Attention: Michelle Schulz, Finance Director. The date of the valuation was December 31, The purpose of the actuarial valuation is to:

Transcription

1 March 2, 2015 The Board of Trustees Retiree Health Care Trust Fund, Michigan Attention: Michelle Schulz, Finance Director This report contains the results of an actuarial valuation of the liabilities associated with retiree health benefits provided by the for its employees, together with computed contributions to systematically finance these benefits. The date of the valuation was December 31, The purpose of the actuarial valuation is to: Compute the liabilities associated with post-retirement health benefits likely to be paid on behalf of current active employees and retirees, and Compute a pre-funding contribution rate for the City to finance the postretirement health benefits as they accrue. This valuation has been conducted in accordance with generally accepted actuarial principles and practices. Data concerning active employees, retirees and assets was provided by City. This data has been reviewed for reasonableness, but no attempt has been made to audit such information. The valuation was based on the benefit provisions as submitted by the City. This valuation has been prepared under the supervision of a Member of the American Academy of Actuaries who meets the qualification standards of the American Academy of Actuaries to render the actuarial opinions contained herein. Respectfully submitted, Denise M. Jones Senior Consultant Sandra W. Rodwan Member, American Academy of Actuaries

2 Retiree Health Care Trust Fund Actuarial Valuation as of December 31, 2014

3 Table of Contents Section One: Valuation Summary Valuation Summary... 1 Section Two: Actuarial Calculations Funding Actuarial Accrued Liability... 3 Computed Contribution Rates... 4 Comments... 6 Section Three: Benefit Provisions Benefit Provision Summary... 7 Section Four: Actuarial Assumptions and Methods Actuarial Assumptions... 8 Actuarial Methods Section Five: Valuation Data Premium Summary Participant Summary... 12

4 Section One: Valuation Summary

5 Section One: Valuation Summary Purpose of Valuation The purpose of this actuarial valuation of post-retirement health benefits as of December 31, 2014 is to: Compute the liabilities associated with post-retirement health benefits likely to be paid on behalf of current active and retired participants, Compute a pre-funding contribution rate to finance the benefits as they accrue. Assumptions Used in the Valuation The liabilities and pre-funding contribution rate are very sensitive to the long-term assumptions used in making the valuation. The assumptions used in making this valuation, summarized in Section Four, are only one reasonable set out of a large number of possibilities. To the extent that actual experience differs from the long-term assumptions, the liabilities and contribution rates will be greater or less than those indicated in this report. The assumptions having the greatest impact are the rate of medical care inflation and the investment return rate. We have assumed a 5.0% annual rate for medical care inflation. The assumed investment return rate was 7.50%. Please refer to Comments 2 and 3 on page 6. Liabilities and computed contributions can change significantly in future years depending upon the actual and assumed rates of medical care inflation, investment return, benefit provisions and demographic experience of the participant group. This valuation includes a change in the assumed mortality rate from the 1983 Group Annuity Mortality Table for males and females to the RP 2014 Healthy Annuitant Mortality Table for males and females. This change was adopted by the Board of Trustees in December Actuarial Accrued Liabilities Actuarial accrued liabilities as of December 31, 2014, were computed to be $28,007,280. Of this amount, $12,749,261 was attributable to current active employees and $15,258,019 to current retirees. Funding Value of Assets The market value of assets reported in the Retiree Health Care Trust Fund as of December 31, 2014 totaled $14,492,743. This amount was used as the funding value of assets. Please refer to Comment 5 on page 6. Post-Employment Health Benefits December 31, 2013 Valuation

6 Section One: Valuation Summary Computed Contribution Rate The total annual required contribution rate to pre-fund post-retirement health benefits was computed to be 17.72% of active employee payroll. There are two components of this rate, the normal cost and an amortization payment for unfunded actuarial accrued liability. The normal cost contribution rate was computed to be 7.83% of active employee payroll. The amortization payment as a level percent of active member payroll was computed to be 9.89%. The amortization period used was 30 years. The 30 year period is the maximum permitted for reporting purposes under Statements 43 and 45 of the Governmental Accounting Standards Board. Participants Defined Pension Plan Members Contribution Plan Members Total Active Employees Active Employee Payroll $2,118,816 $5,903,395 $8,022,211 Retiree Participants Post-Employment Health Benefits December 31, 2013 Valuation

7 Section Two: Actuarial Calculations Funding

8 Section Two: Actuarial Calculations Funding Actuarial Accrued Liabilities The actuarial accrued liability as of December 31, 2014 was computed to be $28,007,280 Active participants $12,749,261 Retired participants 15,258,019 Total Actuarial Accrued Liability 28,007,280 Funding Value of Assets 14,492,743 Unfunded Actuarial Accrued Liability $13,514,537 Assets and Accrued Liabilities for Retiree Health Insurance Valuation Date Assets Actuarial Accrued Liabilities Unfunded Actuarial Accrued Liabilities Percent Funded 01/01/2002 $1,091,608 $4,446,312 $ 3,354, % 12/31/2002 1,297,419 5,147,654 3,850, /31/2003 1,459,597 7,806,984 6,347, /31/2004 2,025,186 9,224,651 7,199, /31/2005 2,550,127 10,147,440 7,597, /31/2006 3,156,996 15,067,159 11,910, /31/2007 6,913,705 16,719,008 9,805, /31/2008 6,398,891 18,608,721 12,209, /31/2009 8,474,422 19,509,238 11,034, /31/2010 9,996,382 19,698,363 9,701, /31/ ,357,652 19,804,312 9,446, /31/ ,684,316 21,217,458 9,533, /31/ ,978,827 22,995,542 10,016, /31/ ,492,743 28,007,280 13,514, Post-Employment Health Benefits December 31, 2013 Valuation

9 Section Two: Actuarial Calculations Funding Computed Contribution Rates Annual Required Contribution The computed contribution rate consists of two components: normal cost and amortization of unfunded actuarial accrued liability. Normal cost was computed to be a level percent of payroll from date of hire to date of termination. The normal cost can be considered to be the ongoing cost. The portion of the total present value of future benefits allocated to service already rendered is the actuarial accrued liability. We have amortized the unfunded actuarial accrued liability for active employees over 30 years. The amortization payments were computed to remain level as percents of payroll. The contribution rates shown below are expressed as level percents of active member payroll. The annual dollar amounts of contributions are assumed to increase as payroll increases. Computed Employer Contribution Rate as Level % of Payroll Normal Cost 7.83% Unfunded Actuarial Accrued Liability 9.89 Total Computed Contribution Rate 17.72% Dollar Contribution* $1,421,536 *Based on 12/31/2014 valuation payroll of $8,022,211. Post-Employment Health Benefits December 31, 2013 Valuation

10 Section Two: Actuarial Calculations Funding Computed City Contributions for Retiree Health Benefits Comparative Schedule Valuation Date Computed % of Payroll Contributions Dollar Amount 12/31/ % $ 405,581 12/31/ ,268 12/31/ ,206 12/31/ ,006,525 12/31/ ,271,560 12/31/ ,235,544 12/31/ ,392,647 12/31/ ,219,653 12/31/ ,065,670 12/31/ ,081,247 12/31/ ,039,846 12/31/ ,179,856 12/31/ ,421,536 Post-Employment Health Benefits December 31, 2013 Valuation

11 Section Two: Actuarial Calculations Funding Comments Comment 1: The funded ratio decreased to 51.7% as of December 31, 2014 from 56.4% as of December 31, The increase in the City s computed contribution rate as a percent of payroll reflects in part the decrease in the active member payroll. In addition, the mortality table was changed to the RP 2014 Healthy Annuitant Mortality Table, as adopted by the Board of Trustees in December, The funded ratio would have been 54.4% and the contribution rate would have been 16.63% had it not been for the change in the mortality assumption. Comment 2: The GASB statements do not mandate that the plan sponsor pre-fund OPEB liabilities. However, if the plan sponsor s funding policy is to contribute less than the Annual Required Contribution (ARC), the GASB standards require that a lower assumed rate of investment return be used to compute the liabilities and Annual Required Contribution. This would increase the liabilities, ARC, and the OPEB obligation that must be reported in the financial statements. The OPEB obligation represents the cumulative difference between the annual OPEB cost and the employer s actual contribution. For purposes of this valuation we have assumed a rate of investment return (7.5%) based upon the assumption that the City will continue to contribute the actuarially determined annual required contribution at a minimum. If a higher rate of investment return is assumed, the liabilities and ARC would be less. If a lower rate of investment return is assumed the liabilities and ARC would be greater. Comment 3: Liabilities for health insurance premiums are highly dependent upon the underlying assumptions concerning medical care inflation and the discount rate. For the purposes of this valuation, we assumed a 5.0% annual medical care inflation rate and 7.5% discount rate. Liabilities and computed contributions would be greater if a higher medical care inflation rate is assumed or a lower discount rate, and conversely. Comment 4: The unfunded actuarial accrued liabilities were amortized over the maximum 30 year period permitted for reporting purposes under the GASB standards. A shorter period would result in higher computed contribution rates. Comment 5: In order for assets to be considered in determining the unfunded actuarial accrued liability, the assets must be a) irrevocably held in a trust or equivalent arrangement, b) dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the plan, and c) legally protected from creditors of the employer or plan. For purposes of this actuarial valuation we have used the balance in the Retiree Health Care Trust Fund, $14,492,743 as of December 31, Post-Employment Health Benefits December 31, 2013 Valuation

12 Section Three: Benefit Provisions

13 Section Three: Benefit Provisions Benefit Provision Summary Brief Summary of Benefit Provisions Eligibility: POLC Patrol & Services Officers Patrol 25 years of service, regardless of age; Patrol age 50 and 15 years; Service Officers age 55 with 15 years. POLC Detective Age 50 with 15 years. POLC Command Age 50 and 15 years. AFSCME Age 50 with 10 years; after 11/8/2004 age 50 with 20 years. Admin. Age 55 with 10 years. Fire Age 55 with 15 years. Benefit: Generally City-paid premium for retiree and spouse. Some dependent coverage for AFSCME hired before 11/8/2004. For Non-Union full time hired after 1/1/2007, Health Savings Plan is available as sole coverage. Effective January 1, 2011 Admin. retirees pay 10% of premium if retiree s monthly pension exceeds $5,000. Effective 1/1/2012 all new hires participate in the City s Health Savings Plan. Post-Employment Health Benefits December 31, 2013 Valuation

14 Section Four: Actuarial Assumptions And Methods

15 Section Four: Actuarial Assumptions and Methods Actuarial Assumptions Economic Assumptions (i) Interest Rate 7.5% (net of expenses) (ii) Salary Increases Across-the-Board 5.0% (iii) Inflation Wage and Medical 5.0% Demographic Assumptions (i) Mortality RP 2014 Healthy Annuitant Table (ii) Termination of Employment Prior to Retirement, Death or Disability Ages Sample Rates % Post-Employment Health Benefits December 31, 2013 Valuation

16 Section Four: Actuarial Assumptions and Methods (iii) Retirement Rates Age-related rates Percent of Active Members Retiring within Year Following Attainment of Indicated Retirement Age Retirement Ages Public Safety Others % % Post-Employment Health Benefits December 31, 2013 Valuation

17 Section Four: Actuarial Assumptions and Methods Actuarial Method Used for the Valuation Normal Cost. Normal cost and the allocation of actuarial present values between service rendered before and after the valuation date were determined using an individual entry-age actuarial cost method having the following characteristics: The annual normal costs for each individual active member, payable from date of hire to date of retirement, are sufficient to accumulate the value of the member s benefit at the time of retirement; Each annual normal cost is a constant percentage of the member s year-by-year projected covered pay. Financing of Unfunded Actuarial Accrued Liability Unfunded actuarial accrued liabilities for retiree health insurance were amortized as a level percent of payroll over 30 years and added to the computed normal cost to determine the total contribution rate. The 30 year period is the maximum period for reporting purposes under GASB Statements 43 and 45. Post-Employment Health Benefits December 31, 2013 Valuation

18 Section Five: Valuation Data

19 Section Five: Valuation Data Reported Premium Amounts A sample of the reported premium amounts for retirees is as follows: (HMO Product) Hap Med Rx Dental Vision Pre 65: Single $ $ Couple 1, After 65: Single Couple A) City switched to HAP's Alliance Health & Life for medical effective January 1, rates indicated effective as of December 31, B) Used AFSCME for the HAP PPO C) Used AFSCME for the HAP EPO D) Rx pharmacy rates represent estimated self-insurance rates for 2014 calendar year. E) Dental rates are effective for the Non-Union & Library group (large group and most expensive benefit level) F) Vision rates the same for all groups. The reported rates do not include an estimate for inflation to the rates to project costs beyond December 31, Only the HAP rates for PPO and EPO medical benefits are experience rated for active versus retirees that are pre-medicare (age). The other benefits are premium priced to the City solely based on the family unit size single, 2 party, and family with no distinction for an active, pre- Medicare retiree, or Medicare retiree. Post-Employment Health Benefits -11- December 31, 2013 Valuation

20 Section Five: Valuation Data Valuation Assets The market value of assets held in trust for retiree health benefits was reported to total $14,492,743 as of December 31, This amount was used for purposes of the actuarial valuation. Participant Summary Retirees The valuation included 82 retirees receiving employer-financed retiree health benefits as of December 31, Sixty-two were retirees from the Employee Pension Plan and twenty were from the Defined Contribution Plan. Active Participants The valuation included 131 active employees. Retiree Health Valuation Date Benefits 12/31/03 $206,751 12/31/04 300,482 12/31/05 290,448 12/31/06 465,484 12/31/07 493,581 12/31/08 533,609 12/31/09 626,225 12/31/10 732,025 12/31/11 841,681 12/31/12 939,766 12/31/13 966,251 12/31/14 1,131,821 Defined Pension Plan Members Contribution Plan Members Total Number of Actives Payroll $2,118,816 $5,903,395 $8,022,211 Averages Age Service Post-Employment Health Benefits -12- December 31, 2013 Valuation