Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs

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1 (ATTACHMENT 2) REPORT AND POSSIBLE ACTION ON THE ACTUARIAL VALUATION OF THE DISTRICT S OBLIGATION FOR OTHER POST-EMPLOYMENT BENEFITS (OPEB) AS OF JULY 1, 2011 Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs GASB 45 Actuarial Valuation as of July 1, 2011 September 18, 2012 Alex Rivera, F.S.A. 2-1 Copyright 2010 GRS All rights reserved.

2 Summary of Fiscal Impact of OPEB Benefit Changes (as of July 1, 2011) Reduced Actuarial Liabilities by 49% From: $2.76 billion To: $1.39 billion Reduction: $1.37 billion Reduced Annual OPEB Cost by 55% From: $212.5 million To: $95.3 million Reduction: $117.2 million 2-2

3 Background MPS provides retiree healthcare and life insurance benefits, which requires: Recognizing a Balance Sheet liability on yearly financial statements/cafr Disclosing actuarial liabilities off the district s balance sheet (As footnoted in the financial statements/cafr) 2-3

4 Definitions There are two ways to evaluate the District s TOTAL retiree benefit obligation: Balance Sheet Liability The balance sheet liability is the cumulative difference between the actuarially determined cost applicable to the fiscal year (Annual OPEB Cost or Expense) and the actual pay-as-you-go contributions. The Annual OPEB Cost represents the annual amount needed to finance: the existing unfunded actuarial liability over a fixed period, such as 30 years, plus the value of benefits earned during the year. Simply stated, accrued unpaid amount Actuarial Liability Actuarial liability is the value of retiree healthcare and life insurance benefits that the District owes to current and future retirees for benefit service earned to date. The difference between the actuarial liability and assets, if any, is disclosed off the balance sheet. Simply stated, total amount owed 2-4

5 Key Valuation Results Actuarial Liability Gain/Loss $ in Millions Actuarial Liability as of July 1, 2009 $2,398.1 Expected Liability as of July 1, 2011 $2,763.4 Key Changes: Increase/(Decrease) Due To: Change in Eligibility Requirements for OPEB -1,089.1 Plan Design Changes Change in Demographic Assumptions and Other Accelerated Retirement Actuarial Liability as of July 1, 2011 $1,

6 Key Valuation Results Balance Sheet Before and After Changes ($ Millions) July 1, 2009 Before Changes FY10 Balance Sheet 389 FY11 Balance Sheet 520 July 1, 2011 After Changes Decrease FY12 Balance Sheet FY19 Balance Sheet 1, ,039 Balance Sheet liability, as noted, equals cumulative difference between annual actuarially determined costs and annual employer contributions. Historical amounts do NOT adjust retroactively Earned amounts generally become fixed obligations But, going forward projections into FY19 have been significantly reduced. Simply stated, changes were critical to slow growth in balance sheet liability. 2-6

7 Key Valuation Results Balance Sheet Liability ($ Millions) June 30, 2010 June 30, 2011 June 30, 2012 June 30, 2019 Balance Sheet Liability (boy) Annual OPEB Cost (ARC + int./adjs.) Employer Contribution - Pay GO Balance Sheet Liability (eoy) Annual OPEB Cost (Annual Required Contributions ARC + int./adjs.) is still greater than the Annual Pay GO contribution. Therefore the Balance Sheet Liability will continue to grow, but at a lesser rate due to District OPEB changes. 2-7

8 Key Valuation Results Summary of key observations ($ Millions) Actuarial liabilities Balance sheet liability Annual OPEB Cost (ARC + int./adjs.) Before Design Changes After Design Changes , , , , , Pay GO

9 Key Valuation Results Summary of key observations District OPEB changes made during FY12 resulted in annual savings that were additionally contributed to the OPEB Trust beyond the regular 5% trust contribution Year Ending Net Trust Assets Funding Status June 30, 2011 $9.3 million 0.7 % June 30, 2012 $41.4 million 2.9% 2-9

10 Projections 6,000 Milwaukee Public Schools Projected GASB Actuarial 45 Actuarial Liability Liabilities 5,000 4,911.3 ($ in Millions) 4,000 3,000 7/1/ Before Changes 2, ,549.5 Actuarial Liability (4.55%) 7/1/2009 2,000 1, , /1/ After Changes Actuarial Liability (4.55%) 7/1/ Valuation Year Plan changes significantly reduced amount and growth of the Actuarial Liability 2-10

11 Projections Milwaukee Public Schools Annual Projected Required GASB 45 Contributions Expense /1/ Before Changes ($ in Millions) Annual OPEB Cost (4.55%) FYE 6/30/ /1/ After Changes Annual OPEB Cost (4.55%) FYE 6/30/ Valuation Year Plan changes significantly reduced Annual OPEB Cost (ARC + int./adjs.) or expense 2-11

12 Projections Milwaukee Public Public Schools Schools Projected Employer GASB Contributions 45 Expected Employer / Pay GO Contributions /1/ Before Changes ($ in Millions) /1/ After Changes 85.5 Expected Contributions FYE 6/30/ Expected Contributions FYE 6/30/ Valuation Year Plan changes significantly reduced annual Pay GO (amount paid based on claims and 5% trust contribution) 2-12

13 Projections 2,000 1,800 Milwaukee Public Schools Projected Balance GASB 45 Sheet Balance Liability Sheet Liability 1, ,600 1,400 ($ in Millions) 1,200 1, /1/ Before Changes 1, Balance Sheet Liability (4.55%) 7/1/ /1/ After Changes Balance Sheet Liability (4.55%) 7/1/ Valuation Year Plan changes significantly reduced amount and growth of the Balance Sheet Liability 2-13

14 Next Steps and Challenges Despite the plan design changes made, we recommend monitoring and evaluating the future growth in the OPEB actuarial liability and balance sheet liability to determine next steps. Challenges and cost drivers faced by MPS may include: The rate of medical inflation greater than the consumer price index Longevity retirees living longer Utilization members using more healthcare services Growth of retiree population - the ratio of actives to retirees is approaching 1:1 Medicare potential for increased cost shifting to the MPS retiree health plan 2-14

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