Alameda County Employees Retirement Association

Transcription

1 Alameda County Employees Retirement Association GASB Statements No. 25 and 43 Actuarial Valuation of Benefits Provided by the Supplemental Retirees Benefit Reserve as of December 31, 2012 This report has been prepared at the request of the Board of Retirement to assist in administering the Fund. This valuation report may not otherwise be copied or reproduced in any form without the consent of the Board of Retirement and may only be provided to other parties in its entirety. The measurements shown in this actuarial valuation may not be applicable for other purposes. Copyright 2013 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.

2 THE SEGAL COMPANY 100 Montgomery Street, Suite 500 San Francisco, CA T F September 24, 2013 Board of Retirement Alameda County Employees Retirement Association th Street, Suite 1000 Oakland, CA Dear Members of the Board: We are pleased to submit this report on our actuarial valuation of benefits provided by the Supplemental Retirees Benefit Reserve (SRBR) to satisfy ACERA s accounting disclosure requirements of Statements No. 25 and 43 of the Government Accounting Standards Board (GASB). The December 31, 2012 census and financial information was prepared by ACERA. We gratefully acknowledge that assistance. The actuarial projections were based on the assumptions and methods described in Exhibit I and on the plan of benefits as summarized in Exhibit II. We are Members of the American Academy of Actuaries and we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. We look forward to discussing this material with you at your convenience. Sincerely, THE SEGAL COMPANY By: Andy Yeung, ASA, EA, MAAA, FCA Vice President and Associate Actuary Paul Angelo, FSA, EA, MAAA, FCA Senior Vice President and Actuary DNA/hy

3 SECTION 1 SECTION 2 SECTION 3 SECTION 4 INTRODUCTION VALUATION RESULTS VALUATION DETAILS SUPPORTING INFORMATION Purpose... 1 Accounting Requirements... 3 Highlights of the Valuation... 4 Summary of GASB No. 43 (OPEB) Valuation Results... 8 Summary of GASB no. 25 (NON- OPEB) valuation results... 9 Projected Cash Flow and Present Value of Projected Benefits.. 10 Actuarial Certification EXHIBIT A Table of Plan Coverage Members Receiving SRBR Benefits as of December 31, EXHIBIT B Determination of GASB No. 25 and 43 Actuarial Value of Assets EXHIBIT I Actuarial Assumptions and Actuarial Cost Method EXHIBIT II Summary of Benefits EXHIBIT III Assumptions About the Substantive Plan... 29

4 SECTION 1: Introduction for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve PURPOSE I. Other Postemployment Benefits (OPEB) This report presents the results of our actuarial valuation as of December 31, 2012 of the Alameda County Employees Retirement Association (ACERA) postretirement medical, dental and vision benefits provided through ACERA s 401(h) account. ACERA has allocated a portion of the Supplemental Retirees Benefit Reserve (SRBR) to be treated as pension contributions if the employers make contributions to the 401(h) account. The results have been prepared with the goal of conforming to those disclosures required by Statement 43 of the Governmental Accounting Standards, which establishes accounting requirements for all Other Postemployment Benefit (OPEB) Plans of state and local governments. Among its other requirements, GASB No. 43 prescribes an accrual methodology for accumulating the value of other postemployment benefits (OPEB) over participants active working lifetimes. The actuarial calculations used to prepare this report have been made on a basis consistent with our understanding of GASB No. 43 and the substantive plan designs of the OPEB Plan provided by ACERA using guidelines provided by the Board. Actuarial calculations for other purposes may differ significantly from the results reported here. The most important plan design assumption incorporated in our valuation is that future monthly medical allowance (MMA) will increase at one-half of the rate of our lowest anticipated medical trend assumptions. However, the SRBR OPEB Plan will reimburse the fully indexed premium required for dental, vision, and enrollment in the Medicare Part B program. Another key assumption for preparing the accounting results is that ACERA s OPEB liabilities are limited to the portion of the December 31, 2012 SRBR expected to be used to provide postretirement medical, dental and vision benefits through ACERA s 401(h) account. Our summary of results shows the liabilities before and after this limit. 1

5 SECTION 1: Introduction for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve II. Non-OPEB Benefits The SRBR currently provides benefits in addition to those that qualify as OPEB. These non-opeb benefits include supplemental COLAs and in prior years, there were also death benefits related to the underlying defined benefit pension plan. It is our understanding that GASB requires such benefits to be reported under GASB No. 25 and they have been included and separately identified in this study. Similar to the OPEB, a key assumption for preparing the accounting results is that ACERA s non-opeb liabilities are limited to the portion of the December 31, 2012 SRBR expected to be used to provide supplemental COLA and death (burial) benefits. Again, our summary of results shows the liabilities before and after this limit. Special Note Pertaining to OPEB and Non-OPEB Benefits The calculation of benefit obligations pursuant to prescribed accounting requirements does not, in and of itself, imply that ACERA has any legal liability to provide the benefits valued. Actuarial valuations involve estimates of benefit amounts and assumptions about the probability of their payment far into the future, and the actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. 2

6 SECTION 1: Introduction for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve ACCOUNTING REQUIREMENTS OPEB The Governmental Accounting Standards Board (GASB) has issued Statement Number Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This statement provides the financial reporting requirements for all plans of state and local government entities that provide OPEB. The effective date of these requirements for ACERA is in its financial statement for the year ended December 31, The statement applies to plans that provide postemployment benefits such as health, prescription drug, dental, vision and life insurance coverage for retirees; long-term care coverage, life insurance and death benefits that are not offered as part of a pension plan; and long-term disability insurance for employees. These benefits, referred to as OPEB, are typically financed on a pay-as-you-go basis. GASB No. 43 introduces an accrual-basis accounting requirement; thereby, recognizing OPEB cost over an employee s working career. The standard applies accounting requirements for OPEB plans consistent with those that apply to pension plans. Non-OPEB The accounting standard that governs the non-opeb benefits (i.e. GASB No. 25) is the same standard that currently governs the statutory retirement benefit. As part of the GASB No. 43/45 pronouncements, GASB made it clear that liabilities associated with the non-opeb benefits provided by the SRBR should be disclosed as part of the Association s pension liabilities consistent with GASB No. 25. The total cost of providing future postemployment benefits is projected, taking into account various actuarial assumptions such as plan demographics (e.g., turnover, mortality, disability and retirement) and health care trends. The future cost is then discounted to determine an actuarial present value of projected benefits (APB). The actuarial accrued liability (AAL) is the portion of the present value of the total projected benefits allocated to years of employment prior to the measurement date. The unfunded actuarial accrued liability (UAAL) is the difference between the AAL and actuarial value of assets in the Plan allocated to these benefits. Once the UAAL is determined, the Annual Required Contribution (ARC) is determined as the normal cost (the APB allocated to the current year of service) and the amortization of the UAAL. This ARC is compared to actual contributions made and any difference is reported as the net OPEB obligation (NOO). In addition, required supplementary information (RSI) is required. This information includes historical information about the UAAL and the progress in funding the Plan. 3

7 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve HIGHLIGHTS OF THE VALUATION The actuarial assumptions used in this study are consistent with those assumptions applied by the Retirement Board for the December 31, 2012 pension valuation. In the last SRBR valuation, we assumed a medical trend based on separate assumptions for three types of medical insurance plans, as follows: All Non-Medicare plans: starting at 9% for 2012 to , reduced by 0.5% for each year until it reaches 5.0%, Medicare Advantage plans: starting at 9% for 2012 to , reduced by 0.5% for each year until it reaches 5.0%, and Medicare Supplement plans: starting at 7% for 2012 to , reduced by 0.5% for each year until it reaches 5.0%. (Note that these plans were no longer available after 2012.) For this valuation, we have recommended to the Board in our letter dated April 22, 2013 that the medical trend assumptions be revised to the following: All Non-Medicare plans and Medicare Advantage plans: starting at 8.5% for 2013 to , reduced by 0.5% for each year until it reaches 5.0%. 1 After we issued our April 10, 2012 letter, the Association provided us with the actual premiums required for 2013, which we used in the December 31, 2011 study. 2 After we issued our April 22, 2013 letter, the Association provided us with the actual premiums required for We have used those actual 2014 premiums in this study. The Board acted to maintain the 2014 MMA at the 2013 level and to introduce a minimum 10-year service requirement for dental and vision benefit eligibility purposes 3. Beginning in 2013, Medicare retirees have the option to purchase individual Medicare insurance from plans through a Medicare exchange. These retirees make up about 30% of current Medicare retirees and we have assumed that 30% of current and future retirees over age 65 will purchase individual insurance through the Medicare exchange. To assist with purchasing insurance through the exchange, the Board adopted a monthly subsidy of $400 for retirees with 20 or more years of service, $300 for retirees with years of service, and $200 for retirees with years of service. These amounts are used in this valuation as the MMA for members enrolled in the Medicare exchange individual plans in lieu of the $ MMA (adjusted for retirees with less than 20 years of service) for members enrolled in the group insurance plans. We have assumed that the MMA subsidy for the individual plans available through the exchange would only increase with 50% of medical trend after 2014, consistent with the increase anticipated for the MMA for the group plans. Based on a review of retirees who elected medical coverage, we assumed that 85% of employees who retire in the future will receive an MMA. This is the same as the prior valuation. 3 There is no service requirement for duty disabled retirees, or for grandfathered non-duty disabled retirees with effective retirement dates on or before January 31,

8 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve These and the other OPEB assumptions are provided in Exhibit I. The determination of the substantive plan underlying ACERA s OPEB was based upon prior directions provided by ACERA, its auditors, as well as the administrative staff, auditors and consultants representing the County of Alameda, along with the changes to the dental and vision plan mentioned above. These directions are provided in Exhibit III. The Board acted on December 20, 2012 to make two changes to the non-opeb benefits payable from the SRBR, effective January 1, The first non-opeb benefit change was the discontinuance of the Active Death Equity Benefit (ADEB) payable to eligible beneficiaries of vested active members who become deceased on or after January 1, The second non- OPEB benefit change was the elimination of the $4,250 Retired Member Lump Sum Death Benefit payable to beneficiaries of retirees whose deaths occur on or after January 1, The remaining $750 Retired Member Lump Sum Death Benefit will continue to be paid. Both the $750 and the $4,250 death benefits have historically been excluded from the pension valuation report and included in the SRBR valuation report. In this report, we have presented non-opeb results as of December 31, 2012 under the following two scenarios: Scenario A: Excludes benefits and assets associated with the $750 Lump Sum Death Benefit. Scenario B: Includes benefits and assets associated with the $750 Lump Sum Death Benefit. Note that both of these scenarios reflect the discontinuance of the Active Death Equity Benefit and the $4,250 Lump Sum Death Benefit. The Association has provided to us the breakdown of the OPEB and non-opeb assets as of December 31, Based on prior discussions with ACERA, the results in this report reflect the possibility of extending the sufficiency of the SRBR to pay OPEB benefits by allocating some of the assets previously earmarked for the non-opeb benefits to the OPEB benefits. The amount of assets to be reallocated to the OPEB was determined as the amount needed to equalize the terminal year through which OPEB and non-opeb can be paid by the SRBR. This reallocation was performed separately under Scenario A and Scenario B, as those scenarios are described above. The terminal year of the SRBR was determined by projecting how long the SRBR can provide for all non- OPEB and OPEB benefits under the substantive plan outlined in Exhibit III. OPEB benefits can be paid through , while non-opeb benefits can also be paid through This result is the same under both Scenario A and Scenario B. Last year, it was projected that OPEB benefits could be paid through 2027 and non- OPEB benefits could be paid through The main reasons the terminal year of the SRBR for OPEB benefits has been projected to be one year later than it was in last year s study are (a) the maintaining of the 2014 maximum MMA at the 2013 level, (b) the introduction of the minimum service requirement for the 4 Assets would only be sufficient to pay OPEB benefits for a part of the year indicated and to pay non-opeb benefits for the full year indicated. 5

9 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve dental and vision plan benefits, and (c) the potential reallocation of some of the assets previously earmarked for the non-opeb benefits to the OPEB benefits, offset somewhat by (d) the rate of return (after smoothing) of about 1.6% on the SRBR assets, which was less than the expected return of 7.8% assumed in the December 31, 2011 SRBR valuation for The main reasons the terminal year of the SRBR for non- OPEB benefits has been projected to be three years earlier than it was last year s study are (a) the rate of return (after smoothing) of about 1.6% on the SRBR assets, which was less than the expected return of 7.8% assumed in the December 31, 2011 SRBR valuation for 2012, and (b) the potential reallocation of some of the assets previously earmarked for the non-opeb benefits to the OPEB benefits, offset somewhat by (c) the elimination of the Active Death Equity Benefit, (d) the exclusion of the $4,250 Retired Member Lump Sum Death Benefit (and the $750 Death Benefit under Scenario A), and (e) the gain due to the actual inflation of 2.00% for 2012 being less than the assumed inflation rate of 3.50%, which reduced the expected supplemental COLA benefits projected to be paid (effective April 1, 2013). Before applying the cap to limit the Actuarial Accrued Liability (AAL) to be no greater than the Actuarial Value of Assets (AVA), the funding ratio of the OPEB liabilities is 72.3% under Scenario A and 72.8% under Scenario B 5. The funding ratio of the non-opeb liabilities is 14.8% under Scenario A and 15.7% under 5 Scenario A excludes benefits and assets associated with the $750 lump sum death benefit while Scenario B includes both. Scenario B. The comparable funding ratios were 72.0% and 36.1% for the OPEB and non-opeb liabilities, respectively, as of December 31, 2011, which reflected the inclusion of the full $5,000 Lump Sum Death Benefit applicable at that time. The terminal years the SRBR can be paid as well as the funding ratios have been developed to reflect only the actuarial value of assets allocated to the SRBR through December 31, As we indicated on page 6 of our December 31, 2012 actuarial valuation report for the Pension Plan, the Association had deferred investment gains of $124.9 million that were not yet recognized in determining the combined actuarial value of assets for the Pension Plan and the SRBR Plan as of that date. The deferred gains of $124.9 million represent 2.2% of the market value of assets as of December 31, 2012, and will increase the rate of return on the actuarial value of assets over the next few years. The funding ratio for the non-opeb benefits is lower than for OPEB benefits because the AVA was reallocated based on the benefit outflows for OPEB and the non- OPEB benefits so that both benefits could be paid until around The benefit outflows for non-opeb (in particular, the supplemental COLA) are back loaded, i.e., they are expected to be larger in later years than in earlier years. This results in a smaller asset allocation relative to liabilities for the non-opeb benefits. When applying the cap to limit the AAL to the AVA, the Actuarial Present Value of Projected Benefits (APB) also cannot be greater than the AVA. Since the AAL and the APB are both capped at the AVA, the plan s future normal cost is zero. The Annual Required Contribution 6

10 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve (ARC) is zero because there is no unfunded AAL to amortize and no normal cost to accrue. Also note that the funding ratio is 100.0% after limiting the AAL to the AVA. Note that in preparing the 401(h) contribution letter for 2013/2014 we had included an additional allocation for expense related to the administration of the health benefits for retirees. However, as we previously demonstrated to the Association during our discussion with the Board on SB 1479, the values in both the employer reserves and the SRBR would remain unchanged relative to the values prior to that allocation, through the operation of SB For that reason, we have not included the explicit payment of administrative expense out of the 401(h) in preparing the cash flow requirements of the SRBR. The projected payments do not include any excise tax that may be imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. Under these acts, health plans that provide a subsidy above certain thresholds beginning in 2018 may be subject to a 40% excise tax. This is because the MMA subsidy is expressed in terms of a dollar amount (and not as a percent of the premium required to obtain medical coverage) and the future MMA, when adjusted by 50% of medical trend, would result in an amount that would fall below the cost thresholds for a Cadillac plan (i.e., a plan subject to the excise tax) for all future years. 7

11 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve SUMMARY OF GASB NO. 43 (OPEB) VALUATION RESULTS A. Excluding Benefits and Assets Associated with $750 Lump Sum Death Benefit December 31, 2012 (1) December 31, 2011 B. Including Benefits and Assets Associated with $750 Lump Sum Death Benefit Before Applying Limit on Liability (2) Actuarial Present Value of Projected Benefits Medical $862,111,000 $862,111,000 $845,087,000 Dental and Vision 101,432, ,432, ,461,000 Total $963,543,000 $963,543,000 $962,548,000 Actuarial Accrued Liability Medical $674,017,000 $674,017,000 $662,509,000 Dental and Vision 80,821,000 80,821,000 91,707,000 Total $754,838,000 $754,838,000 $754,216,000 Actuarial Value of Assets (Exhibit B) 545,429, ,655, ,936,000 Unfunded Actuarial Accrued Liability 209,409, ,183, ,280,000 GASB No. 43 Funded Ratio 72.3% 72.8% 72.0% After Applying Limit on Liability Year Assets will be Exhausted (3) Unfunded Actuarial Accrued Liability $0 $0 $0 GASB 43 Funded Ratio 100% 100% 100% Annual Required Contribution After Applying Limit on Liability Normal Cost $0 $0 $0 Amortization of Unfunded Actuarial Accrued Liability $0 $0 $0 As a Percentage of Pay 0% 0% 0% (1) Reflects potential transfer of assets from non-opeb to OPEB. (2) (3) Before limiting the actuarial present value of projected benefits and the actuarial accrued liability to the actuarial value of assets. With the limit, the actuarial present value of projected benefits and the actuarial accrued liability are equal to each other and the unfunded actuarial accrued liability is $0. Full benefits will be paid through the year prior to the year shown in the table. Full benefits will be paid for part of the year indicated. Note: The above results have been calculated using our understanding of the substantive plan as described in Exhibit III. The liabilities provided in this report will have to be revised if our understanding of the substantive plan is inaccurate. 8

12 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve SUMMARY OF GASB NO. 25 (NON-OPEB) VALUATION RESULTS Before Applying Limit on Liability (2) A. Excluding Benefits and Assets Associated with $750 Lump Sum Death Benefit December 31, 2012 (1) December 31, 2011 B. Including Benefits and Assets Associated with $750 Lump Sum Death Benefit Actuarial Present Value of Projected Benefits Supplemental COLA $228,239,000 $228,239,000 $219,584,000 Death (Burial) Benefit 0 2,864,000 19,345,000 Active Death Equity Benefit ,610,000 Total $228,239,000 $231,103,000 $263,539,000 Actuarial Accrued Liability Supplemental COLA $163,334,000 $163,334,000 $155,028,000 Death (Burial) Benefit 0 2,583,000 (3) 16,847,000 (3) Active Death Equity Benefit ,971,000 Total $163,334,000 $165,917,000 $185,846,000 Actuarial Value of Assets (Exhibit B) 24,174,000 26,018,000 67,020,000 Unfunded Actuarial Accrued Liability 139,160, ,899, ,826,000 GASB No. 25 Funded Ratio 14.8% 15.7% 36.1% After Applying Limit on Liability Year Assets will be Exhausted (4) Unfunded Actuarial Accrued Liability $0 $0 $0 GASB No. 25 Funded Ratio % % % Annual Required Contribution After Applying Limit on Liability Normal Cost $0 $0 $0 Amortization of Unfunded Actuarial Accrued Liability $0 $0 $0 As a Percentage of Pay 0.0% 0.0% 0.0% (1) Reflects potential transfer of assets from non-opeb to OPEB. (2) Before limiting the actuarial present value of projected benefits and the actuarial accrued liability to the actuarial value of assets. With the limit, the actuarial present value of projected benefits and the actuarial accrued liability are equal to each other and the unfunded actuarial accrued liability is $0. (3) Reflects $750 death benefit only for the December 31, 2012 valuation. Reflects $5,000 death benefit for the December 31, 2011 valuation. (4) For the December 31, 2012 valuation, full benefits will be paid through the year shown in the table. For the December 31, 2011 valuation, full benefits will be paid through the year prior to the year shown in the table (full benefits will be paid for part of the year indicated). 9

13 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve A. PROJECTED CASH FLOW AND PRESENT VALUE OF PROJECTED BENEFITS Excludes Benefits and Assets Associated with $750 Lump Sum Death Benefit & Reflects Potential Transfer of Assets from Non-OPEB to OPEB Year Ending December 31 Medical (1) Annual Benefit Cash Flows Dental and Vision Present Value as of December 31, 2012 of Projected Benefits through Year End Non-OPEB (2) OPEB (3) Non-OPEB (2) Total 2013 $ 37,379,737 $ 4,338,388 $ 1,702,412 $ 40,180,506 $ 1,639,666 $ 41,820, ,033,886 3,594,077 1,585,745 78,266,600 3,056,455 81,323, ,994,984 3,892,485 1,457, ,298,428 4,264, ,562, ,015,025 4,207,011 1,371, ,142,156 5,318, ,460, ,279,056 4,552,208 1,321, ,821,782 6,261, ,083, ,665,609 4,912,064 1,295, ,253,684 7,118, ,372, ,781,853 5,296,677 1,288, ,125,740 7,909, ,035, ,974,846 5,701,670 1,312, ,378,292 8,656, ,035, ,239,221 6,119,434 1,346, ,952,393 9,367, ,320, ,397,686 6,565,938 1,609, ,718,620 10,156, ,874, ,962,162 7,039,115 2,450, ,804,277 11,269, ,073, ,388,719 7,520,540 3,840, ,071,168 12,888, ,959, ,674,281 7,996,786 5,403, ,402,160 15,001, ,403, ,010,005 8,485,038 7,154, ,781,077 17,597, ,378, ,294,384 8,972,861 9,098, ,159,006 20,659, ,818, ,462,889 (4) 3,637,175 (4) 11,259,253 (5) 545,428,831 (6) 24,174,055 (6) 569,602,886 (1) Includes Medicare Part B and Implicit Subsidy. (2) Includes Supplemental COLA only. (3) Includes Medical, Medicare Part B, Implicit Subsidy, Dental, and Vision. (4) Full benefits will be paid through the year prior to the year shown in the table. Full benefits will be paid for part of the year indicated. (5) Full benefits will be paid through the year shown in the table. (6) A transfer of $34.1 million from the non-opeb account to the OPEB account is required under this scenario. 10

14 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve B. PROJECTED CASH FLOW AND PRESENT VALUE OF PROJECTED BENEFITS Includes Benefits and Assets Associated with $750 Lump Sum Death Benefit & Reflects Potential Transfer of Assets from Non-OPEB to OPEB Year Ending December 31 Medical (1) Annual Benefit Cash Flows Dental and Vision Present Value as of December 31, 2012 of Projected Benefits through Year End Non-OPEB (2) OPEB (3) Non-OPEB (2) Total 2013 $ 37,379,737 $ 4,338,388 $ 1,860,239 $ 40,180,506 $ 1,791,675 $ 41,972, ,033,886 3,594,077 1,751,388 78,266,600 3,356,459 81,623, ,994,984 3,892,485 1,629, ,298,428 4,706, ,005, ,015,025 4,207,011 1,550, ,142,156 5,898, ,040, ,279,056 4,552,208 1,506, ,821,782 6,973, ,795, ,665,609 4,912,064 1,487, ,253,684 7,957, ,210, ,781,853 5,296,677 1,485, ,125,740 8,869, ,994, ,974,846 5,701,670 1,517, ,378,292 9,732, ,111, ,239,221 6,119,434 1,557, ,952,393 10,555, ,507, ,397,686 6,565,938 1,827, ,718,620 11,450, ,169, ,962,162 7,039,115 2,675, ,804,277 12,666, ,470, ,388,719 7,520,540 4,072, ,071,168 14,382, ,454, ,674,281 7,996,786 5,642, ,402,160 16,589, ,991, ,010,005 8,485,038 7,400, ,781,077 19,274, ,055, ,294,384 8,972,861 9,352, ,159,006 22,421, ,580, ,637,113 (4) 5,001,188 (4) 11,519,841 (5) 549,655,238 (6) 26,018,018 (6) 575,673,256 (1) Includes Medicare Part B and Implicit Subsidy. (2) Includes Supplemental COLA and $750 Death (Burial) Benefit. (3) Includes Medical, Medicare Part B, Implicit Subsidy, Dental, and Vision. (4) Full benefits will be paid through the year prior to the year shown in the table. Full benefits will be paid for part of the year indicated. (5) Full benefits will be paid through the year shown in the table. (6) A transfer of $32.3 million from the non-opeb account to the OPEB account is required under this scenario. 11

15 SECTION 2: Valuation Results for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve ACTUARIAL CERTIFICATION September 24, 2013 This is to certify that The Segal Company has conducted an actuarial valuation of certain benefit obligations of the Alameda County Employees Retirement Association provided by the Supplemental Retirees Benefit Reserve for the year ending December 31, 2012, in accordance with generally accepted actuarial principles and practices. The actuarial calculations presented in this report have been made on a basis consistent with our understanding of GASB Statements No. 25 and 43. The actuarial valuation is based on the plan of benefits verified by the ACERA and on participant, claims and expense data provided by the ACERA. The actuarial computations made are for purposes of fulfilling plan accounting requirements. Determinations for purposes other than meeting financial accounting requirements may be significantly different from the results reported here. Accordingly, additional determinations may be needed for other purposes such as judging benefit security at plan termination. To the best of our knowledge, this report is complete and accurate and in our opinion presents the information necessary to comply with the plan s GASB Statements No. 25 and 43 requirements with respect to the benefit obligations addressed. 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 herein. Andy Yeung, ASA, MAAA, EA, FCA Vice President and Associate Actuary Thomas Bergman, ASA, MAAA, EA Assistant Actuary 12

16 SECTION 3: Valuation Details for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve EXHIBIT A Table of Plan Coverage Members Receiving SRBR Benefits as of December 31, 2012 Category 1 Medical Current Retirees Number 5,247 Average in force monthly medical reimbursements for 2013 (excluding Medicare Part B) $377 Average maximum (based on service at retirement) monthly medical reimbursements for 2013 (excluding Medicare Part B) $457 Monthly Medicare Part B premium for 2013 $105 Category 1 - Supplemental COLA Number 556 Average monthly Supplemental COLA for 2013 (1) $337 Category 2 Dental and Vision Number (2) 7,053 Average monthly medical reimbursements for 2013 $46 Category 2 Death Benefit Number (3) Not Available Average lump sum benefits for 2013 $750 (1) (2) (3) Estimate of Supplemental COLA payable as of December 31, The average benefit does not take into account any adjustments to the members COLA banks as of April Does not reflect the change in 2014 that closes dental and vision to most retirees with less than 10 years of service. Beneficiaries who received the $750 death benefit were not separately identified in the data provided for the pension valuation. 13

17 SECTION 3: Valuation Details for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve EXHIBIT B Determination of GASB No. 25 and 43 Actuarial Value of Assets A. Excluding Benefits and Assets Associated with $750 Lump Sum Death Benefit December 31, 2012 (1) December 31, 2011 B. Including Benefits and Assets Associated with $750 Lump Sum Death Benefit Reserves Supporting SRBR Benefits 401(h) Account $ 6,094,000 $ 6,094,000 $ 5,346,000 Death benefit Burial Reserve 0 6,070,000 6,114,000 Supplemental Retirees Benefit Reserve 563,509,000 (2) 563,509,000 (2) 598,496,000 Total $569,603,000 $575,673,000 $609,956,000 Present Value of Projected OPEB Medical $495,406,000 $499,207,000 $484,935,000 Dental and Vision 50,023,000 50,448,000 58,001,000 Total $545,429,000 $549,655,000 $542,936,000 Present Value of Projected Non-OPEB Supplemental COLA $ 24,174,000 $ 24,174,000 $ 40,303,000 Active Death Equity Benefit ,250,000 Death Benefit Burial Reserve 0 1,844,000 14,467,000 Total $ 24,174,000 $ 26,018,000 $ 67,020,000 Total Present Value of Projected SRBR Benefits $569,603,000 $575,673,000 $609,956,000 Actuarial Asset Allocation GAS 43 Actuarial Assets Allocated to OPEB $545,429,000 (3) $549,655,000 (4) $542,936,000 Reserves Allocated to Non-OPEB 24,174,000 (3) 26,018,000 (4) 67,020,000 Total $569,603,000 $575,673,000 $609,956,000 (1) (2) (3) (4) Reflects potential transfer of assets from non-opeb to OPEB. Adjusted to reflect estimated transfer of $7,370,466 (provided by ACERA) from SRBR to employer advance reserve for reimbursement of implicit retiree health benefit subsidy for calendar year A transfer of $34.1 million from the non-opeb account to the OPEB account is required under this scenario. A transfer of $32.3 million from the non-opeb account to the OPEB account is required under this scenario. 14

18 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve EXHIBIT I Actuarial Assumptions and Actuarial Cost Method Data: Measurement Date: December 31, 2012 Detailed census data and summary plan descriptions for postretirement benefits were provided by ACERA. Discount Rate: 7.80% Amortization Period: A 23-year (declining) amortization period is used in this SRBR valuation as a result of the use of a maximum 30-year amortization period to determine the UAAL rate for the first GASB compliant valuation for the SRBR as of December 31, Post-Retirement Mortality Rates Healthy: Disabled: Employee Contribution Rates: For General members and all beneficiaries: RP-2000 Combined Healthy Mortality Table set back two years for males and one year for females. For Safety members: RP-2000 Combined Healthy Mortality Table set back two years for males and one year for females. For General members: RP-2000 Combined Healthy Mortality Table set forward four years. For Safety members: RP-2000 Combined Healthy Mortality Table set forward two years. For General members: RP-2000 Combined Healthy Mortality Table set back two years for males and one year for females, weighted 30% male and 70% female. For Safety members: RP-2000 Combined Healthy Mortality Table set back two years for males and one year for females, weighted 75% male and 25% female. 15

19 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Termination Rates Before Retirement: Rate (%) Mortality General Safety Age Male Female Male Female All pre-retirement deaths are assumed to be non-service connected. 16

20 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Termination Rates Before Retirement (continued): Rate (%) Disability Age General (1) Safety (2) (1) (2) 70% of General disabilities are assumed to be service connected disabilities. The other 30% are assumed to be nonservice connected disabilities. 100% of Safety disabilities are assumed to be service connected disabilities. 17

21 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Termination Rates Before Retirement (continued): Rate (%) Termination (< 5 Years of Service) (1) Years of Service General Safety Termination (5+ Years of Service) (2) Age General Safety (1) (2) 70% of all terminated members will choose a refund of contributions and 30% will choose a deferred vested benefit. 40% of all terminated members will choose a refund of contributions and 60% will choose a deferred vested benefit. No termination is assumed after a member is eligible for retirement. 18

22 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Retirement Rates: Rate (%) General General General General Safety Safety Safety Safety Age Tier 1 Tier 2 Tier 3 Tier 4 Tier 1 (1) Tier 2, 2D (1) Tier 2C (1) Tier (1) Retirement rate is 100% after a member accrues a benefit of 100% of final average earnings. 19

23 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Retirement Age and Benefit for Deferred Vested Members: For deferred vested members, retirement age assumptions are as follows: General Age: 59 Safety Age: 56 For future deferred vested members who terminate with less than five years of service and who are not vested, we assume that they will retire at age 70 for both General and Safety if they decide to leave their contributions on deposit. We assume that 35% of future General and 55% of future Safety deferred vested members will continue to work for a reciprocal employer. For reciprocals, we assume 4.60% and 4.70% compensation increases per annum for General and Safety, respectively. Future Benefit Accruals: 1.0 year of service per year of employment plus year of additional service to anticipate conversion of unused sick leave for each year of employment. Unknown Data for Members: Same as those exhibited by members with similar known characteristics. If not specified, members are assumed to be male. Inclusion of Deferred Vested Members: All deferred vested members are included in the valuation. Consumer Price Index: Increase of 3.50% per year, retiree COLA increases due to CPI subject to a 3% maximum change per year for General Tier 1, General Tier 3, and Safety Tier 1 and 2% maximum change per year for General Tier 2, General Tier 4, Safety Tier 2, Safety Tier 2C, Safety Tier 2D, and Safety Tier 4. Actuarial Cost Method: Entry Age Normal Cost Method. 20

24 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Salary Increases: Terminal Pay Assumptions: Annual Rate of Compensation Increase (%) Inflation: 3.50%; an additional 0.50% across the board salary increases (other than inflation); plus the following Merit and Promotional increases based on age. Service General Safety Additional pay elements are expected to be received during a member s final average earnings period. The percentages, added to the final year salary, used in this valuation are: Service Retirement General Tier 1 8.0% 6.5% General Tier 2 3.0% 1.4% General Tier 3 8.0% 6.5% General Tier 4 N/A N/A Safety Tier 1 8.5% 6.4% Safety Tier 2 4.0% 2.1% Safety Tier 2C 4.0% 2.1% Safety Tier 2D 4.0% 2.1% Safety Tier 4 N/A N/A Disability Retirement 21

25 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Per Capita Health Costs: The combined monthly per capita dental and vision claims cost for plan year 2013 was assumed to be $ The Medicare Part B premium is $ For calendar year 2013, medical costs for a retiree were assumed to be as follows: Medical Plan Election Assumption Monthly Premium Maximum Monthly Medical Allowance* Under Age 65 Kaiser HMO United Healthcare HMO 80% 20% $ $ $ $ Age 65 and Older Kaiser Senior Advantage Extend Health Individual Insurance Exchange 70% 30% $ ** $ $ * The Maximum Monthly Medical Allowance of $ ($400 for retirees purchasing individual insurance from the Medicare exchange) is subject to the following subsidy schedule: Completed Years of Service Percentage Subsidized % % % ** Individual plans will have individual cost based on age, location and plan design. In addition, any MMA left over can be used to pay medical deductible and medical and prescription co-pays. Until actual data is available, we will assume the costs are equal to the maximum subsidy. 22

26 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Per Capita Health Costs (continued): Implicit Subsidy We have estimated the average per capita premium for retirees under age 65 to be $8,660 per year. Because premiums for retirees under age 65 include active participants for purposes of underwriting, the retirees receive an implicit subsidy from the actives. Had the retirees under age 65 been underwritten as a separate group, their age-based premiums would be higher for most individuals. The excess of the agebased premium over the per capita premium charged makes up the subsidy. Below is a sample of the age-based costs for the retirees under age 65. Average Medical Retiree Spouse Age Male Female Male Female 50 $8,984 $10,233 $6,276 $8, ,670 11,016 8,397 9, ,671 11,874 11,242 11, ,538 12,596 14,191 12,416 Participation and Coverage Election: Based on proportion of current retirees receiving a medical benefit subsidy, we estimate that 85% of employees eligible to retire and receive subsidized postretirement medical coverage will elect to participate in the plan. 23

27 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Health Care Cost Trend Rates: Health care trend measures the anticipated overall rate at which health plan costs are expected to increase in future years. The rates shown below are net and are applied to the net per capita costs shown above. The trend shown for a particular plan year is the rate that is to be applied to the premium for the shown calendar year to calculate the next calendar year s projected premium. For example, the projected 2014 calendar year premium for Kaiser (under age 65) is $ per month ($ increased by %). Calendar Year Non-Medicare Plans Kaiser HMO Early Retiree United Healthcare HMO Early Retiree Medicare Advantage Plan Kaiser Senior Advantage Dental, Vision and Medicare Part B Dental and Vision Medicare Part B (1) 8.5 (1) 8.5 (1) 5.0 (1) & Later (1) The actual trends are shown below, based on actual premium renewal for 2014 as reported by ACERA. Kaiser HMO United Healthcare HMO Early Retiree Early Retiree Kaiser Senior Advantage Dental and Vision % % % % 24

28 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve Assumed Increase in Annual Maximum Benefits: Dependents: Plan Design: Administrative Expenses: Missing Participant Data: For the substantive plan design shown in this report, we have assumed: a) Maximum medical allowance for 2014 will remain at 2013 levels, then increase with 50% of trend for medical plans, or 4.0% graded down to the ultimate rate of 2.5% over 6 years. b) Dental and vision premium reimbursement will increase with full trend. c) Medicare B premium reimbursement will increase with full trend. Demographic data was available for spouses of current retirees. For future retirees, husbands were assumed to be three years older than their wives. Of the future retirees who elect to continue their medical coverage at retirement, 40% males and 20% females were assumed to have an eligible spouse who also opts for health coverage at that time. Please note that these assumptions are only used to determine the cost of the implicit subsidy. Development of plan liabilities was based on the plan of benefits in effect as described in Exhibit III. An administrative expense load was not added to projected incurred claim costs in developing per capita health costs. Any missing census items for a given participant was set to equal to the average value of that item over all other participants of the same membership status for whom the item is known. 25

29 SECTION 4: Supporting Information for the Alameda County Employees Retirement Association - GASB Statements No. 25 and 43 Actuarial Valuation of the Benefits Provided by the Supplemental Retirees Benefit Reserve EXHIBIT II Summary of Benefits This exhibit summarizes the major benefit provisions as included in the valuation. To the best of our knowledge, the summary represents the substantive plan provisions as of the measurement date. It is not intended to be, nor should it be interpreted as, a complete statement of all benefit provisions. Eligibility: Service Retirees Disabled Retirees Monthly Medical Allowance: 1. Monthly Medical Allowance Service Retirees: Retired with at least 10 years of service (including deferred vested members who terminate employment and receive a retirement benefit from ACERA) A minimum of 10 1 years of service is required for non-duty disability. There is no minimum service requirement for duty disability. For retirees, a Maximum Monthly Medical Allowance of $ per month is provided (effective January 1, 2013 and through December 31, 2013). For the period January 1, 2014 through December 31, 2014, the maximum allowance will remain at 2013 levels for retirees who are not purchasing individual insurance through the Medicare exchange. For those purchasing individual insurance through the Medicare exchange the Monthly Medical Allowance will be a maximum allowance of $400 per month for These Allowances are subject to the following subsidy schedule: Completed Years of Service Percentage Subsidized % % % 1 The 10 years of service requirement is only used for determining eligibility for health benefit. For pension benefits, the eligibility requirement is 5 years of service. 26