126,898 203635,91347,41136,18846,09526,26016,4489,812136,710 203736,63749,46137,34248,13924,22213,55910,663147,373 203837,94951,14538,48950,12725,12613,95011,176158,549 203939,34252,87239,61152,10426,30014,47711,823170,372 72,42796,87872,30696,75270,69968,6982,001 736,566958,810732,956942,343682,149511,777170,372 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 7 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 35 - Comparison of Projected City Contributions: Baseline vs. Combination #8 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fiscal Year Projected City Contributions (as a % of Payroll, Incl DROPs) Baseline Combination 8 CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 36 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #8 ($thousands) - Total: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 8) Cumulative Reduction 201027,52836,66527,52836,66524,32624,038288288 201128,72737,34228,70337,31825,54325,127416704 201229,70538,69029,65138,63526,83926,0108291,533 201330,25639,99230,16639,90128,74227,4171,3252,858 201432,40341,27632,26641,13530,82928,8152,0144,872 201534,60042,51134,41042,31332,47029,6662,8047,676 201636,57144,00336,32543,74234,09630,3303,76611,442 201736,87345,98736,56545,65635,21630,7674,44915,891 201837,84447,56537,47347,16136,92431,5345,39021,281 201938,52649,98838,08949,50338,49432,3686,12627,407 202040,17052,06839,64951,49140,20033,1637,03734,444 202141,90854,06941,29453,38541,22833,3507,87842,322 202243,22355,73142,63454,91842,31333,3998,91451,236 202343,60757,35943,15156,39744,63734,37410,26361,499 202445,35259,62044,91358,48246,89135,61211,27972,778 202547,44362,23247,05060,89448,97736,69412,28385,061 202649,65264,65249,24463,11447,53334,17513,35898,419 202751,33966,63150,95665,06650,27435,28314,991113,410 202853,69468,47353,23066,94552,76036,60616,154129,564 202956,32771,11255,79069,55155,26137,77717,484147,048 203059,11774,62658,40072,91958,25039,53218,718165,766 203162,20677,71161,28175,91760,70141,20819,493185,259 203265,07280,54864,14378,72062,17542,87219,303204,562 203367,13983,98566,81782,04264,22444,52519,699224,261 203469,29287,87969,44785,73355,84435,86919,975244,236 203571,23792,01371,95089,59051,11330,61720,496264,732 203673,20696,53474,37493,78952,54831,65320,895285,627 203775,328100,70476,77197,99848,39725,98122,416308,043 203878,223104,05279,062102,07349,90726,83923,068331,111 203980,921107,72681,488106,12352,67627,65225,024356,135 148,619193,965148,314193,654136,279131,4074,872 1,507,4891,941,7441,502,8201,907,1761,339,388983,253356,135 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 8 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 37 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #8 ($thousands) for Firefighters Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 8) Cumulative Reduction 201013,71218,03413,71218,03411,45711,304153153 201114,46218,71214,44718,69712,26612,023243396 201215,49219,41615,45919,38312,97712,460517913 201315,51920,22115,46520,16713,87513,1497261,639 201417,00720,70416,92520,62115,00513,8231,1822,821 201518,13421,22318,02121,10716,11014,4811,6294,450 201619,05522,15918,90822,00616,32714,3072,0206,470 201718,25623,37218,07523,17816,96614,6502,3168,786 201819,07024,10418,85523,86818,07015,2342,83611,622 201919,72525,35719,47325,07318,82315,6203,20314,825 202020,64326,40120,34326,06219,91616,2303,68618,511 202121,84127,51921,49127,12120,03415,9984,03622,547 202222,35527,86322,04127,39420,38115,7834,59827,145 202322,00429,04121,82228,49021,78616,3925,39432,539 202422,96930,29722,79929,65522,91917,1015,81838,357 202524,07631,64723,96030,90123,93517,6326,30344,660 202625,24233,06125,13132,21023,06516,1966,86951,529 202725,96933,92225,88333,07524,72416,8237,90159,430 202827,31734,39127,14933,63426,11717,6198,49867,928 202928,77735,91128,57035,12227,38118,1459,23677,164 203030,28737,67329,95636,81628,92119,0499,87287,036 203131,91239,44631,46638,52430,03719,85310,18497,220 203233,35340,55332,94639,66830,46020,6669,794107,014 203334,26042,43134,31441,47431,66521,46710,198117,212 203435,42744,60635,66643,52027,26917,2789,991127,203 203536,22246,74336,92245,51525,13314,72810,405137,608 203637,29349,12338,18647,69426,28815,21011,078148,686 203738,69151,24339,42949,85924,17512,42711,748160,434 203840,27452,90740,57351,94624,78112,89511,886172,320 203941,57954,85441,87754,01926,37613,18113,195185,515 76,19297,08776,00896,90265,58062,7592,821 770,923982,934769,864964,833657,239471,724185,515 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 8 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 38 - The following Table shows the projected covered payroll and a comparison of the net city contributions required under the Baseline forecast versus Combination #8 ($thousands) for Police Officers Only: City City (Not Incl. DROPs) (Including DROPs) (Not Incl. DROPs) (Including DROPs) Contributions (Baseline) Contributions (Combination 8) Cumulative Reduction 201013,81618,63113,81618,63112,86912,734135135 201114,26518,63014,25618,62113,27713,104173308 201214,21319,27414,19219,25213,86213,550312620 201314,73719,77114,70119,73414,86714,2685991,219 201415,39620,57215,34120,51415,82414,9928322,051 201516,46621,28816,38921,20616,36015,1851,1753,226 201617,51621,84417,41721,73617,76916,0231,7464,972 201718,61722,61518,49022,47818,25016,1172,1337,105 201818,77423,46118,61823,29318,85416,3002,5549,659 201918,80124,63118,61624,43019,67116,7482,92312,582 202019,52725,66719,30625,42920,28416,9333,35115,933 202120,06726,55019,80326,26421,19417,3523,84219,775 202220,86827,86820,59327,52421,93217,6164,31624,091 202321,60328,31821,32927,90722,85117,9824,86928,960 202422,38329,32322,11428,82723,97218,5115,46134,421 202523,36730,58523,09029,99325,04219,0625,98040,401 202624,41031,59124,11330,90424,46817,9796,48946,890 202725,37032,70925,07331,99125,55018,4607,09053,980 202826,37734,08226,08133,31126,64318,9877,65661,636 202927,55035,20127,22034,42927,88019,6328,24869,884 203028,83036,95328,44436,10329,32920,4838,84678,730 203130,29438,26529,81537,39330,66421,3559,30988,039 203231,71939,99531,19739,05231,71522,2069,50997,548 203332,87941,55432,50340,56832,55923,0589,501107,049 203433,86543,27333,78142,21328,57518,5919,984117,033 203535,01545,27035,02844,07525,98015,88910,091127,124 203635,91347,41136,18846,09526,26016,4439,817136,941 203736,63749,46137,34248,13924,22213,55410,668147,609 203837,94951,14538,48950,12725,12613,94411,182158,791 203939,34252,87239,61152,10426,30014,47111,829170,620 72,42796,87872,30696,75270,69968,6482,051 736,566958,810732,956942,343682,149511,529170,620 Year End 5-Year Totals 30-Year Totals Fiscal Payroll - Baseline Payroll - Combination 8 Reduction in Cost CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 39 - PLAN PROVISIONS A.Effective Date: October 1, 1973, revised and restated as of February 19, 1981. Most recent amendatory Ordinances considered - 2007-07 and 2006-10. B. Eligibility Requirements: 1.Participants in previous Retirement Plan as of February 19, 1981 are automatically and immediately included. 2.Mandatory participation (with satisfactory physical) for Police Officers and Firefighters upon date of hire or attainment of age 18, if later. The Fire Chief and Police Chief may elect to participate. C. Continuous Service: Years and completed months of uninterrupted service from the date of hire to date of retirement or termination. D.Earnings: Base wages, regular longevity, overtime, voluntary deductions and IRC 457 deferred compensation. Earnings shall include payment up to 1,000 hours of accrued unused sick leave. Maximum annual earnings limited to $230,000 subject to annual increase. E. Average Monthly Earnings: Average monthly earnings (AME) during the highest two years of continuous service for Firefighters and Police Officers preceding the date on which the participant retires or terminates. F. Regular Wages: Base pay including any incentive pay, regular longevity, assignment pay and any current or future additional pensionable compensation, but excluding overtime or accrued unused leave. Regular wages shall be used to calculate the maximum retirement benefit for Firefighters hired on or after April 1, 2006. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 40 - G.Average Monthly Regular Wages: Average monthly regular wages coinciding with the highest two years of continuous service for Firefighters preceding the date on which the participant retires or terminates, used in the AME. H.Normal Retirement: 1.Eligibility: Earliest of: (a)Attainment of age 50 and completion of 10 years of continuous service. (b)Completion of 20 years of continuous service. 2.Benefit: (a)For Firefighters, 3.0% times AME times years of Continuous Service. Maximum 80% of average monthly earnings for the highest two years of continuous service. Firefighters who were hired on or before June 18, 2003 who elect to retire or enter the DROP anytime on or after attaining age 50 with 10 years of service but no later than attainment of 20 years of service shall receive a benefit amount equal to 4.0%, rather than 3.0%, times AME times years of Continuous Service, subject in any event to a maximum of 80% of average monthly earnings for the highest two years of continuous service. Firefighters hired after June 18, 2003 but before April 1, 2006 who elect to retire or enter the DROP upon, but not after, the earlier of completion of 20 years of service or attainment of age 50 with 10 years of service shall receive a benefit amount equal to 4.0%, rather than 3.0%, times AME times years of Continuous Service, subject in any event to a maximum of 80% of average monthly earnings for the highest two years of continuous service. Firefighters hired after March 31, 2006 shall receive a benefit amount equal to 4.0%, times AME times years of Continuous Service, subject in any event to a maximum of 80% of average monthly earnings for the highest two years of continuous service. In no event shall the benefit for firefighters hired after March 31, 2006 exceed 98% of average monthly regular wages. (b)For Police Officers, 3.0% times AME times years of Continuous Service up to 20 years of service plus 4.0% times AME times years of Continuous Service in excess of 20 years. Maximum 80% of average monthly earnings for the highest two years of continuous service. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 41 - Police Officers who elect to retire or enter the DROP anytime on or after attaining age 50 with 10 years of service but no later than attainment of 20 years of service shall receive a benefit amount equal to 4.0%, rather than 3.0%, times AME times years of Continuous Service, subject in any event to a maximum of 80% of average monthly earnings for the highest two years of continuous service. (c)Those eligible on February 19, 1981 are subject to minimum benefit of 50% of AME. I. Deferred Retirement: 1. Eligibility: Any first day of a month past Normal Retirement Date. 2. Benefit: Benefit calculated as for Normal Retirement based upon service and pay to Deferred Retirement Date. J. Disability Retirement: 1. Eligibility: Totally and permanently disabled meaning incapacity to perform regular duty as Firefighter or Police Officer (and completion of at least 10 years of continuous service for non-service incurred disability). 2. Benefit: (a) Service Incurred: Greater of: - Accrued benefit - 66 2/3% of monthly earnings rate on date of disability. (b)Non-Service Incurred: Greater of: - Accrued benefit - 35% of AME on date of disability. K.Death Benefit: CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 42 - 1.Service Incurred: To spouse, 50% of AME payable for life. To unmarried children, 5% of AME until death or attainment of age 18 (if full time student attainment of age 22). Total monthly benefit not to exceed 60% of AME. Upon death of spouse, the 5% child allowance shall be increased to 10%, subject to a maximum combined total of 35% of AME. Benefit above reduced by the actuarial equivalent of payment of: -if the Member had less than ten (10) years of Continuous Service, Member contributions to the beneficiary with 3% simple interest, or -if the Member had ten (10) or more years of Continuous Service, benefit otherwise payable to the Member at the Member's Normal Retirement Date, if applicable, for ten years certain. 2.Non-Service Incurred: -Less than five (5) years of Continuous Service, the designated beneficiary receives a lump sum of $2,500 or return of Member contributions with 3% interest, whichever is greater. -Five (5) or more years of Continuous Service, the designated beneficiary receives a lump sum of the greater of Member contributions (without interest) or $2,500, plus, if married, the spouse receives a monthly benefit equal to 50% of the Accrued Benefit as of Member's date of death but not less than 20% of the monthly Earnings rate. To unmarried children of the deceased Member, same benefits as are payable for Service Incurred death. Combined monthly benefit not to exceed 50% of AME, or 35% of AME after the death or remarriage of spouse. Benefit above reduced by the actuarial equivalent of payment of: -if the Member had ten (10) or more years of Continuous Service, benefit otherwise payable to the Member at the Member's Normal Retirement Date, if applicable, for ten years certain. L. Employee Contributions: 10.4% (6% prior to April 1, 1991) of annual earnings until completion of 26 2/3 years of Continuous Service. M.Vested Benefit Upon Termination: 1.Eligibility: CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 43 - Completion of at least ten (10) years of Continuous Service at date of termination. 2.Benefit: Accrued benefit based upon AME and years of Continuous Service as of date of termination payable at attainment of age 50. 3.Alternate Benefit: In lieu of the above, deferred benefit payable at Normal Retirement Date; otherwise, a Member can elect to withdraw his employee contributions plus 3% simple interest per annum. N. Termination Benefit: 1.Eligibility: Termination of service prior to eligibility for vested benefit upon termination. 2.Benefit: Refund of Member contributions plus 3% simple interest per annum. O. Normal Form of Payment of Retirement Income: Monthly accrued benefit for ten (10) years certain and life thereafter with 100% of benefit continuing to spouse for one year and 50% of benefit payable to spouse thereafter until death. Other Options: Actuarially equivalent joint and survivor or joint and last survivor at 25%, 50%, 66 2/3%, 75%, 100%; life annuity; or ten years certain and life; or other option (except lump sum), subject to Board approval. P. Deferred Retirement Option Plan (DROP): 1.Eligibility: CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 44 - A Member who has reached Normal Retirement Date is eligible to elect to participate in DROP. A Firefighter who reaches Normal Retirement Date before age 50 may participate for the lesser of five years or until age 55, provided that Firefighters employed as of December 20, 2000 and hired after their 30th birthday, may participate in the DROP no later than completion of 20 years of Continuous Service in order to participate in the DROP for a full five years. A Police Officer hired after his 25th birthday may participate in the DROP no later than completion of 25 years of Continuous Service in order to participate in the DROP for a full five years. An election to participate in the DROP is irrevocable. 2.Benefit: Accrued benefit as of entry into DROP. 3.Interest Credits: A Member may elect annually in advance interest credits of a fixed 8% per annum or fund return. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 45 - Q. 13th Check Program (Police Officers only) 1.Eligibility: Service or disabled retired Police Officer or beneficiary receiving pension or DROP benefits. 2.Benefit: For Police Officers retired prior to October 1, 2003, up to 2% of investment return in excess of 8% based upon present value of future pension payments of current Police Officer members, not to exceed outstanding balance of cumulative net actuarial gains. Any distributable amount allocated to eligible members based upon years of service with prorata share during first year of entitlement. See Item R. regarding election. For Police Officers retired on or after October 1, 2003 but before October 1, 2006, up to 2% of investment return in excess of 9% based upon present value of future pension payments of current Police Officer members, not to exceed outstanding balance of cumulative net actuarial gains. Any distributable amount allocated to eligible members based upon years of service with prorata share during first year of entitlement. See Item R. regarding election. For Police Officers retired on or after October 1, 2006 there is no Supplemental Benefit. R. Cost of Living Adjustment For Firefighters, effective April 1, 2005 and each April 1st thereafter, retirees, beneficiaries and DROP participants who were receiving benefits on June 18, 2003 will receive either a 2% cost of living adjustment or an adjustment equal to the total percentage increase in base wages, excluding performance or merit adjustments, whichever is greater. For Firefighters, effective April 1, 2005 and each April 1st thereafter, retirees, beneficiaries and DROP participants who were hired on or before June 18, 2003 and retire or enter the DROP anytime on or after attaining age 50 with 10 years of service but no later than attainment of 20 years of service will receive either a 2% cost of living adjustment or an adjustment equal to the total percentage increase in base wages, excluding performance or merit adjustments, whichever is greater. For those receiving for less than one year the increase shall be prorated. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 46 - For Firefighters, effective April 1, 2005 and each April 1st thereafter, retirees, beneficiaries and DROP participants who were hired after June 18, 2003 but before April 1, 2006 and retire or enter the DROP at their earliest normal retirement age, but not after, will receive either a 2% cost of living adjustment or an adjustment equal to the total percentage increase in base wages, excluding performance or merit adjustments, whichever is greater. For those receiving for less than one year the increase shall be prorated. For Firefighters, effective April 1, 2006 and each April 1st thereafter, retirees, beneficiaries and DROP participants who were hired on or after April 1, 2006 and retire or enter the DROP at their earliest normal retirement age, but not after, will receive a 3% cost of living adjustment. For those receiving for less than one year the increase shall be prorated. Firefighter members who were hired prior to April 1, 2006, current retirees and DROP participants shall have the option within sixty (60) days of the effective date of Ordinance 2006-10 to irrevocably elect to receive the cost of living adjustment provided above in lieu of their current cost of living adjustment. Police Officer retirees, DROPs, disabilities and their beneficiaries who retired prior to October 1, 2003 eligible for any supplemental benefit based upon an 8% Fund return threshold subject to cumulative actuarial gains may elect within 60 days to replace this supplemental benefit eligibility entitlement with an annual 2.0% cost of living adjustment retroactive to October 1, 2004. Police Officer retirees, DROPs, disabilities and their beneficiaries who retired on or after October 1, 2003 but not later than September 30, 2006 or were in the DROP on or after October 1, 2003 and entered the DROP not later than September 30, 2006 eligible for any supplemental benefit based upon a 9% Fund return threshold subject to cumulative actuarial gains along with a 1.5% cost of living adjustment effective October 1, 2009 and each October 1st thereafter may elect within 60 days to replace this supplemental benefit eligibility and 1.5% deferred cost of living adjustment entitlement with an annual 2.5% cost of living adjustment retroactive to October 1, 2004. Police Officer retirees, DROPs, disabilities and their beneficiaries who retire or enter the DROP on or after October 1, 2006 will receive a 3.0% cost of living adjustment effective October 1, 2009 and each October 1st thereafter. S. Excess Benefit Plan An excess benefits plan is established to pay retirement benefits above the limits permitted by the Internal Revenue Code. Excess plan benefits are not included in this actuarial valuation. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 47 - ACTUARIAL ASSUMPTIONS AND COST METHODS A.Mortality For healthy participants, the RP-2000 Combined Mortality Table with Blue Collar Adjustment with separate rates for males and females and with fully generational mortality improvements projected to each future decrement date. For disabled participants, the RP-2000 Combined Disabled Mortality Table with separate rates for males and females and with fully generational mortality improvements projected to each future decrement date. B. Investment Return 8.0%, compounded annually, net of expenses. C. Employee Withdrawal Rates Withdrawal rates for males and for females were used in accordance with the following illustrative example: Withdrawal Rates Per 100 Employees Age Males Females 20 4.8100 8.0600 25 3.5035 5.2910 30 2.5415 3.6628 35 1.4950 2.2100 40 0.8450 1.5600 45 0.3900 0.8450 50 0.0600 0.4800 55 0.0350 0.2800 60 0.0100 0.0800 62 & Over 0.0000 0.0000 D.Disability Rates 1. The 1985 Disability Study - Class 2, with separate rate for males and females. CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 48 - 2. 80% of disabilities are assumed to be service incurred - 20% non-service incurred. E. Salary Increase Factors Current salary is assumed to increase at a rate based on the table below per year until retirement. Service Salary Increase 0 years 12% 1 11% 2 10% 3 9% 4 8% 5 7% 6 6% 7 + years 5% Average monthly earnings for retirements and DROPs are increased 28% to reflect additional earnings during averaging period including the inclusion in pensionable earnings of up to 1000 hours of accrued unused leave payable at retirement or DROP entry. Note: For the study, the following adjustments have been made to the above assumptions: •If future employees are not eligible to accrue any leave towards pensionable earnings, average monthly earnings for retirements and DROPs are increased 4.0% to reflect additional earnings during the averaging period. •If future employees are eligible to accrue leave towards pensionable earnings, subject to caps, average monthly earnings for retirements and DROPs are increased 14.56% to reflect expected accumulated leave includable in pension earnings at retirement. •For current employees, average monthly earnings for retirements and DROPs are increased between 5.5% and 28.0%, based upon expected accumulated leave at the time of retirement or DROP entry. For each current employee, expected accumulated leave at the time of retirement or DROP entry was calculated based upon accumulated leave as of February 22, 2010, as provided by the City, and taking into account maximum accrued hours based upon the proposed payout schedule for future holiday and vacation accruals and the proposed cap on future sick leave accruals. •For current employees with less than 10 years of service, expected salary increases at 7+ years of service have been reduced from 5.0% to 4.64% to reflect the reduced longevity pay plan. •For future employees, expected salary increases at 7+ years of service have been CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 49 - reduced from 5.0% to 4.4% to reflect the absence of the longevity pay plan for future employees. F. Payroll Growth Assumption 5.3%, per annum - not greater than historical 10 year average. (3.5% as of 10/1/2009) G.Assumed Retirement Age For Firefighters hired on or before June 18, 2003 and Police Officers, the following are the retirement rates assumed for the participants eligible for retirement: 1. 40% of members are assumed to retire the first year after attaining age fifty (50) and ten (10) years of credited service. 2. 25% of members are assumed to retire each year thereafter until reaching twenty (20) years of credited service. 3. 100% of members are assumed to retire upon twenty (20) years of credited service. 4. Minimum of one year of future service required. For Firefighters hired after June 18, 2003, normal retirement age - minimum of one year of future service. Note: For the study, the retirement rates for future members are as follows: 1.25% of future members are assumed to retire the first year after attaining age fifty (50) and ten (10) years of credited service. 2.15% of future members are assumed to retire each year thereafter until reaching twenty (20) years of credited service. 3.20% of future members are assumed to retire upon attainment of twenty (20) years of credited service. 4.15% of future members are assumed to retire each year thereafter until reaching twenty-five (25) years of credited service. 5.100% of members are assumed to retire upon attainment of twenty-five (25) years of credited service. H.Marital Assumptions 1.50% of deaths are assumed to be service incurred - 50% non-service incurred. 2.There are no children eligible for benefits. 3.95% of participants are married. I. Cost of Living Adjustment CITY PENSION FUND FOR FIREFIGHTERS AND POLICE OFFICERS IN THE CITY OF EXAMPLE CITY, FLORIDA ACTUARIAL STUDY AS OF OCTOBER 1, 2009 - 50 - Firefighters: 2.0% for Firefighters who elected the fluctuating COLA and 3.0% for Firefighters who elected the fixed COLA. Police Officers: 0.0%, 2.0% or 2.5% based upon election for Police Officers who retired or entered the DROP prior to October 1, 2006 and 3.0% for Police Officers who retired or entered the DROP on or after October 1, 2006. J. Asset Valuation Method Actuarial value of assets is equal to the expected actuarial value of assets adjusted by 20% of the difference between the expected actuarial value and market value. K.Cost Method Normal Retirement, Termination, Disability, and Death Benefits: Entry Age Normal Cost Method Under the Entry Age Normal Funding Method the normal cost for each active member is the amount which is calculated as a level percentage of pay required annually from entry age to decrement age to fund projected benefits. The normal cost for the Fund is the sum of the individual normal cost for each active member. The Actuarial Accrued liability for each member eligible to receive benefits under the Fund is the excess of the Present Value of Future Benefits over the Present Value of Future Normal Costs. The Unfunded Actuarial Accrued Liability is the excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. L. Changes since October 1, 2009 valuation None, except for changes noted above related to the study. PRIVILEGED AND CONFIDENTIAL ATTORNEY- CLIENT COMMUNICATION INFORMATION - NOT A PUBLIC RECORD April 15, 2009 Ann Davis, Esq. City Attorney City of Anycity 123 First Avenue Anycity, Florida 33333 Re: City of Anycity Employees’ Retirement System Dear Ann: As requested, we are pleased to enclose six (6) copies of our follow-up Actuarial Study including 30-year Forecast Projection as of October 1, 2007 illustrating the impact of additional potential future benefit provisions affecting General Civil Service Employees of the City of Anycity Employees’ Retirement System (System). Background The System currently requires General Civil Service Employees to contribute seven (7) percent of compensation to the annuity savings fund. System Average Final Compensation for General Civil Service Employees is currently average compensation for the highest three (3) years of service. Proposed Changes In addition to the eight (8) scenarios presented in our Actuarial Study delivered on April 3, 2009, we have projected the following. Scenario 9 – Require a 5.0% mandatory System contribution for newly employed General Civil Service Employees. Scenario 10 – Require a 5.0% mandatory System contribution for newly employed General Civil Service Employees along with General Civil Service Employees with less than three (3) years of service. Scenario 11 – Change Average Final Compensation to average compensation for the highest five (5) years of service for newly employed General Civil Service Employees. Scenario 12 – Change Average Final Compensation to average compensation for the highest five (5) years of service for newly employed General Civil Service Employees along with General Civil Service Employees with less than three (3) years of service. Ann Davis, Esq. April 15, 2009 Page Two Other Considerations As requested, we have included benchmarking information on amortization methods (level dollar / level % of pay) along with the payroll growth assumption used to determine the level percent of pay amortization schedule. In addition, we have incorporated the previously provided benchmarking information relating to average final compensation period along with the mandatory employee contribution requirements for plans with a 3% accrual rate. Actuarial Assumptions and Methods, Financial Data and Member Census Data The actuarial assumptions and methods, member census data and Plan provisions unless specified otherwise for purposes of our Study are the same actuarial assumptions and methods, member census data and Plan provisions used in the October 1, 2007 Actuarial Valuation Report. Throughout the forecast period, new General Civil Service Employees are assumed to be hired each year at a rate sufficient to maintain a constant active employee headcount – stationary population. Newly hired General Civil Service Employees are assumed to have the same average demographic characteristics (age, gender, salary – adjusted each year for inflation) as those of General Civil Service Employees hired over the past five (5) years. This Study is intended to describe the estimated future financial effects of the proposed benefit changes on the System and is not intended as a recommendation in favor of the change nor in opposition to the change. These calculations are based upon assumptions regarding future events. However, the System’s long term costs will be determined by actual future events, which may differ materially from the assumptions made. These calculations are also based upon our understanding of present System provisions that are outlined in the System’s October 1, 2007 Actuarial Valuation Report. If you have reason to believe the assumptions used are unreasonable, the System provisions are incorrectly described or referenced, important System provisions relevant to this Actuarial Study are not described or that conditions have changed since the calculations were made, you should contact the undersigned prior to relying on information in this Actuarial Study. If you have reason to believe that the information provided in this Actuarial Forecast is inaccurate, or is in any way incomplete, or if you need further information in order to make an informed decision on the subject matter of this report, please contact the undersigned prior to making such decision. The undersigned are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Ann Davis, Esq. April 15, 2009 Page Three If you should have any question concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, Lawrence F. Wilson, A.S.A. Peter N. Strong, A.S.A. Senior Consultant and Actuary Consultant and Actuary Enclosures CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 TABLE OF CONTENTS Page I. Executive Summary....................................................................................................1 II. Projection Results.......................................................................................................2 IV. Summary of Projection Results................................................................................10 V. Covered Payroll History...........................................................................................12 IV. Benchmark Provisions for Florida General Employee Plans...................................13 V. Outline of Principal Provisions of the Retirement System.......................................17 VI. Actuarial Assumptions and Actuarial Cost Methods Used.......................................23 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 1 - EXECUTIVE SUMMARY At the request of the City of Anycity, 30-year actuarial projections have been prepared to illustrate the impact of the additional four proposed benefit changes for affected General Civil Service Employees under the City of Anycity Employees’ Retirement System. Forecasts project the current General Civil Service Employees census data forward each year from October 1, 2007 to October 1, 2037, assuming all valuation assumptions are fully realized. As active General Civil Service Employees decrement each year due to DROP, retirement, termination, death or disability, new General Civil Service Employees are assumed to be hired to replace them. Newly hired General Civil Service Employees are assumed to have the same average demographic characteristics (age, gender, salary – adjusted each year for inflation) as those of General Civil Service Employees hired over the past five (5) years (from October 1, 2002 through September 30, 2007). As one would expect, implementing a mandatory 5.0% employee contribution for newly hired General Civil Service Employees is forecast to produce a greater reduction in City costs than implementing the previously studied mandatory 3.5% employee contribution. The forecasted financial effect is amplified by including the current General Civil Service Employees with less than three (3) years of service. Changing the Final Average Earnings to average compensation for the highest five (5) years of service for newly hired General Civil Service Employees is forecast to produce the least reduction is costs of all the scenarios considered in this Actuarial Study. We have also summarized certain actuarial methods and assumptions relating to the amortization of unfunded accrued liability for public pension plans throughout the State. This information is gleaned from a database maintained by the State. The next few pages show the results of the projections (current plan versus each proposed benefit change). CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 2 - PROJECTION RESULTS Scenario 9 – Require a 5.0% mandatory employee contribution for newly hired General Civil Service Employees. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 Affected Cost Scenario 9 -5.00% Mandatory Contribution for New Employees Current Plan Scenario 9 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 3 - The following Table shows the projected payroll and a comparison of the City cost associated with the group affected by this proposed benefit change (newly hired General Civil Service Employees). AffectedAffectedReduction in ValuationAffectedCostCostAffected Year Payroll Current Plan Scenario 9 Cost 20070000 20081,890,479235,814171,22864,586 20093,596,644449,893327,010122,883 20105,227,004653,468474,875178,593 20116,828,743855,602622,268233,334 20128,681,4591,086,513789,858296,655 201310,571,2201,324,151962,905361,246 201412,578,3151,573,2191,143,370429,849 201514,695,4101,838,0891,335,875502,214 201616,900,3792,110,1441,532,559577,585 201719,522,7832,435,3991,768,181667,218 201821,988,2562,740,9551,971,422769,533 201924,305,3363,028,6532,162,625866,028 202026,670,9853,321,6382,357,878963,760 202128,939,8773,607,7672,553,8101,053,957 202231,178,0543,889,7332,744,1851,145,548 202333,449,9614,176,1692,937,3131,238,856 202435,747,8164,464,6303,132,0081,332,622 202538,065,0934,754,4883,327,5211,426,967 202640,425,8045,047,0123,524,0991,522,913 202742,814,9395,343,0163,719,9751,623,041 202845,204,7335,629,6413,908,7591,720,882 202947,658,1275,919,7114,100,2651,819,446 203050,145,4726,212,6304,293,9571,918,673 203152,651,9386,508,8194,487,8222,020,997 203255,200,9686,805,0344,680,6462,124,388 203357,818,5687,107,6974,877,8422,229,855 203460,507,7547,418,1335,079,7242,338,409 203563,236,2477,732,7665,283,8972,448,869 203665,977,3878,053,3905,493,8162,559,574 203768,776,1598,375,1055,703,1782,671,927 30 Year Totals991,255,910122,699,27985,468,87137,230,408 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 4 - Scenario 10 – Require a 5.0% mandatory employee contribution for newly hired General Civil Service Employees along with General Civil Service Employees with less than three (3) years of service. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 Affected Cost Scenario 10 -5.00% Mandatory Contribution for New Employees and Employees with Less Than 3 Years Service Current Plan Scenario 10 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 5 - The following Table shows the projected payroll and a comparison of the City cost associated with the group affected by this proposed benefit change (newly hired General Civil Service Employees along with current General Civil Service Employees with less than three (3) years of service): AffectedAffectedReduction in ValuationAffectedCostCostAffected Year Payroll Current Plan Scenario 10 Cost 20075,093,383652,722499,037153,685 20086,864,926884,067668,024216,043 20098,505,0681,093,645821,344272,301 201010,119,4791,296,371968,833327,538 201111,747,0431,504,4631,121,344383,119 201213,641,5601,742,0731,294,251447,822 201315,574,1151,987,4671,473,656513,811 201417,620,9112,242,7461,651,117591,629 201519,686,9872,503,7881,829,402674,386 201621,742,4112,745,0511,964,542780,509 201723,821,2873,040,0702,176,081863,989 201826,002,3463,314,4282,359,126955,302 201928,152,3363,579,8522,535,5901,044,262 202030,330,5603,847,0392,713,6421,133,397 202132,421,9284,107,9392,892,4401,215,499 202234,542,4894,369,4293,067,7591,301,670 202336,658,6324,629,9743,242,1541,387,820 202438,803,8454,888,4423,413,8841,474,558 202540,981,0335,146,2763,583,8271,562,449 202643,194,3175,382,2203,730,5941,651,626 202745,437,8955,655,9573,910,9221,745,035 202847,702,2095,919,2534,082,1801,837,073 202950,038,9436,190,8824,260,6381,930,244 203052,401,4666,462,5894,438,9042,023,685 203154,808,2386,746,2064,624,8122,121,394 203257,259,6027,030,5484,810,2692,220,279 203359,747,7547,319,2894,999,5392,319,750 203462,269,6297,611,3015,190,7662,420,535 203564,846,3727,908,3745,384,4362,523,938 203667,443,5278,212,5955,584,6582,627,937 203770,087,2758,516,7725,783,7052,733,067 30 Year Totals1,097,547,566136,531,82895,077,47641,454,352 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 6 - Scenario 11 – Change Average Final Earnings to average compensation for the highest five (5) years of service for newly employed General Civil Service Employees. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 Affected Cost Scenario 11 -5 Year Average Final Earnings for New Employees Current Plan Scenario 11 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 7 - The following Table shows the projected payroll and a comparison of the City cost associated with the group affected by this proposed benefit change (newly hired General Civil Service Employees). AffectedAffectedReduction in ValuationAffectedCostCostAffected Year Payroll Current Plan Scenario 11 Cost 20070000 20081,890,479235,814226,6869,128 20093,596,644449,893432,31617,577 20105,227,004653,468627,77425,694 20116,828,743855,602821,16034,442 20128,681,4591,086,5131,042,46244,051 201310,571,2201,324,1511,269,35654,795 201412,578,3151,573,2191,507,83365,386 201514,695,4101,838,0891,760,48777,602 201616,900,3792,110,1442,020,91089,234 201719,522,7832,435,3992,331,399104,000 201821,988,2562,740,9552,622,879118,076 201924,305,3363,028,6532,897,133131,520 202026,670,9853,321,6383,176,513145,125 202128,939,8773,607,7673,449,493158,274 202231,178,0543,889,7333,718,557171,176 202333,449,9614,176,1693,991,856184,313 202435,747,8164,464,6304,267,175197,455 202538,065,0934,754,4884,542,781211,707 202640,425,8045,047,0124,821,946225,066 202742,814,9395,343,0165,104,513238,503 202845,204,7335,629,6415,377,080252,561 202947,658,1275,919,7115,652,830266,881 203050,145,4726,212,6305,932,339280,291 203152,651,9386,508,8196,213,943294,876 203255,200,9686,805,0346,495,537309,497 203357,818,5687,107,6976,783,441324,256 203460,507,7547,418,1337,078,782339,351 203563,236,2477,732,7667,378,229354,537 203665,977,3878,053,3907,682,539370,851 203768,776,1598,375,1057,989,007386,098 30 Year Totals991,255,910122,699,279117,216,9565,482,323 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 8 - Scenario 12 – Change Average Final Earnings to average compensation for the highest five (5) years of service for newly employed General Civil Service Employees along with General Civil Service Employees with less than three (3) years of service. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 Affected Cost Scenario 12 -5 Year Average Final Earnings for New Employees and Employees with Less Than 3 Years Service Current Plan Scenario 12 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 9 - The following Table shows the projected payroll and a comparison of the City cost associated with the group affected by this proposed benefit change (newly hired General Civil Service Employees along with current General Civil Service Employees with less than three (3) years of service): AffectedAffectedReduction in ValuationAffectedCostCostAffected Year Payroll Current Plan Scenario 12 Cost 20075,093,383652,722625,75326,969 20086,864,926884,067847,95636,111 20098,505,0681,093,6451,048,91144,734 201010,119,4791,296,3711,243,36853,003 201111,747,0431,504,4631,442,13462,329 201213,641,5601,742,0731,669,69372,380 201315,574,1151,987,4671,903,73783,730 201417,620,9112,242,7462,147,98194,765 201519,686,9872,503,7882,396,652107,136 201621,742,4112,745,0512,627,461117,590 201723,821,2873,040,0702,908,697131,373 201826,002,3463,314,4283,169,871144,557 201928,152,3363,579,8523,422,300157,552 202030,330,5603,847,0393,676,792170,247 202132,421,9284,107,9393,925,514182,425 202234,542,4894,369,4294,174,744194,685 202336,658,6324,629,9744,423,029206,945 202438,803,8454,888,4424,669,558218,884 202540,981,0335,146,2764,914,517231,759 202643,194,3175,382,2205,139,274242,946 202745,437,8955,655,9575,400,257255,700 202847,702,2095,919,2535,650,037269,216 202950,038,9436,190,8825,907,861283,021 203052,401,4666,462,5896,166,886295,703 203154,808,2386,746,2066,436,501309,705 203257,259,6027,030,5486,706,806323,742 203359,747,7547,319,2896,981,527337,762 203462,269,6297,611,3017,259,426351,875 203564,846,3727,908,3747,542,250366,124 203667,443,5278,212,5957,831,034381,561 203770,087,2758,516,7728,120,900395,872 30 Year Totals1,097,547,566136,531,828130,381,4276,150,401 CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 10 - SUMMARY OF PROJECTION RESULTS Total Projected Payroll for Affected Group991,255,910$ Reduction in Total Projected Cost for Affected Group Affected City Cost Current Plan122,699,279$ Scenario 1- 2.25% Multiplier109,164,39013,534,889$ Scenario 3- 2.50% Multiplier113,890,8508,808,429 Scenario 5- 3.50% Employee Contribution96,637,99426,061,285 Scenario 7- Defined Contribution Plan69,387,91553,311,364 Scenario 9- 5.00% Employee Contribution85,468,87137,230,408 Scenario 11- 5 Year Final Average Earnings117,216,9565,482,323 Total Projected Payroll for Affected Group1,097,547,566$Reduction in Total Projected Cost for Affected Group Affected City Cost Current Plan136,531,828$ Scenario 2- 2.25% Multiplier120,965,42915,566,399$ Scenario 4- 2.50% Multiplier126,396,15410,135,674 Scenario 6- 3.50% Employee Contribution107,513,80629,018,022 Scenario 8- Defined Contribution Plan75,182,88261,348,946 Scenario 10- 5.00% Employee Contribution95,077,47641,454,352 Scenario 12- 5 Year Final Average Earnings130,381,4276,150,401 Summary of 30-year Projection Results for Proposed Benefit Changes for Newly Hired General Civil Service Employees Summary of 30-year Projection Results for Proposed Benefit Changes for Newly Hired General Civil Service Employees along with Current General Civil Service Employees with Less Than Three (3) Years of Service CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 11 - At Least 3Less Than 3 Year Years Service Years Service New Entrants Total 20075141750689 200846716062689 2009427149113689 2010393139157689 2011362132195689 2012327125237689 2013294119276689 2014262113314689 2015233105351689 201620896385689 201718380426689 201816169459689 201914262485689 202012456509689 202110950530689 20229546548689 20238441564689 20247337579689 20256234593689 20265430605689 20274627616689 20284024625689 20293322634689 20302820641689 20312318648689 20322016653689 20331614659689 20341312664689 20351011668689 203699671689 203768675689 Number of General Civil Service Employees by Projection Year Current Active General Civil Service Employees CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 12 - COVERED PAYROLL HISTORY Based upon payroll information provided by the State, the following Table shows the covered payroll history of the City of Anycity Employees’ Retirement System. Covered PayrollAnnual Date (Thousands)Increase October 1, 200775,461$ 12.9% October 1, 200666,836 N/A October 1, 2005N/A N/A October 1, 200457,655 (0.8%) October 1, 200358,129 6.2% October 1, 200254,745 2.4% October 1, 200153,440 3.6% October 1, 200051,597 (1.7%) October 1, 199952,497 3.2% October 1, 199850,846 2.6% October 1, 199749,577 N/A Ten Year Average Annual Increase4.3% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 13 - BENCHMARK PROVISIONS FOR GENERAL EMPLOYEE PLANS The following Exhibits provide an overview of certain benefit provisions, actuarial methods and actuarial assumptions of public pension plans in the State of Florida. The source of this information is the website of the Department of Management Services of the State of Florida. The Department of Management Services has data on 502 public pension plans which have reported information for some or all of the categories below. A.Amortization Method The System annual payment towards the unfunded accrued liability is determined as a level dollar amount. The following is a summary of the amortization method reported by 491 public pension plans in the State of Florida. NumberPercentage Amortization Method of Plans of Plans Level Dollar24149% Level Percent of Pay25051% Total Plans Reporting491100% Level Dollar 49% Level Percent of Pay 51% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 14 - B.Payroll Growth Assumption The System currently does not utilize a payroll growth assumption in the amortization of the unfunded accrued liability. The following is a summary of payroll growth assumptions reported by 250 public pension plans in the State of Florida. NumberPercentage Payroll Growth Assumption of Plans of Plans Less than 3.00%145% 3.00% - 3.49%5622% 3.50% - 3.99%2711% 4.00% - 4.49%4920% 4.50% - 4.99%177% 5.00% - 5.49%7128% 5.50% - 5.99%94% 6.00% - 6.49%52% 7.50%21% Total Plans Reporting250100% Low0.27% High7.50% Average4.08% Median4.00% Less than 3.00% 5% 3.00% -3.49% 22% 3.50% -3.99% 11% 4.00% -4.49% 20% 4.50% -4.99% 7% 5.00% -5.49% 28% 5.50% -5.99% 4% 6.00% -6.49% 2% 7.50% 1% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 15 - C.Average Final Compensation Period System Average Final Compensation for General Civil Service Employees is average compensation for the highest three (3) years of service. The following is a summary of the number of pay periods used in determining Average Final Compensation reported by 161 public pension plans for General Employees in the State of Florida. Average FinalNumberPercentag e Compensation Period of Plans of Plans 1 Year11% 2 Years117% 3 Years5735% 5 Years9157% Career Average11% Total Plans Reporting161100% 1 Year 1% 2 Years 7% 3 Years 35% 5 Years 56% Career Average 1% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 16 - D.Employee Contributions General Civil Service Employees currently do not contribute to the System. The following is a summary of Employee Contributions reported by 25 public pension plans for General Employees in the State of Florida with a benefit accrual rate of 3%. NumberPercentage Employee Contribution Rate of Plans of Plans No Employee Contributions624% 1.00%14% 4.00%14% 4.40%14% 5.00%28% 5.16%14% 6.00%14% 6.16%14% 7.00%312% 7.80%14% 8.00%28% 8.54%14% 9.00%14% 9.50%14% 11.00%14% 19.70%14% Total Plans Reporting25100% No Employee Contributions 24% 1.00% 4% 4.00% 4% 4.40% 4% 5.00% 8% 5.16% 4% 6.00% 4% 6.16% 4% 7.00% 12% 7.80% 4% 8.00% 8% 8.54% 4% 9.00% 4% 9.50% 4% 11.00% 4% 19.70% 4% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 17 - PLAN PROVISIONS A.Retirement Allowance The Member’s Retirement Allowance is equal to the sum of the following: 1.An Annuity, which is the actuarial equivalent of his Accumulated Member Contributions; 2.A Basic Pension, which is equal to $1,800 (for those Members who have attained their Normal Retirement Age) or $2,800 (for all other Members); and 3.A Service Pension, which is equal to 3% of Final Average Compensation multiplied by service up to 25 years (for those Members who have at least 20 years of service and whose age plus service equals at least 70) or 2% of Final Average Compensation multiplied by service up to 30 years (for all other Members). B.Normal Retirement 1.Eligibility •Age 50 upon attainment of 10 years of service or any age upon attainment of 20 years of service (for those Members hired prior to January 27, 1970); •Age 55 upon attainment of 15 years of service or any age upon attainment of 20 years of service (for those Members hired after January 26, 1970 but prior to January 1, 1974); or •Any age with age plus service equal to at least 70 and with at least 20 years of service (for all other Members). 2.Benefit Retirement Allowance 3.Form of Payment (applicable to the Annuity only) •Life annuity (normal form of payment); or •Lump sum payment equal to Accumulated Member Contributions (optional). 4.Form of Payment (applicable to the Basic and Service Pensions only) •Five-year certain and life annuity for General Employees, and ten-year certain and life annuity for Firefighters and Police Officers (normal form of payment); CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 18 - •Normal form of payment actuarially adjusted to benefit payable during lifetime of Member only (optional) (does not apply to General employees); •Normal form of payment actuarially reduced to 50% joint and survivor annuity with the reduced benefit payable upon the death of either the Member or his beneficiary (optional); •Normal form of payment actuarially reduced to 66 % joint and survivor annuity (optional); •Normal form of payment actuarially reduced to 75% joint and survivor annuity (optional) (does not apply to General employees); •Normal form of payment actuarially reduced 100% joint and survivor annuity (optional); •Normal form of payment actuarially reduced 100% joint and survivor annuity with spouse as beneficiary and with a “pop-up” feature. A “pop- up” benefit increases to the amount of the unreduced pension upon the death of the beneficiary. (optional) C.Early Retirement 1.Eligibility Age 55 with at least 10 years of service for General employees, and age 50 with at least 10 years of service for Firefighters and Police Officers. 2.Benefit 100% of the Member’s Annuity. In addition, for General Employees, the Member’s Basic and Service Pensions multiplied by his Vested Interest, payable at age 55. Firefighters and Police Officers can commence their early retirement benefit at age 50 with a 3% per year reduction from normal retirement. 3.Form of Payment Same as for Normal Retirement. D.Disability Retirement 1.Eligibility The Member must be totally and permanently incapacitated for duty in his classified position as an employee of the City, as determined by both the Board of Trustees and by a medical committee consisting of one doctor appointed by the Board of Trustees and one doctor selected by the Member. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 19 - 2.Benefit The Member’s accrued Retirement Allowance, and for Firefighters and Police Officers subject to a minimum of : •25% of Average Final Compensation, for non-duty disability, after 10 years of service, and •42% of Average Final Compensation, for duty related disability, with no service requirement. 3.Form of Payment Same as for Normal Retirement. E.Deferred Retirement (Vested) 1.Eligibility Any age with at least 10 years of service. 2.Benefit 100% of the Member’s Annuity. In addition, for General employees, the Member’s Basic and Service Pensions multiplied by his Vested Interest, payable at age 55. Firefighters and Police Officers can commence their vested benefit at age 50 with a 3% per year reduction from normal retirement. 3.Form of Payment Same as for Normal Retirement. F.Pre-Retirement Death Benefit In the case of the death of a General employee Member prior to retirement, his beneficiary will receive a five-year certain annuity determined as if the Member had retired on the day before his death and elected a five- year certain and life annuity. In lieu of this five-year certain annuity, the beneficiary of the General employee may elect to receive half of the same amount payable over a ten-year period. For Firefighters and Police Officers, the Member’s vested accrued benefit deferred to early (reduced) or normal retirement and payable for a minimum of 10 years. Alternatively, if the Member had attained his Normal or Early Retirement Age and had elected an optional form of payment, then his spouse will receive benefits as dictated by the option elected. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 20 - G.Vested Interest A General employee Member earns a Vested Interest in his Basic and Service Pensions in accordance with the following schedule. Firefighters and Police Officer Members earn a 100% Vested Interest with 10 years of service. Years of Service Vested Interest Less than 10 0% 10 70% 11 73% 12 76% 13 79% 14 82% 15 85% 16 88% 17 91% 18 94% 19 97% 20 or more 100% H.Average Final Compensation Average compensation for the highest three years of service (not necessarily consecutive), where compensation includes base salary plus any longevity or special assignment pay and any pay received in connection with Florida’s law enforcement special incentive program or Firefighters supplemental compensation program. I.Membership Requirements All classified employees of the City of Anycity, Florida participate in the plan, including: (1) all full-time employees (except as provided by law), and (2) those part- time employees working 22½ hours or more per week who elect to participate after one year of continuous employment. Membership does not include any person whose services are compensated on a fee or contractual basis, the Board of Trustees’ medical committee, elected or appointed official who are not in classified service, and persons employed on a temporary or provisional basis for less than nine months. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 21 - J.Accumulated Member Contributions The Accumulated Member Contributions are the Member’s Contributions accumulated with interest at the annual rates established by the Board of Trustees. Prior to the 1995/1996 plan year, interest was credited at the annual yield on the actuarial value of assets. Beginning with the 1995/1996 plan year, interest will be credited at the arithmetic average of the annual yields on the market value of assets for the preceding five years. Interest is credited each September 30 on the balance of the Accumulated Member Contributions as of the preceding October 1 as well as on additional Member Contributions made during the plan year. Members may borrow against their Accumulated Member Contributions as of the preceding October 1, subject to the restrictions set forth in the law. K.Member Contributions All Members must contribute 7% of compensation per year. L.Share Plans Contributions Effective with the year beginning October 1, 2005, the Firefighters’ and Police Officers’ share plans will make contributions to fund the cost of the minimum benefits under Chapter 99-1, Florida Statutes. M.Cost of Living Adjustment Members (including participants in the DROP and excluding beneficiaries and those Members who are receiving a Deferred Retirement Allowance) receive an automatic level 2% cost of living adjustment in their Basic and Service Pensions as of each anniversary of the date on which their retirement benefit commenced, beginning with the later of their first anniversary of retirement or the first of the month following their 52nd birthday and limited to 10 such increases (for a total increase of 20%). N.Deferred Retirement Option Program Effective March 1, 2007, Police Officers and Firefighters are eligible to participate in a Deferred Retirement Option Program (DROP) upon the completion of 25 years of membership service credit provided that the sum of the Member’s age and service is equal to at least 70. The Member’s monthly retirement benefit (basic plus service pension), based on final average earnings and service upon entering the DROP, will be paid to the member’s DROP account. At the end of each fiscal year, interest will be credited to the DROP account at the same rate credited to the annuity savings account. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 22 - Member contributions cease upon entering the DROP and the Member shall be ineligible for disability benefits provided by the System. Upon termination of employment or death, the DROP account balance will be paid in a cash lump sum. The maximum period of participation in the DROP is 36 months and Members cannon buy service in order to be eligible for the DROP. O.Plan Effective Date The Plan was initially effective on January 1, 1956. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 23 - ACTUARIAL ASSUMPTIONS AND METHODS A.Actuarial Cost Method The Entry Age Normal Cost Method was used to determine all liabilities, except that the liability associated with Member Contributions has been assumed to be equal to those contributions. Changes in Accrued Liabilities due to potential future benefit provisions were amortized over thirty (30) years on a level dollar basis. B.Mortality (General Employees) For healthy participants, the RP-2000 Combined Mortality Table. For disabled participants, the RP-2000 Disabled Mortality Table. C.Disability Rates (General Employees) Representative values of the assumed annual rates of disability among General Employee Members in active service are set forth in the following table: Age Rate 20 0.03% 25 0.05% 30 0.07% 35 0.13% 40 0.19% 45 0.28% 50 0.45% 55 0.76% 60 1.10% 65 0.98% 70 0.86% 75 0.74% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 24 - D.Withdrawal Rates (General Employees) 1.Members With Less Than Five Years of Service Representative values of the assumed annual rates of withdrawal among Members in active service who have less than five years of service are set forth in the following table: Years of Service Rate 0 15.0% 1 10.0% 2 8.0% 3 8.0% 4 8.0% 2.Members With More Than Five Years of Service Representative values of the assumed annual rates of withdrawal among Members in active service who have at least five years of service are set forth in the following table: Age Rate 255.0% 30 5.0% 35 5.0% 40 5.0% 45 5.0% 505.0% 55 3.0% 60 2.0% CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 25 - E.Retirement Rates (General Employees) Representative values of the assumed annual rates of retirement among eligible General Employee Members are set forth in the following table: Age Rate 45 – 49 0% 50 15% 51 – 54 10% 55 – 60 20% 61 10% 6220% 63 – 64 10% 65 80% 66 30% 67 40% 6850% 69 90% 70 100% F.Interest Rates The interest rate used to calculate all liabilities was 8.00% per annum. In Scenario 5 and 6, the interest rate credited on the potential mandatory Employee Contribution for new General Employees (Scenario 5) or new General Employees and current General Employees with less than three years of service (Scenario 6), was assumed to be 3.00%. CITY OF ANYCITY EMPLOYEES’ RETIREMENT SYSTEM ACTUARIAL STUDY AS OF OCTOBER 1, 2007 - 26 - G.Salary Increases (General Employees) Representative values of the assumed annual rates of increase in salaries for General Employees are shown in the table below: Age Rate 20 10.0% 25 8.0% 30 7.0% 35 6.0% 40 6.0% 456.0% 50 6.0% 55 6.0% 60 6.0% 65 6.0% 706.0% 75 6.0% H.Expenses Annual administrative expenses, exclusive of investment expenses and commissions, are assumed to be payable by the City as an additional contribution. In addition, the interest rate set forth in Item F. above is assumed to be net of investment expenses and commissions. I.Assets The actuarial value of assets (AVA) is equal to the market value of assets adjusted to reflect a five year phase-in of the difference between the expected versus actual return on the AVA. The fresh start date for this AVA method is October 1, 2004 and as of October 1, 2007 three years of gains and losses have been phased in. The phase-in period will be fully mature as of October 1, 2009. J.Funding Period (Pursuant to Chapter 112, Florida Statutes) The annual payment towards the unfunded actuarial accrued liability has been determined as a level-dollar amount. APPENDIX D INSURANCE COVERAGE INSURANCE COVERAGE The following is a description of GRS’ Professional Liability insurance coverage and carrier information: Westchester Surplus Lines Insurance Company write the Professional Liability Insurance policy. This policy has a $2M limit (RFP requires $1M). Carrier (Westchester) is rated A+ by AM Best see below for description of this rating Westchester also has a Financial Size Category (FSC) of XV, see below for description Westchester has a Letter of Authority from the Florida Office of Insurance Regulation but is not part of FIGA. Secure Best’s Ratings A++ and A+ (Superior) Assigned to companies which have, on balance, superior balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in A.M. Best’s opinion, have a very strong ability to meet their ongoing obligations to policyholders Financial Size Categories (FSC) Assigned to all companies by A.M. Best, the FSC reflects company size based on capital, surplus and conditional reserve funds in millions of U.S. dollars, using the scale below. The FSC is designed to provide the subscriber with a convenient indicator of the size of a company in terms of its statutory surplus and related accounts. FSC I less than 1 FSC II 1 to 2 FSC III 2 to 5 FSC IV 5 to 10 FSC V 10 to 25 FSC VI 25 to 50 FSC VII 50 to 100 FSC VIII 100 to 250 FSC IX 250 to 500 FSC X 500 to 750 FSC XI 750 to 1,000 FSC XII 1,000 to 1,250 FSC XIII 1,250 to 1,500 FSC XIV 1,500 to 2,000 FSC XV greater than 2,000 APPENDIX E GRS PUBLICATIONS 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 1 August/September 2010 The following news summaries were developed by Gabriel, Roeder, Smith & Company to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. To receive this publication electronically, send an email to web.admin@gabrielroeder.com with “SUBSCRIBE NEWS SCAN” in the subject line. To stop receiving this publication electronically, send “UNSUBSCRIBE NEWS SCAN” in the same manner. Copies of this and other benefit-related publications are available on the GRS website at www.gabrielroeder.com. Note: The authors of these summaries are not attorneys and the statements made are not legal advice or opinion. Qualified legal advice should be obtained before acting with regard to related laws and regulations. NCSL Releases Report on State Pension Legislation Enacted in 2010 On September 21, 2010, the National Conference of State Legislatures (NCSL) released a report on the major state pension and retirement plan legislation enacted in 2010. The report provides a comprehensive and detailed summary of selected legislation enacted from January 1, 2010, through September 1, 2010. Consistent with recent economic events, cost containment and long-term sustainability of defined benefit plans were significant concerns for state legislatures. Several states established committees to study the future of their retirement systems. Many states enacted legislation in efforts to manage future pension costs through measures to reduce benefits for newly hired employees, increase employee contributions, establish early retirement incentives, and other benefit changes. Other policy issues addressed by legislation included: benefit eligibility, contribution rates, funding issues, cost- of-living adjustments, governance and investment policy, health coverage, re-employment after retirement, and purchase of service credit. The report is organized by topics and summarizes the legislation enacted by state. The report is accessible on the NCSL website at: http://www.ncsl.org/documents/employ/PensionReportSept1-2010.pdf NIRS Finds State and Local Government DB Plans Are a Durable Feature of Compensation The July 2010 issue of the Journal of Pension Benefits included an article written by Beth Almeida, Executive Director of the National Institute on Retirement Security (NIRS) titled, “DB Pensions: The Real Deal.” As discussed in the article, despite the recent economic challenges, state and local governments remain committed to offering defined benefit (DB) pension plans to over 14 million government employees. As noted by the author: “[T]he resilience of DB pensions in the public sector is less surprising to those who understand that these plans are ideally suited to serve the interests of all the key stakeholders involved - taxpayers, employees, and public employers.” 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 2 The major reasons cited for DB pensions to be a proven element of compensation in state and local government include: DB pensions work for taxpayers by squeezing more value out of each dollar contributed. Importantly, DB pensions make more effective use of contributions from both employees and taxpayers than defined contribution (DC) plans (e.g., 401(k) plans), by efficiently pooling risks and costs. For example, providing a life-time benefit of $2,200 per month under a typical DB plan would cost 46% less than under a typical DC plan. The three main cost advantages of DB plans include: 1.DB plans outperform DC plans with better investment returns over time; 2.DB plans sustain better investment returns over time compared with DC plans; and 3.DB plans pool longevity risks over a large group. By contrast individuals in DC plans must self- insure against the risk of outliving retirement savings. DB pensions work for employees by providing life-long retirement security. DB pensions are designed to provide retirement income over the lifetime of retirees, whereas DC plans are essentailly savings plans. While both DB and DC plans are important for a secure retirement, researchers have established that DC plans will not provide the same retirement benefits when serving as the primary retirement vehicle. For example, to fund a target retirement benefit of $2,200 per month at age 62, the required assets per employee would be $354,962 in a typical DB plan as compared with $549,903 in a typical DC plan. DB pensions work for employers by recruiting and retaining talent in public service. As agroup, about 50% of state and local government employees have a college or advanced degree, which is more than double the percentage in the private sector. However, government employers face hiring difficulties since the salaries for highly-skilled public employee positions are about 12% lower than those in the private sector. The compensation gap is narrowed by offering high quality benefits for state and local government employees. In a 2006 survey, the Center for Retirement Research (CRR) at Boston College found that employees with a DB pension remain with an employer four years longer than those without a retirement plan and 1.3 years longer than those with only a DC plan. Those with both a DB and supplemental DC plan remain with an employer 3.1 years longer as compared with a DC plan only. Another study found that DB pensions significantly increase employees’ commitment to their organizations while DC plan coverage has no effect on employee commitment. The report concludes that maintaining DB pensions will assist public employers with recruitment and retention efforts and enhance employee loyalty. Plan sponsors who offer DB pensions that are properly structured and managed can provide reasonable benefits, maintain proper funding discipline, and ensure retirement security for employees. The article is available at: http://www.nirsonline.org/storage/nirs/documents/pensions_are_the_real_deal-july_2010.pdf EBRI Finds Over 47% of Americans Ages 56 to 62 Remain at Risk for Insufficient Retirement Assets On July 13, 2010, the Employee Benefit Research Institute (EBRI) released its issue brief, The EBRI Retirement Readiness Rating: Retirement Income Preparation and Future Prospects, which indicates that over 47% of Americans ages 56 to 62 (i.e., the early baby boomers) are at risk of not having sufficient retirement assets to pay for “basic” retirement expenditures (e.g., food, housing, and transportation) and uninsured health care costs. By comparison, nearly 44% of those ages 46 to 55 (late boomers) and 45% of those ages 36 to 45 (Generation Xers) are estimated to be at risk. In addition, over 70% of households in the lowest one-third of preretirement income are estimated to be at risk. 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 3 The EBRI Retirement Readiness Rating was developed in 2003 and is based on a model that evaluates national retirement income adequacy. The 2010 model factors in many new retirement changes, such as automatic enrollment and automatic escalation of contributions to 401(k) plans, in addition to updated financial market performance and employee behavior. The model is based on a database of 24 million 401(k) plan participants. The EBRI model simulates the length of time that retirement assets will cover minimum retirement expenditures plus uncovered costs for nursing home and home health care expenses. Assuming retirement at age 65 for early boomers, the study projects that 41% of the people in the lowest (preretirement) income quartile will have “run short of money” 10 years after retirement, compared to 23% in the second income quartile, 13% in the third quartile, and 5% in the highest income quartile. Jack VanDerhei, EBRI research director, reported on the vast disparity between American’s confidence in having sufficient retirement funds and their actual savings levels. In the 2010 Retirement Confidence Survey, EBRI indicated that 29% of workers were very confident about having enough money to pay for basic expenses during retirement. However, Mr. VanDerhei warned that this confidence was based on “absolutely, completely uninformed optimism.” The issue brief is available at: http://www.ebri.org/pdf/briefspdf/EBRI_IB_07-2010_No344_RRR-RSPM.pdf SSA Releases 2010 Fast Facts and Figures about Social Security In August 2010, the U.S. Social Security Administration’s (SSA) Office of Policy released Fast Facts & Figures about Social Security, 2010. The publication answers frequently asked questions (FAQs) about the programs administered by the SSA and focuses on data related to Social Security retirement, survivors, and disability benefits, as well as Supplemental Security Income (SSI). Most of the data are derived from the SSA’s Social Security Bulletin Annual Statistical Supplement and 2010 Social Security Trustees Report. Some of the report highlights include: Overall, about 58 million people received SSA benefits or assistance in 2009, with benefits averaging about $1,164 per month for retired workers, $1,064 per month for disabled workers, and $1,124 per month for non-disabled widows and widowers; In 2009, SSA paid benefits to about 17% of the U.S. population and 87% of the population over age 65; About 64% of the population over age 65 received at least 50% of their income through SSA payments and 34% received almost all of their income through SSA payments; and About 56% of the adult SSA benefits were paid to women. The publication also provides a table of the gradual extended ages for full Social Security retirement benefits based on year of birth. For those born before 1938, eligibility for full retirement benefits is age 65. Beginning with those born in 1938, the age for full benefits increases by two months each year until reaching age 66 for those born in 1943. It remains at age 66 for those born from 1943 through 1954, and then continues increasing by two months each year until reaching age 67 for those born in 1960 and later. The report is available at: http://www.socialsecurity.gov/policy/docs/chartbooks/fast_facts/2010/fast_facts10.pdf Medicare Trustees Release 2010 Report on Financial Status of Medicare Funds On August 5, 2010, the Medicare Trustees released their annual report on the financial status of the Medicare funds. Total annual Medicare expenditures, which were $509 billion in 2009 or 3.5% of Gross Domestic Product (GDP), are expected to grow to 5.5% in 2035, and 6.4% in 2084. The report warns that, after 2007, projections of 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 4 Medicare expenditures are understated due to projections of substantial reductions in physician payments scheduled under current law, but which are unlikely to occur. The Medicare program consists of two component programs for the elderly and disabled: Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). The HI program (Medicare Part A) pays primarily for inpatient hospital care and is financed by a payroll tax of 1.45% of taxable earnings. The SMI program consists of Medicare Parts B and D. Part B is a voluntary program that pays for physician, outpatient hospital, home health, and other services. Part D is a voluntary program providing access to outpatient prescription drug benefits. Approximately one-quarter of the SMI program is financed by beneficiary premiums, with the remainder financed by transfers from the U.S. Treasury’s general fund. According to the Trustee’s report, the financial status of the HI Trust Fund has improved and is projected to be insolvent in 2029, 12 years later than projected last year. After the HI Trust Fund is exhausted, payroll tax revenues would cover only 85% of projected HI expenses in 2029, declining slowly to 76% in 2045, and rising slowly to 89% by 2084. The improvement in solvency is mainly due to the new health care reform legislation under the Patient Protection and Affordable Care Act. However, the report cautions that “the effects of some of the new law’s provisions on Medicare are not known at this time, with the result that the projections are much more uncertain than normal, especially in the longer-range future.” 1 The financial outlook for the SMI program is better than the HI program, although rapid expenditure growth remains a serious issue. For both Part B and Part D, revenues are projected to equal expenditures for all future years, but only because beneficiary premiums and general revenue transfers must, by statute, be increased to meet expected costs for each year. However, the rapid growth of health care costs is expected to greatly accelerate the need to finance these benefits. In an effort to address Medicare’s long-term financial challenges, the Medicare Modernization Act created tools to monitor the program, including the “45-percent threshold.” Under this provision, the annual trustees’ report is required to include an estimate of the year in which general revenues will account for more than 45% of Medicare funding. The 2010 Trustees’ Report is the fifth consecutive report that projects that the 45-percent threshold will be reached within the next seven years, i.e., 2016. This triggered a Medicare funding warning for the fourth consecutive year and requires the President to respond with proposed legislation. The report is available on the CMS web site at:http://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf Local Governments Are Implementing Changes to Fund Retiree Health Care Obligations In August 2010, the Center for State and Local Government Excellence released its report, How Local Governments Are Addressing Retiree Health Care Funding. The report is based on the Center’s previous 2009 comprehensive survey of all 50 states and 2,136 local governments titled, At a Crossroads: The Financing and Future of Health Benefits for State and Local Government Retirees.The survey found that over 200 local governments anticipate adopting a long-term strategy to fund future retiree health care obligations. Some of the various OPEB strategies under consideration include: Establishing a governmental trust (under Internal Revenue Code § 115, medical 401(h) account, or voluntary employee beneficiary association (VEBA) trust (§ 501(c)(9)); Issuing OPEB bonds; 1 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, p. 2. 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 5 Increasing the age and service eligibility requirements; and Eliminating retiree health care for all new hires. According to the new report, many local governments are implementing changes in their retiree health care plans due to the economy, insufficient revenues, and competing budget priorities. An online survey was administered between January and February 2010 with an overall response rate of over 54% for the plans most likely to adopt prefunding mechanisms and changes to retiree health care plan design. The results indicated: 58% have adopted or plan to adopt a § 115 trust; 25% have adopted or plan to adopt a 401(h) account; 10% have adopted or plan to adopt a VEBA trust; 36% have increased or plan to increase vesting years of service; 11% have increased age eligibility requirements; and 39% have eliminated or plan to eliminate retiree health care for new hires. In addition, very few have issued or plan to issue OPEB bonds. The report is accessible at: http://www.slge.org/vertical/Sites/%7BA260E1DF-5AEE-459D-84C4- 876EFE1E4032%7D/uploads/%7BE41F19B3-6C76-4D7D-9330-54CB5EBE4556%7D.PDF CBO Estimates Health Reform Law Will Reduce Federal Deficit by $179 Billion over 10 Years On August 19, 2010, the Congressional Budget Office (CBO) released its report The Budget and Economic Outlook: An Update. The CBO estimates that the recently enacted Patient Protection and Affordable Care Act will reduce the federal deficit by $179 billion over 10 years (from 2010-2019). By comparison, in March 2010, the CBO estimated that the new health care reform law would reduce the deficit by $143 billion. The additional savings was attributable to technical changes and extending the projections to include the year 2020. By encompassing the additional year, CBO estimated that the health care legislation would reduce the projected budget deficit in 2020 by $28 billion. However, the CBO cautions that the “estimates, like the ones for earlier years, are subject to considerable uncertainty.” Furthermore, the report examined the effect of the health reform law on the labor force. CBO found that the new law will reduce the amount of labor used in the economy by 0.5%. The labor force reduction is mainly attributable to the expansion of Medicaid and the availability of subsidies that will reduce the cost of insurance obtained through newly created exchanges beginning in 2014. Due to these changes, beneficiaries may have additional resources that could encourage workers to work less or withdraw from the workforce. Additionally, older workers may retire earlier due to changes in the insurance market. Health insurance plans offered outside the workplace for older workers may become more appealing due to the elimination of provisions for pre-existing conditions and restrictions on pricing based on age or health status. The CBO also reported that the “Cadillac Tax” on high-cost health insurance plans scheduled to begin in 2018 will reduce workers’ after-tax compensation and, therefore, encourage working longer. Under the new law, employers with 50 or more employees who do not offer health insurance will have to pay a penalty. This may cause some employers to reduce workers’ wages which may result in a reduction in hiring lower-wage workers. The CBO report is available at: http://tinyurl.com/36zqr5h 10/8/10 © 2010 – Gabriel Roeder Smith & Company Page 6 CMS Projects Health Care Spending Will Reach $4.6 Trillion by 2019 On September 9, 2010, the online journal Health Affairs published the Centers for Medicare & Medicaid Services (CMS) report on National Health Spending Projections: The Estimated Impact of Reform Through 2019. The report updates the February 2010 projections under prior law by taking into account recent comprehensive health care reform legislation and other relevant changes in law and regulations. According to the CMS Office of the Actuary, the new health care reform law will increase health care spending from $2.6 trillion in 2010 to $4.6 trillion in 2019, an average annual increase of 6.3%. By 2019, spending is expected to account for 19.6% of gross domestic product (GDP), up from 17.5% in 2010. The health care share of GDP is estimated to be 0.3 percentage points higher than previously projected. Underlying this increase are larger differences in trends for spending and spending growth by payer, due to major changes in coverage and financing under the health care reform law. During the first five years, the reform law is projected to significantly increase health care spending since millions of uninsured Americans are expected to have insurance coverage under the new health insurance exchanges and Medicaid. In 2014, when the exchanges begin, health spending is estimated to increase by 9.2% as compared to 6.6% estimated under the prior law. From 2015 to 2019, health spending is projected to rise more slowly by 6.7% as compared to 6.8% estimated pre-reform. Over 10 years, the implementation cost of the reform law will be about $71.1 billion. By 2019, 92.7% of Americans are expected to have health care coverage, which is about 10 percentage points higher than the number estimated to be covered before the reform law. The report can be found at: http://content.healthaffairs.org/cgi/content/abstract/hlthaff.2010.0788 AARP Finds Brand Name Prescription Drug Prices Increased Over 8% in 2009 On August 25, 2010, AARP’s Public Policy Institute reported that the average annual retail price for over 200 brand name prescription drugs commonly used by Medicare beneficiaries increased 8.3% in 2009. The increase was higher than the previous four years (i.e., 2005-2008) when the average annual increase ranged from 6.0% to 7.9%. On average, the retail prices for 207 brand name drugs included in the study have increased 41.5% from December 2004 through December 2009 compared to the general inflation rate of 13.3% over the same period. The report concluded that, while the health care reform legislation will eventually close the Medicare Part D coverage gap, the escalating growth in drug prices could be slowed by increasing marketplace competition and transparency. AARP also suggested that drug costs could be reduced by allowing: prescription drug importation from abroad; generic drugs to enter the market faster; and Medicare to negotiate prices directly with prescription drug manufacturers. The AARP report is available at:http://assets.aarp.org/rgcenter/ppi/health-care/rxpricewatch.pdf © 2010 Gabriel Roeder Smith & Company INSIGHT In This Issue The GASB’s Preliminary Views document presents proposed changes in pension accounting and financial reporting standards for state and local governmental employers. The proposed changes may play a significant role in shaping state and local government pensions and other postemployment ben- efits for decades. The GASB is requesting com- ments on the Preliminary Views by September 17, 2010, and will hold public hearings in October. It is important for stakeholders to review the proposed changes, consider their impact, and pro- vide comments. July 2010 Visit the GRS website at: www.gabrielroeder.com The GASB’s Preliminary Views on Pension Accounting and Financial Reporting by Employers By Paul Zorn, Director of Governmental Research1 On June 16, 2010, the Governmental Accounting Standards Board (GASB) issued its Preliminary Views (PV)2 on proposed changes to accounting and financial reporting standards for state and local government employers that sponsor defined benefit (DB) pension plans.3 The PV is an intermediate step in the GASB’s Postemployment Benefits (PEB) project to review the standards and reflects the GASB’s expectation of significant discussion related to the proposed changes. The GASB’s changes would apply only within the context of accounting and financial reporting and would not necessarily affect the actuarial calculations used to determine funding requirements.4 It is also important to note that the GASB considers its proposed changes tentative until the final statement is issued. Last year, the GASB issued an Invitation to Comment (ITC) on possible changes to the pension accounting standards adopted in 1994. In the ITC, the GASB discussed two alternative approaches that the standards might follow. The first reflected the current approach, applying measures based on the actuarial methods and as- sumptions used to fund the promised benefits. The second reflected an approach favored by some financial economists, using measures based on a hypothetical value at which the pension liability might trade in financial markets. In the PV, the GASB proposes a middle approach which combines some elements of both. Most of the PV relates to accounting and reporting standards for employers par- ticipating in sole-employer or agent multiple-employer pension plans. Essentially, these employers are solely responsible for the pensions promised to their plan members. However, the PV also proposes changes related to employers in cost- sharing multiple employer plans, which are plans that spread benefit costs among multiple employers. The GASB’s proposed changes for cost-sharing employers are discussed on page 6 of this article. 1 For their helpful comments, the author wishes to thank Norm Jones, Brian Murphy, Jim Rizzo, Brad Armstrong, Mita Drazilov, David Kausch, and Mary Ann Vitale at GRS, as well as Keith Brainard at the National Association of State Retirement Administrators, Gary Findlay at the Missouri State Employees’ Retirement System, Stephen Gauthier at the Government Finance Officers Association, and Leigh Snell at the National Council on Teacher Retirement. However, the author retains full responsibility for the accuracy of the information provided. 2 The PV is officially titled: “Preliminary Views, Pension Accounting and Financial Report- ing by Employers,” and is available on the GASB’s web site (www.gasb.org). 3 Accounting and reporting standards for defined contribution (DC) benefits are not in- cluded in the PV and are not expected to change as a result of the GASB’s PEB project. 4 Standards for actuarial valuations are established by the Actuarial Standards Board. GRS Insight is published by Gabriel, Roeder, Smith & Company. The in- formation provided is not intended as legal, income tax, or investment advice or opinion of a similar nature. Articles aributed to individuals do not neces- sarily reflect the views of GRS as an organization. © 2010 Gabriel Roeder Smith & Company The GASB’s Objectives The underlying goal of the GASB’s PEB project is to review and consider changes to current accounting and reporting standards related to postemployment benefits. Initially, the GASB chose to review the pension standards that apply to governmental employers. Later, they expect to extend their discussion to accounting and reporting standards for pension plans and, aer that, to accounting and reporting for other postemployment benefits (OPEBs), including retiree health care benefits. Essentially, the GASB uses three criteria to evaluate account- ing and reporting approaches: (1) accountability; (2) deci- sion-usefulness; and (3) interperiod equity. Accountability is considered the primary objective of governmental accounting and financial reporting, and stems from the duty of public officials to provide constituents with an accurate accounting of financial transactions. Decision-usefulness reflects the extent to which financial re- ports provide users with the information they need to make informed decisions. Governmental report users represent a broad range of stakeholders, including: citizens/taxpayers, legislative and oversight bodies, creditors, employees, retire- ment plan members, plan trustees, and others. Decisions related to pensions include: (1) determining the size of pen- sion benefits offered to employees; (2) evaluating the cost of benefit changes; (3) determining the contributions necessary to fund the benefits; (4) determining the plan’s funded status and progress; (5) assessing the employer’s overall economic condition and creditworthiness; and (6) allocating plan assets for investment purposes. Interperiod equity relates to the goal of allocating the costs of current services to current taxpayers and avoiding the shiing of costs to future taxpayers. In the PV, the GASB recognizes that governments are long-term entities and that measuring pension costs as a level percentage of payroll is a reasonable approach for achieving interperiod equity over the long-term. Current Pension Accounting and Reporting Standards for Governmental Employers Before discussing the PV in detail, it may be useful to briefly review the current pension accounting and reporting stan- dards for governmental employers, as presented in GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. Generally speaking, accounting and reporting standards es- tablish how financial items are defined and measured (e.g., what constitutes an “expense” or a “liability”) and where the items are presented in the government’s annual financial report (e.g., in the basic financial statements, notes to the fi- nancial statements, or other sections of the financial report). Under current standards, pension accounting measures are closely related to pension funding measures. Generally, the employer’s “pension expense” for accounting purposes is the “annual pension cost” (APC) necessary to fund the plan, and both are determined using the same actuarial methods and assumptions. The APC consists of the employer’s “annual required contri- bution” (ARC), plus certain adjustments if the employer has contributed more or less than the ARC over time. The ARC, in turn, is the actuarially determined cost of the benefits allo- cated to the current year (the “normal cost” or “service cost”) plus the amortization of any overfunded or underfunded actuarial accrued liabilities. The current standards also place certain constraints on the actuarial methods and assumptions that are used for account- ing and reporting purposes, which include: • Using one of six acceptable actuarial cost methods to determine pension costs and liabilities. For the most part, these methods include projection of salary and certain other factors in determining the normal cost of benefits.5 • Using the long-term expected rate of investment return to project future investment earnings as well as to discount the present value of benefits. • Limiting the period for amortizing the unfunded actuarial liability and actuarial gains and losses to a maximum of 30 years. • Allowing the actuarial value of assets to reflect investment gains and losses that are averaged over time to smooth the impact of investment volatility on funded levels and contribution rates. Under current standards, a sole or agent employer’s balance sheet liability for pensions is the “net pension obligation” (NPO). It is calculated as the accumulated difference be- tween the employer’s annual pension cost and the employer’s actual contributions to the plan over time. For cost-sharing employers, the balance sheet pension liability is the accu- mulated difference between the employer’s contractually required contributions to the plan and the employer’s actual contributions. 5 The six actuarial cost methods are entry age, frozen entry age, at- tained age, frozen aained age, projected unit credit, and aggre- gate. A seventh method, the unit credit cost method, is only accept- able for plans in which accumulated benefits are not affected by future salary levels, since this method does not include projections of either salary or service. 2 GRS Insight 7/10 © 2010 Gabriel Roeder Smith & Company The current standards also require employers to disclose in- formation about pension benefits in the notes to the financial statements and other sections of the employer’s financial re- port. Generally, these disclosures include, but are not limited to: a description of the plan; annual required contributions; and actual contributions. In addition, employers in sole and agent multiple-employer plans must also disclose: the actu- arial value of plan assets; actuarial accrued liability; unfunded actuarial accrued liability; funded status; and related actuarial methods and assumptions. Issue 1 – An Employer’s Obligation to Its Employees for Defined Benefit Pensions In the PV, the GASB presents its views though the discussion of six issues that underlie pension accounting and reporting. The first issue relates to the nature of the employer’s respon- sibility for defined benefit (DB) pensions and addresses how an employer’s obligation for pension benefits arises. As presented in the PV, the GASB believes: (1) the employer’s obligation for DB pension benefits is created as a result of the employment exchange (i.e., the exchange of employee services for employer compensation); and (2) the employer remains primarily responsible for the unfunded portion of the pension obligation. The GASB’s belief that the employer’s obligation for DB pen- sion benefits is created by the employment exchange dates back at least 20 years. In 1990, the GASB’s Exposure Dra for Statement No. 27 stated: “The provision of services by an entity’s employees in exchange for the right to receive compensation is a transaction that affects the entity’s resources and should be recognized in each accounting period when the exchange occurs, regardless of when the compensation is paid. … Pension benefits are part of the total compensation earned by employees for their services …”6 Moreover, the GASB believes this obligation meets the criteria of an accounting obligation under GASB Concepts Statement No. 4, in that it is “a social, legal, or moral requirement, such as a duty, contract, or promise that compels one to follow or avoid a particular course of action.”7 The GASB also con- sidered whether an employer is relieved of this obligation when it creates a legally separate pension plan (and trust) to accumulate assets and pay benefits. The GASB agreed that the pension plan is primarily responsible for paying benefits to the extent the plan has assets. However, they also agreed that the employer remains responsible for any unfunded benefit payments. 6 GASB Statement No. 27 Exposure Dra, paragraphs 18 and 19. 7 GASB Concepts Statement No. 4, paragraph 18. Issue 2 – Liability Recognition by a Sole or Agent Employer The second issue addressed in the PV is whether the pension obligation should be considered a liability for financial state- ment purposes. To do so, it must meet the GASB’s conceptual definition of a “liability” and be “sufficiently reliable” for inclusion in the financial statements. The GASB draws a distinction between items that are “recognized” in financial statements and items that are “disclosed” in the notes to the financial statements or in supplementary information. The distinction places a higher standard on items recognized in the financial statements since they are more prominently displayed. The GASB’s deliberations take place within the context of its financial reporting concepts, presented in its Concepts State- ments. Liabilities are defined in Concepts Statement No. 4 as “present obligations to sacrifice resources that the government has lile or no discretion to avoid.”8 The GASB has come to believe that the unfunded portion of the pension obligation meets the definition of liability for the employer. However under current pension accounting standards, the unfunded pension obligation is not included in the financial statements. This is because, during the GASB’s delibera- tions related to Statement No. 27, the unfunded obligation was considered inherently uncertain since it is based on assumptions about the future.9 Over the intervening years, however, the GASB has issued new Concepts Statements, under which the GASB has come to believe the unfunded pension obligation is sufficiently reliable for recognition in the financial statements. As discussed in the PV, an item may be considered reliable if it is “free from bias, faithfully represents what it purports to represent, is comprehensive, and is not misleading” but that this “does not imply precision or certainty.” While agreeing that the unfunded pension obligation is subject to inherent uncertainty, the GASB noted that similar uncertainties are already incorporated in the financial statements, such as uncertainties related to the fair value of investments, depre- ciation, solid waste closure costs, and pollution remediation. Consequently, the GASB proposes that a measure of the sole or agent employer’s unfunded pension obligation should be included in the employer’s financial statements. The GASB refers to this measure as the “net pension liability” (NPL), which is discussed in the next section. The GASB also rejected using the net pension obligation (NPO) on the grounds that it implies the employer’s pension obligation has been transferred to the pension plan. The 8 GASB Concepts Statement No. 4, paragraph 17. 9 GASB Statement No. 27, paragraph 69. GRS Insight 7/10 3 © 2010 Gabriel Roeder Smith & Company GASB saw this as inconsistent with its view that the employer remains primarily responsible for the pension obligation to the extent the plan does not have sufficient assets. Comment: The GASB’s rejection of the NPO and ac- ceptance of the net pension liability for recognition in the basic financial statements is a major change to the pension accounting and reporting standards for sole and agent employers. Issue 3 – Measurement of the Net Pension Liability (NPL) by a Sole or Agent Employer The third issue relates to how the employer’s net pension liability should be determined for accounting and reporting purposes. Generally, total pension liabilities are determined using the following steps: (1) projecting benefits as a series of cash flows to be paid in the future; (2) discounting the cash flows to their present value using an appropriate discount rate; and (3) allocating the present value to past and future periods of service. The unfunded liability is calculated by subtracting available assets from the total pension liability to determine the unfunded portion. Under current GASB standards, projected benefits typically include the value of future salary, service, and automatic COLAs, but not ad hoc COLAs. The present value of the cash flows is determined using a discount rate that reflects long-term expected investment returns. The actuarial accrued liability is determined by allocating the present values to past and future periods of service using one of six actuarial meth- ods (with the entry age cost method used most frequently). And the unfunded liability is determined by subtracting the actuarial value of plan assets (typically using a smoothed value of assets) from the actuarial accrued liability. However, to determine the new net pension liability for ac- counting and reporting purposes, the GASB proposes using somewhat different factors: Projected Benefits. In measuring the net pension liability, the GASB proposes that projected future benefits include: • Automatic COLAs; • Ad hoc COLAs, to the extent they are not substantively different from automatic COLAs; • Projected future salary increases; and • Projected future service credits. With the exception of ad hoc COLAs, the actuarial valuations of most public plans currently include the above benefits. Therefore, these projections alone would likely have a mini- mal effect on calculated liabilities for most plans. However, for plans that consistently offer ad hoc COLAs, this change could cause the value of the ad hoc COLA to be included in the liability. Blended Discount Rate. The GASB believes the discount rate should be based on a blended rate of expected investment returns and high-quality municipal bond yields. As explained in the PV, the GASB sees the total pension liability as derived from two different benefit payment streams. The first stream consists of benefit payments that are projected to be paid from current plan assets and expected future assets (e.g., future investment earnings, employer and employee contributions).10 For this stream, the GASB believes that the long-term expected investment return is the appropriate dis- count rate, since the investment earnings will likely reduce future employer contributions needed to fund the benefits. The second stream consists of benefit payments for which no current or projected future plan assets are expected to be available. For this stream, the GASB believes that the pro- jected benefit payments should be discounted using a rate that reflects the yield on an index of high-quality municipal bonds. As proposed, the two rates would be blended into a single equivalent rate; however, it would not be a weighted average of the two rates. Instead, it would be the rate that produces the same present value of future benefits as derived by ap- plying the two different discount rates to the two expected benefit streams. Note that this approach does not necessarily mean that a plan with an unfunded liability would have to use the blended rate. Comment: To the extent current and projected future assets are not available to fund projected benefits, us- ing a municipal bond rate could result in net pension liabilities that are greater than the unfunded accrued liabilities calculated for funding purposes. This could create confusion among financial report users about which is the “true” liability and what actions should be taken to fund the benefits. Aribution to Past and Future Periods. While recognizing that state and local government employers have the right to select the actuarial cost method used to fund pension ben- efits, the GASB believes using a single actuarial cost method is preferable for accounting purposes. It argues this would eliminate an unnecessary source of variation in financial re- porting and would consequently improve comparability and reduce the complexity of financial reporting. In the PV, the GASB proposes using the entry age normal ac- tuarial cost method as the single method. This actuarial cost method is typically applied in a way that aributes service costs to periods as a level percentage of projected payroll. The GASB believes using the entry age actuarial cost method 10 Future employer contributions would be projected based on the plan’s stated contribution policy and recent paern of contribu- tions. 4 GRS Insight 7/10 © 2010 Gabriel Roeder Smith & Company is more representative of the way it views the employment relationship – that is, as an ongoing series of exchanges over an employee’s career. Plan Net Assets. As noted earlier in this article, the net pension liability is obtained by subtracting available assets from the total pension liability. The GASB proposes that the fair (market) value of plan net assets be used, which consists largely of plan investments. Comment: Since investment returns fluctuate widely over time, changes in plan net assets will likely add volatility to the measure of net pension liabilities. Issue 4 – Aribution of Changes in the Net Pen- sion Liability to Financial Reporting Periods by a Sole or Agent Employer Given that the GASB proposes using the net pension liability as the pension liability for financial statement purposes, any increase in the net pension liability would be considered a “consumption” of net assets and any decrease would be con- sidered an “acquisition” of net assets under GASB Concepts Statement No. 4. In determining what constitutes the pension expense in this context, the GASB must determine what portions of the pen- sion-related consumption (or acquisition) are applicable to the current reporting period and what portions are applicable to future reporting periods. If the consumption (acquisition) is related to the current period, it is considered a current outflow (inflow) of resources and is recognized in the pension expense for the current period. If it is related to a future period, it is considered a deferred outflow (inflow) and is recognized in a future period (or periods). In considering this issue, the GASB grouped the various types of pension-related consumptions (acquisitions) into categories related to: service costs, interest, actuarial gains/ losses, changes in actuarial assumptions, changes in benefits, and investment gains/losses. Service Costs. The service cost (also referred to as the “normal cost”) reflects the pension cost of employee services during the current period. As discussed in the PV, the GASB is proposing that the service cost be measured using the entry age normal actuarial cost method and that the service cost be included in the pension expense for the current period. Comment: The entry age actuarial cost method is currently used to measure the pension service cost for about three-quarters of state and local government employers.11 However, for the approximately one- 11 Project update on the Pension Accounting and Research project, Issue 5, Paper 5, Johnson et al, dated November 30, 2007. quarter that apply other actuarial methods, use of the entry age method would result in a different measure of service cost than that used to fund benefits. Interest on the Total Pension Liability. Interest on the beginning total pension liability would be recognized as an expense. Presumably, the interest would be calculated using the blended discount rate discussed above. Actuarial Gains and Losses, Changes in Actuarial Assump- tions and Benefits. Determining the total pension liability depends on a variety of economic and demographic assump- tions. These assumptions may be different from the plan’s actual experience and, therefore, lead to differences between the expected total pension liability and the actual total pen- sion liability from year to year. To the extent these differences change the total pension liability related to past service, they would need to be recognized. The same is true for changes in assumptions and benefits. The GASB considered whether changes in the total pension liability due to changes in plan experience (i.e., actuarial gains and losses), assumptions, or benefits should be recognized in the pension expense immediately, or gradually amortized with a portion recognized immediately and the balance de- ferred for recognition in future periods. As discussed in the PV, the GASB believes that immediately recognizing all of the changes would not be consistent with its view that pensions are part of the career-long employment exchange between employer and employee. Instead, the GASB proposes amortizing these changes over the average expected remaining service lives of active employees, weighted to approximate individual amortizations. However, to the extent the changes apply to vested inactive members (including retirees and beneficiaries), all such changes would be recognized immediately. Comment: For accounting and reporting purposes, this change would effectively reduce the amortiza- tion period for these actuarial gains/losses from a maximum of 30 years to about 10 to 20 years (or less), depending on the demographic characteristics of the covered employees. The reduction in the amortiza- tion period, in turn, would likely lead to a higher and more volatile measure of the pension expense. Differences Between Actual Earnings on Plan Net Assets and Expected Earnings. As with changes in assumptions and benefits, the GASB considered recognizing changes in plan assets immediately, but rejected it on the grounds that the differences between actual and projected investment earnings tend to offset each other over time. The GASB concluded that immediately recognizing such differences would reduce the usefulness of the pension liability and expense measures. GRS Insight 7/10 5 © 2010 Gabriel Roeder Smith & Company Instead, the GASB proposes to defer recognition of these dif- ferences to the extent they are small relative to the value of assets. Specifically, the GASB proposes to defer recognition of the differences between actual investment earnings and long- term expected investment earnings to the extent they remain within a 15% corridor around the fair value of plan net assets. However, when the cumulative difference between actual and expected investment earnings falls outside of the corridor, the excess portion would be recognized immediately. Comment: This means that unusual events, such as sharp market declines or increases, could be recog- nized immediately, possibly increasing the volatility of the pension expense. Other Changes in Plan Net Assets. The GASB believes other changes in plan net assets (e.g., due to employer and employee contributions, plan administrative expenses, etc.) should be recognized in the pension expense when they occur. Issue 5 – Recognition by a Cost-Sharing Employer So far, this article has focused on pension accounting and reporting for employers in sole and agent plans (i.e., employ- ers that are solely responsible for funding the benefits of their members). However, the GASB has also proposed changes for employers in cost-sharing multiple-employer plans. Cost- sharing plans share the pension funding costs and risks across participating employers. Key differences between cost-shar- ing plans and sole or agent plans include: • Cost-sharing plans pool liabilities, assets, and risks across all participating employers. As a result, the liabilities and assets are not directly aributable to any single employer. • Employer contributions to cost-sharing plans are generally allocated on an equal basis across all participating employers (reflecting the pooling concept) and are oen determined by statute with payments contractually required. Under current GASB pension standards, cost-sharing employ- ers recognize their contractually required contribution as their pension expense, regardless of whether it reflects their actuarially required contribution. In addition, a cost-sharing employer’s pension liability is measured as the difference between its contractually required contribution and actual contribution. However, as discussed in the PV, the GASB believes that the employment exchange creates an obligation for the employer to provide the benefits, regardless of whether the plan is a sole, agent, or cost-sharing plan. While the GASB recognizes this obligation is shared among employers in a cost-sharing plan, it still believes that for cost-sharing employers the economic exchange is essentially the same, and they still have the pri- mary responsibility for the unfunded obligation. Consequently, the GASB proposes that for accounting and financial reporting purposes, the cost-sharing plan’s collective net pension liability and pension expense should be deter- mined using the same methods and assumptions as used to determine the net pension liability and pension expense for sole and agent employers. In addition, the GASB believes each cost-sharing employer should recognize a proportionate share of the plan’s collective net pension liability, expense, and deferred outflows (inflows) in the cost-sharing employer’s financial statements. While the GASB has yet to decide how to measure the employer’s proportionate share, the PV suggests using the employer’s proportionate share of the total contractually required con- tributions to the plan. However, the GASB also recognizes that an employer’s pro- portionate share may vary from year to year due to changes in employment, salary levels, retirement paerns, and other factors. This leads to the need for employers to recognize changes in their proportionate share and make related ad- justments. Comment: Cost-sharing employers would show a new net pension liability and pension expense on their financial statements. Both would be sig- nificantly larger and more volatile than the current measures.12 Issue 6 – Frequency and Timing of Measurements The final issue relates to when and how oen employers should measure their net pension liability and pension ex- pense. In general, the GASB believes these measurements should be as of the employer’s fiscal year-end date, consistent with the other financial statement measurements. However, the GASB also recognizes that annual valuations may not necessarily be cost beneficial. To balance these competing goals, the GASB proposes: • The total pension liability for accounting and financial reporting purposes should be measured at least every other year by means of an actuarial valuation. The “as of” date for the actuarial valuation should not be more than 24 months before the employer’s fiscal year-end date. (continued on page 8) 12 Under current standards, cost-sharing employers are not re- quired to report a liability on their balance sheet if they are current with their contractually required contributions. 6 GRS Insight 7/10 © 2010 Gabriel Roeder Smith & Company GRS Insight 7/10 7 Summary of Current GASB Pension Standards for Governmental Employers Compared with Proposed Changes Presented in the GASB’s Preliminary Views For Employers in Sole-Employer and Agent Multiple-Employer Plans Current StandardsPreliminary ViewsImplications Pension Liability Recognized in the Employer’s Financial State- ments (Balance Sheet) Net Pension Obligation (NPO) - measured as the cumulative differ- ence between the employer’s annual required contributions and actual contributions. Net Pension Liability (NPL) - measured as the difference between the total pension liability (using the actuarial accrued liability under the entry age normal cost method and blended discount rate) and the fair (market) value of assets, with both determined as of the employer’s fiscal year-end date. Including the NPL on the employer’s balance sheet is a major change. The balance sheet would no longer present the cumulative underfunding in relation to the actuarially determined contribu- tions. The NPL would likely be more volatile than the unfunded accrued liability currently reported in the notes to the employer’s financial statements. Pension Expense Recognized in the Employer’s Financial State- ments (Income Statement) Annual Pension Cost (APC) - mea- sured as the employer’s “annual re- quired contribution” (ARC) adjusted for interest on the NPO. In addition, the ARC is measured as the normal cost (i.e., “service cost”) plus amortization of the unfunded actuarial accrued liability over a maximum of 30 years. Pension Expense (PE) - measured as (i) the current period service cost (using the entry age cost method and blended discount rate), plus: (ii) interest on the NPL, plus (iii) amortization of liability gains/losses, changes in assumptions, and benefit changes over the remaining service lives of active members (and immediate recognition of changes in the liability for inactive and retired members), plus (iv) immediate recognition of any cumula- tive difference between actual and expected investment earnings outside a 15% corridor around the fair value of plan net assets. The new measure of pension expense would be completely disconnected from the actuarial measure of contributions needed to fund the benefits. Amortizing liability gain/losses over remaining service lives would effec- tively reduce their amortization period from a maximum of 30 years to about 10 to 20 years (or less), depending on the demographic characteristics of the covered employees. The methods for recognizing asset and liability gains/losses in the pension expense would likely increase the measure of the pension expense and add volatility. Allowed Actuarial Cost Methods Entry age, Aained age, Projected unit credit, Aggregate, Frozen entry age, Frozen aained age. Entry age - with allocation of service costs as a level percentage of payroll over the employees’ expected service. Approximately one-quarter of state and local governments do not use the entry age cost method for funding purposes. Discount Rate Long-term expected rate of invest- ment return. Blended rate: long-term expected rate of return to the extent current and expected future assets are sufficient to pay projected benefits; otherwise the yield on an index of high-quality municipal bonds. A blended discount rate using municipal bond yields is new. While employers in well-funded plans could continue using the long-term expected return, others may need to use the blended rate. Liability Gains/ Losses - Amortization Period Maximum of 30 years.Weighted-average remaining service life of individual active members. Immediate recognition of changes for vested inactive members (including retirees). The amortization of non-investment gains/losses would be over a much shorter period than is currently used. Investment Gains/Losses - Amortization Period Maximum of 30 years.Deferred recognition of cumulative differ- ence between actual and expected invest- ment earnings within a 15% corridor of the fair value of assets. Immediate recognition of any portion outside the corridor. The method for recognizing investment gains/losses in the pension expense is new and would likely add volatility to the measure. Asset Valuation Method Market value or smoothed market value. Fair (market) value of plan net assets.Use of the fair (market) value would likely add volatility to the net pension liability and pension expense. For Employers in Cost-Sharing Multiple-Employer Plans Pension Liability Pension Liability - measured as the difference between the employer’s contractually required contribution and the actual contribution. Pension Liability - measured as the employ- er’s proportionate share of the cost-sharing plan’s collective net pension liability. Cost-sharing employers would show a new and significantly larger and more volatile measure of the pension liability on their balance sheet. Pension Expense Contractually Required Contribu- tion - measured as the employer’s contractual contribution to the cost- sharing plan. Pension Expense - measured as the employ- er’s proportionate share of the cost-sharing plan’s pension expense. Cost-sharing employers’ new pension expense would likely be larger and more volatile than their contractually required contributions. © 2010 Gabriel Roeder Smith & Company Gabriel, Roeder, Smith & Company has provided consulting and actuarial services for benefit plans since 1938. We are dedicated to providing services that encourage sound financing, sensible benefit design, efficient administration, and effective communication of employee benefits. Since its inception, GRS has placed special emphasis on services to the public sector. From our network of offices, we serve over 700 clients nationwide, including retirement systems, employers, employee organizations, and government agencies. We have worked with many of our clients for more than 30 years - some for more than 60 years. The far-ranging locations of our clients and the long associations we have enjoyed reflect the quality of the services we provide. Services offered by GRS include: · Pension Plan Consulting · GASB 43/45 OPEB Consulting · Health and Welfare Benefit Consulting · Retirement Technology Applications CHICAGO 20 North Clark Street, Ste. 2400 Chicago, IL 60602-5111 (312) 456-9800 (312) 456-9801 Fax Contact: Lance Weiss DALLAS 5605 N. MacArthur Boulevard, Ste. 870 Irving, TX 75038-2631 (469) 524-0000 (469) 524-0003 Fax Contact: Mark Randall DENVER 7900 East Union Avenue, Ste. 1100 Denver, CO 80237-2746 (303) 217-7600 (303) 217-7609 Fax Contact: Leslie Thompson DETROIT One Towne Square, Ste. 800 Southfield, MI 48076-3723 (800) 521-0498 (248) 799-9000 (248) 799-9020 Fax Contact: Judy Kermans FT. LAUDERDALE One East Broward Boulevard, Ste. 505 Ft. Lauderdale, FL 33301-1804 (954) 527-1616 (954) 525-0083 Fax Contact: Theora Braccialarghe This newsleer and additional information about the firm may be found on the GRS website at: www.gabrielroeder.com Offices 8 GRS Insight 7/10 Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this communication concerns tax maers, it is not intended or wrien to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related maer addressed within. Each taxpayer should seek advice based on the individual’s circumstances from an independent tax advisor. • If the actuarial valuation of the total pension liability is not made as of the employer’s fiscal year-end date, it should be updated to that date. The update should include all significant changes made since the valuation as determined by professional judgment. As under current standards, the GASB would continue to allow biennial valuations in order to relieve employers from the cost of annual valuations. If the underlying economic and demographic conditions are stable enough for the biennial valuation to be reliable, the GASB would allow the valuation to be updated to reflect changes as of the employer’s fiscal year-end date. However, if significant changes have oc- curred since the last valuation date, a new valuation would be necessary. Conclusion The changes proposed in the GASB’s PV constitute a significant departure from current pension accounting and financial reporting standards for state and local governmental employers. These changes could play a significant role in changing future accounting and reporting standards for other postemployment benefits. The GASB produced the PV specifically to inform stakeholders of the proposed changes and to request comments. Consequently, it is important for stakeholders to review the proposed changes, consider their impact, and provide comments. Wrien comments are due to the GASB by September 17, 2010, and public hearings are scheduled for October in Dallas, San Francisco, and New York. The GASB’s PV and a plain-language supplement can be found on the GASB’s web site (www.gasb.org). 8/30/10 © Gabriel Roeder Smith & Company Page 1 RE:Potential Effects of the GASB’s Preliminary Views FROM: Paul Zorn DATE: August 30, 2010 This memorandum analyzes the potential effects of the GASB’s proposed changes to pension accounting and reporting standards for governmental employers. The analysis is done by applying several of the key changes to a modeled public pension plan, based on a medium-sized, statewide plan covering general employees. In evaluating changes to accounting standards, the GASB considers three key criteria: accountability, decision-usefulness, and interperiod equity. The analysis raises serious concerns over how well the proposed changes would meet these criteria. On June 16, 2010, the Governmental Accounting Standards Board (GASB) issued its Preliminary Views (PV)1 on proposed changes to accounting and financial reporting standards for pensions. If approved, the changes would apply to state and local governmental employers that sponsor defined benefit (DB) pensions. However, the changes would apply only within the context of accounting and financial reporting and would not necessarily apply to the actuarial calculations used to fund DB benefits. The underlying goal of the GASB’s Postemployment Benefits (PEB) project is to review current accounting and financial reporting standards related to postemployment benefits. In considering changes to accounting standards, the GASB uses three key criteria to evaluate various accounting and reporting approaches: Accountability: Would the resulting measures help hold public officials accountable to their constituents by providing an accurate accounting of financial transactions? Decision-Usefulness: Would the measures provide the information needed by decision- makers and stakeholders to make informed decisions? Interperiod Equity: Would the measures help determine whether the costs of governmental services are allocated equitably across current and future taxpayers? The following memorandum illustrates some of the potential effects of the GASB’s proposed changes. This is done by applying several of the GASB’s key changes to a modeled public pension plan, based on a medium-sized, statewide plan covering general employees. The GASB’s changes are applied as if they were applicable in 1983, and the proposed accounting measures are estimated based on the plan’s historical experience through 2009. (See Appendix A for additional information about the underlying methodology.) Because this necessarily requires certain simplifications, the results are intended as illustrative rather than definitive.2 Nevertheless, Paul Zorn is Director of Governmental Research for GRS and is located in its Southfield office. For their thoughtful comments, the author would like to thank David Kausch, Jim Rizzo, and Brad Armstrong at GRS, as well as Keith Brainard at the National Association of State Retirement Administrators (NASRA) and Leigh Snell at the National Council on Teacher Retirement (NCTR). However, the author retains full responsibility for the accuracy of the information. In addition, the opinions offered are those of the author and do not necessarily reflect the views of GRS as an organization. 1 The PV is titled: “Preliminary Views of the Governmental Accounting Standards Board on major issues related to Pension Accounting and Financial Reporting by Employers” and is available at www.gasb.org. 2 In addition, the results would not necessarily reflect the experience of governments under substantially different circumstances than those modeled. Research Memorandum 8/30/10 © Gabriel Roeder Smith & Company Page 2 the author believes the results reasonably reflect the underlying dynamics and potential effects of the proposed changes. Overview of the GASB’s Proposed Changes Before discussing the results, it may be useful to compare the GASB’s proposed changes with its current approach. The GASB’s current accounting measures for pensions are closely linked to the actuarial funding measures. The GASB’s current measure of the employer’s pension expense, (i.e., the Annual Pension Cost), consists of the employer’s Annual Required Contribution (ARC), plus certain adjustments if the employer has contributed more or less than the ARC over time. The ARC, in turn, is the employer’s actuarially determined contribution, which includes the Normal Cost (i.e., the Service Cost) of benefits accrued during the period, plus amortization of the Unfunded Actuarial Accrued Liability (and actuarial gains/losses) over a period not longer than 30 years. The GASB’s current measure of the employer’s pension liability (i.e., the Net Pension Obligation), is the difference between the employer’s Annual Pension Cost and the contributions actually made by the employer. Moreover, additional information about the employer’s actuarial liabilities and the funded status of the plan are presented as required supplementary information in the employer’s annual financial report. This information includes: the Actuarial Accrued Liability, Actuarial Value of Assets, Unfunded Actuarial Accrued Liability, and the plan’s Funded Ratio. Typically, the Actuarial Value of Assets is determined using a method that averages (or smoothes) investment gains/losses over time, often 5 years. The GASB’s proposed changes would disconnect pension accounting from pension funding. The GASB’s proposed accounting measure of the employer’s pension liability (i.e., the Net Pension Liability) would reflect the employer’s unfunded pension obligation, but would be significantly different from the actuarial approach. First, in determining the Net Pension Liability, the Market Value of Assets (rather than the Actuarial Value of Assets) would be subtracted from the Total Pension Liability. This would make the Net Pension Liability more volatile than the Unfunded Actuarial Accrued Liability, since the Market Value of Assets is not smoothed. Second, the Total Pension Liability would be calculated using a “blended” discount rate reflecting some combination of the long-term expected investment return and municipal bond yields. In the next section, the blended rate will be discussed in more detail. In addition, the GASB’s proposed new accounting measure of the pension expense (i.e., the PV Pension Expense) would disconnect it from the funding measure reflected by the Annual Pension Cost.3 Although the PV Pension Expense would include a measure of the Service Cost based on the Entry Age Normal actuarial cost method, the methods for amortizing actuarial gains and losses in the PV Pension Expense would be very different from the current approach. This is discussed further in the section on the PV Pension Expense. Expected Investment Returns and Municipal Bond Yields Interest rates and investment returns are key factors that drive the actuarial valuations used to fund public pension plans, as well as the GASB’s proposed accounting measures. For actuarial valuations of public plans, the long-term expected investment return serves to estimate future investment earnings as well as to discount future benefit payments in order to determine the present value of the pension liability. 3 The term “PV Pension Expense” is used in this memorandum to distinguish the measure of pension expense proposed in the Preliminary Views from the general term for pension expense. 8/30/10 © Gabriel Roeder Smith & Company Page 3 As discussed on the previous page, the Net Pension Liability would be determined using a blended discount rate, based on some combination of the long-term expected return and municipal bond yields. The blended rate would reflect the long-term expected return to the extent current and expected future assets (including expected future contributions and investment earnings) are sufficient to pay expected future benefits. However, to the extent current and expected future assets are not sufficient, municipal bond yields would be combined with the long- term expected return to determine the blended rate.4 Note that under this approach, the long- term expected return could be used as the discount rate, provided current and future expected contributions and investment earnings are sufficient to pay future benefits. (See Appendix B for an example of how the blended rate would be calculated.) Chart 1 shows these rates over the study period. Chart 1 In Chart 1, both the long-term expected returns and the municipal bond yields are based on historical data. The blended rate is based on the plan’s funded ratio and factors developed from a simplified projection of the plan’s future cash flows. While this approach does not exactly determine the blended rate, it provides a reasonable approximation and helps to simplify the analysis.5 Several things are interesting about the chart. First, the municipal bond yields are higher than the plan’s long-term expected returns from 1983 to 1986. This was a time of high inflation, and most 4 The GASB PV indicates the municipal bond yields would be based on an index of high-quality municipal bonds. The yields used in this study reflect an index of tax-exempt, general obligation municipal bonds published by the Bond Buyer. The GASB PV does not specify whether the index used to determine the blended rate would be based on taxable or tax-exempt municipal bonds. 5 In actual practice, the blended discount rate would not be based on the plan’s funded ratio, but rather on the degree to which current and projected future assets are sufficient to pay expected future benefits. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 19 8 3 19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 20 0 0 20 0 1 20 0 2 20 0 3 20 0 4 20 0 5 20 0 6 20 0 7 20 0 8 20 0 9 Pl a n F u n d e d R a t i o In v e s t m e n t a n d I n t e r e s t R a t e s HistoricalLongTermExpectedReturns,MunicipalBondYields, EstimatedBlendedRatesandBenefitFundedRatio ActuarialFundedRatio LongTermExpectedReturns MunicipalBondYields EstimatedBlendedRates 8/30/10 © Gabriel Roeder Smith & Company Page 4 bond yields were in the double-digit range. As a result, the blended rate would have been higher than the long-term expected return during this period. This is because the plan’s low funded ratio at the time (between 55% and 70%) would have caused a large portion of the (higher) municipal bond yields to be included in the blended rate. Since pension liabilities are inversely proportional to the discount rate, use of the higher blended rate would have resulted in lower measures of the pension liabilities than determined using the long-term expected returns. Second, municipal bond yields declined (somewhat erratically) between 1987 and 2006, and would have been significantly lower than the long-term expected returns (by 150 to 350 basis points) over much of that time. This would have resulted in significantly higher (and more erratic) measures of the pension liabilities. This is discussed further in the next section. The Net Pension Liability The Net Pension Liability is intended to reflect the employer’s unfunded pension obligation, but would be measured differently than the Unfunded Actuarial Accrued Liability used for funding purposes. First, the Total Pension Liability used to determine the Net Pension Liability would be based on the blended discount rate rather than the long-term expected return. Second, the Market Value of Assets would be subtracted from the Total Pension Liability to calculate the Net Pension Liability, introducing significant volatility into the measure. Chart 2 shows results for the Net Pension Liability and Unfunded Actuarial Accrued Liability over the study period.6 Chart 2 6 In order to demonstrate the difference between the Net Pension Liability and the Unfunded Actuarial Accrued Liability for this study, it was assumed that current and future expected assets would be insufficient to cover expected future benefits and so the blended discount rate was used to determine the Net Pension Liability. However, for the plan on which the model is based, the Annual Pension Cost was paid throughout the study period. Consequently, the sponsoring employer would likely have been able to use the long-term expected return as the discount rate. This would have lowered the Net Pension Liability but would not have affected the volatility resulting from the Market Value of Assets. $(1,000) $ $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 19 8 3 19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 20 0 0 20 0 1 20 0 2 20 0 3 20 0 4 20 0 5 20 0 6 20 0 7 20 0 8 20 0 9 Mi l l i o n s o f D o l l a r s ComparisonofNetPensionLiabilityandUnfundedActuarialAccrued Liability Difference(NPLUAAL) NetPensionLiability UnfundedActuarialA ccruedLiability 8/30/10 © Gabriel Roeder Smith & Company Page 5 From 1983 through 1987, the Net Pension Liability would have been about half of the Unfunded Actuarial Accrued Liability. This is because the plan was underfunded during the period and municipal bond yields were much higher than the long-term expected return. Consequently, the blended discount rate would have been higher than the expected return, lowering the Net Pension Liability below the Unfunded Actuarial Accrued Liability. For the remainder of the study period, the Net Pension Liability would likely have been significantly higher than the Unfunded Actuarial Accrued Liability. First, the blended discount rate would have been lower than the long-term expected return, resulting in a higher measure of the Total Pension Liability. Second, the use of the Market Value of Assets would have introduced significant volatility into the Net Pension Liability. As shown in Chart 2, the Net Pension Liability and the Unfunded Actuarial Accrued Liability would have diverged sharply in 2000, as the first financial downturn of the decade caused the value of equity investments to fall and increase unfunded liabilities. This would have immediately increased the Net Pension Liability, but would have had less of an effect on the Unfunded Actuarial Accrued Liability (due to smoothing of investment gains). As a result, between the years 2000 and 2009, the Net Pension Liability would have been at least double or triple the amount of the Unfunded Actuarial Accrued Liability. As investment returns improved between 2003 and 2007, the Net Pension Liability would have leveled off and then declined, while the Unfunded Actuarial Accrued Liability increased (due to smoothing of investment losses). In 2008, the second financial downturn drove asset values down even further. This would likely have resulted in an unprecedented increase in the Net Pension Liability in 2009, to almost four times the Unfunded Actuarial Accrued Liability. The PV Pension Expense In addition to changing the pension liability for accounting purposes, the GASB is also proposing to change the measure of pension expense. Currently, the pension expense is the Annual Pension Cost, which consists of the Normal Cost (also called the Service Cost) plus the amortization of the Unfunded Actuarial Accrued Liability (and actuarial gains/losses) over a period of not more than 30 years. Recognizing Liability Gains/Losses The new PV Pension Expense would be fundamentally different from the Annual Pension Cost. While the PV Pension Expense would include the Service Cost (based on the Entry Age Normal actuarial cost method) it would also fundamentally differ in how the Unfunded Actuarial Accrued Liability and actuarial gains/losses are recognized in the measure of pension expense. Determining the pension liability depends on a variety of economic and demographic assumptions. These assumptions may differ from actual experience and so lead to differences between the expected pension liability and the actual pension liability from year to year. To the extent these differences lead to a change in the pension liability related to past service, they would need to be recognized in the PV Pension Expense. The same is true for changes in assumptions and benefits. The GASB proposes amortizing these liability gains/losses over the expected remaining service lives of active employees. Moreover, to the extent the liability gains/losses relate to vested inactive members (including retirees and beneficiaries) the gains/losses would be recognized immediately in the PV Pension Expense. For accounting and reporting purposes, this change 8/30/10 © Gabriel Roeder Smith & Company Page 6 would reduce the amortization period for liability gains/losses from a maximum of 30 years to about 10 to 20 years (or less). The reduction in the amortization period would likely lead to a higher and more volatile measure of the PV Pension Expense. Recognizing Asset Gains/Losses With regard to asset gains and losses, the GASB proposes to defer recognition of changes in assets to the extent the cumulative differences between actual investment earnings and long-term expected earnings remain within a 15% corridor around the market value of net plan assets. However, when the cumulative difference between actual and expected investment earnings falls outside of the corridor, the portion outside the corridor would be recognized immediately. Chart 3 shows how asset gains/losses would likely have been recognized in the PV Pension Expense for the modeled plan over the study period. Chart 3 Several things are interesting about this chart. First, as assets increase, so do the deferral corridors. Although the corridors contract at times, the contraction is temporary. Consequently, as time goes by, a larger dollar amount is allowed to be deferred. Second, the asset gains/losses would be recognized infrequently and typically at unusual times in the markets. As shown in Chart 3, most of the asset gains would have been recognized in the mid-1990s, a time when investment returns were unusually high. Similarly, asset losses would be recognized at times when returns were unusually low, such as 2009. $(2,500) $(2,000) $(1,500) $(1,000) $(500) $ $500 $1,000 $1,500 19 8 3 19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 20 0 0 20 0 1 20 0 2 20 0 3 20 0 4 20 0 5 20 0 6 20 0 7 20 0 8 20 0 9 Mi l l i o n s o f D o l l a r s RecognitionofAssetGains/LossesinthePensionExpense AmountRecognized DeferredCumulativeAssetG/L(EOY) 15%AssetCorridor(High) 15%AssetCorridor(Low) 8/30/10 © Gabriel Roeder Smith & Company Page 7 Rather than recognizing asset gains/losses in a systematic way, the proposed approach would recognize them erratically, leading to similar fluctuations in the PV Pension Expense. Chart 4 shows the PV Pension Expense compared with the Annual Pension Cost over the study period. Chart 4 As Chart 4 shows, although recognition of asset gains/losses outside the 15% corridor would be infrequent, it would have had a strong impact on the PV Pension Expense. For example, it would have resulted in a negative PV Pension Expense in 1997 (and a nearly negative PV Pension Expense in 1986), at times when the Annual Pension Cost was strongly positive. Also, in 2009, it would have been the major contributor to the more than four-fold increase in the PV Pension Expense from the prior year. Conclusions In proposing changes to current pension standards, the GASB’s goals are to provide accounting information that: (1) holds public officials accountable to their constituents for financial transactions; (2) is needed by decision makers and stakeholders to make informed decisions; and (3) measures the degree to which the costs of governmental services are equitably allocated across current and future taxpayers. While these are important goals, the above analysis raises serious concerns over how well the proposed changes would meet the goals. With regard to accountability, the proposed changes would likely make it more difficult to hold public officials accountable for funding pension benefits. As shown in Charts 2 and 4, the Net Pension Liability and PV Pension Expense would not reflect the Unfunded Actuarial Accrued Liability and Annual Pension Cost used to fund the plan. Consequently, they would not be useful benchmarks for determining whether required contributions have been made or whether the funded status is improving. $(500) $ $500 $1,000 $1,500 $2,000 19 8 3 19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 20 0 0 20 0 1 20 0 2 20 0 3 20 0 4 20 0 5 20 0 6 20 0 7 20 0 8 20 0 9 Mi l l i o n s o f D o l l a r s ComparisonofPVPensionExpensewithAnnualPensionCost RecognizedLiabilityG/L RecognizedAssetG/L InterestonTPL(LessExpectedReturn) NormalCost(BlendedRate) TotalPensionExpense AnnualPensionCost 8/30/10 © Gabriel Roeder Smith & Company Page 8 With regard to informed decisions, the Net Pension Liability and PV Pension Expense could send misleading signals with regard to the contributions necessary to fund the benefits as well as the benefits’ funded status. As shown in Chart 2, at times when municipal bond yields are high (e.g., 1983 – 1986) the Net Pension Liability could be significantly lower than the Unfunded Actuarial Accrued Liability. This could lead decision-makers to conclude the benefits were well funded and erroneously decide to reduce contributions. Similarly, as shown in Chart 4, at times when the PV Pension Expense is low or negative (e.g., 1986 and 1997), decision makers might also interpret this as a reason to lower contributions. With regard to interperiod equity, Charts 3 and 4 show that a substantial portion of unusually high asset gains or losses would be immediately recognized in the PV Pension Expense (e.g., 2009). This would allocate a significant portion of the asset gains/losses to taxpayers in that year, even though those asset gains/losses might be offset by future gains/losses. A more equitable approach would be to amortize asset gains/losses evenly over multiple years, so that taxpayers in a given year are not disproportionately burdened or advantaged. Appendix A – Model and Methodology The results of this paper are based on a pension plan modeled using historical data from a statewide plan covering general employees.7 The data were collected from actuarial reports and annual financial reports prepared from 1984 to 2009. The results reported for the plan’s Unfunded Actuarial Accrued Liability and Annual Pension Cost are based closely on the historical actuarial valuations of the plan, including the plan’s Actuarial Accrued Liabilities and Normal Costs. However, certain changes were made to improve the consistency of the results. For example, while the statewide plan’s amortization period for unfunded liabilities varied from year to year, it was set to a 30-year open amortization period for the study. The results reported for the Net Pension Liability were derived from the historical Actuarial Accrued Liabilities by adjusting the Actuarial Accrued Liabilities to reflect the difference between the plan’s long-term expected return and the blended discount rate based on the duration and convexity of the liabilities. The Net Pension Liability was then calculated by subtracting the historical Market Value of Assets from the adjusted Actuarial Accrued Liability. In calculating the PV Pension Expense, the Service Cost component was also adjusted to reflect the blended discount rate. 7 Plans for public safety employees have different demographic and benefit characteristics than plans for general employees and teachers. Consequently, the specific results of this study may not necessarily be representative of public safety plans. Nevertheless, it is likely the results would have generally been similar for public safety plans. 8/30/10 © Gabriel Roeder Smith & Company Page 9 Appendix B – Calculating the Blended Discount Rate As discussed in the GASB’s Preliminary Views, the blended discount rate would reflect the long- term expected return to the extent current and expected future assets (including expected future contributions and investment earnings) are sufficient to pay expected future benefits. However, to the extent current and expected future assets are not sufficient, municipal bond yields (reflecting an index of high-quality municipal bonds) would be used. The blended discount rate plays a key role in many of the calculations proposed in the GASB’s Preliminary Views, including the Total Pension Liability, the Net Pension Liability, and the Service Cost component of the PV Pension Expense. However, the method for determining the blended rate is complicated and somewhat unclear. The following table offers a simplified example of a process for determining the blended discount rate. Expected Return 8.00% Municipal Bond Rate 4.00% Blended Rate 6.54% Year Assets (BOY) Expected Payments (BOY) Expected Contributions (BOY) Expected Investment Earnings (EOY) Assets (EOY) Rates Used to Develop the Blended Rate PV Expected Payments Using Expected Return & Municipal Bond Rate PV Expected Payments Using the Blended Rate 1 600 100 10 41 551 8.00% 100 100 2 551 100 10 37 498 8.00% 93 94 3 498 100 10 33 440 8.00% 86 88 4 440 100 10 28 378 8.00% 79 83 5 378 100 10 23 311 8.00% 74 78 6 311 100 10 18 239 8.00% 68 73 7 239 100 10 12 161 8.00% 63 68 8 161 100 10 6 77 8.00% 58 64 9 77 100 10 -1 -14 4.00% 73 60 10 -14 100 10 -8 -113 4.00% 70 57 764 764 In this example, a plan expects to pay benefits of $100 per year over the next 10 years. At the beginning of year 1, it has assets of $600, expects contributions of $10 per year over the period, and expects to earn 8% on the available assets and contributions. Contributions and payments are made at the beginning of the year and investment earnings are paid at the end of the year. The current municipal bond rate is 4%. To determine the blended rate, the expected return is used to discount the present value of benefit payments to the extent current and expected future assets are sufficient to pay benefits. In the example above, current and expected plan assets are available through year 8 and so the blended discount rate reflects expected returns for the first 8 years. After that, the municipal bond yield is used to determine the present value of benefit payments. Using these rates produces a total present value of expected future benefit payments equal to $764. According to the GASB, the blended rate is a single rate that would result in the same present value of benefit payments as determined by applying the expected return and municipal bond rates in the manner described above. So, to determine the blended rate, we need to find a single discount rate that, when applied to the benefit payments, produces a total present value of $764. As shown in the rightmost column of table, this discount rate is demonstrated to be 6.54%. APPENDIX F “RESPONDING TO LOCAL GOVERNMENT RETIREMENT-PLAN FUNDING ISSUES” (reprint from Quality Cities)