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HomeMy WebLinkAbout12 - Retiree Medical ProgramCC'' aC1L A GfNI A K CITY OF NEWPORT BEACH 1» CITY COUNCIL STAFF REPORT Agenda Item No. 10 February 12, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Service Depa t Dennis Danner, Director 949/644 -3123 or ddannerc @city.nevSporF- beach.ca.us SUBJECT: Retiree Medical Program ISSUE: Should the City fund the remainder of the liability for the former Retiree Medical Program through the Califomia Employers' Retiree Medical Benefit Trust Fund (CEBRT) offered by CalPERS. RECOMMENDATION: Authorize the Mayor, City Manager and City Clerk to execute the attached documents initiating participation in CEBRT, with the intention of budgeting sufficient funds to fully satisfy the remaining liability over a twenty year period. DISCUSSION: The City's Retiree Medical Program has been converted from a defined benefit plan to a defined contribution plan. This new plan is being phased in over a period of several years. There is virtually no unfunded liability with the new plan. Since no additional participants are being added to the old plan, the unfunded liability connected with that plan is essentially fixed. It will slowly decrease over an extended period. The subject of Other Post Employment Benefits (OPEB) has become a matter of increased scrutiny over recent years; and appropriately so. The Government Accounting Standards Board (GASB) has instituted increased OPEB disclosure requirements in the financial reports of government entities. Many agencies are grappling with significant unfunded liabilities. For local governments collectively, one of the most significant aspects of this overall liability is for retiree medical programs. Newport Beach is fortunate to have been able to sharply limit the growth of this liability by converting its long- standing program to a defined contribution basis. The final step in the conversion process; and in the process of complying with the intent of the GASB reporting requirements, is to provide funding for the remainder of the existing liability. To the extent an entity is able to do so, the convention is to fund such liability over the approximate period of time while the employees participating in the plan are still actively employed by the City. In consultation with the actuary, a 20 year fixed horizon has been agreed upon as the appropriate time frame. The Actuarially Required Contribution (ARC) was therefore calculated to fund the liability over that period. The current proposed action is to establish a Trust Relationship with CalPERS CERBT, and to open an account which will serve as a repository for these funds. This course of action offers two distinct advantages. 1. By so doing, the liability takes on a reduced level of significance in the City's financial structure. If the facilities replacement program moves forward as currently envisioned, we will be relying on external financing (Certificates of Participation) at a level unprecedented in the City's history. The cost of the capital needed to accomplish this program will be significantly impacted by how rating agencies and insurers view our financial strength, to include the discipline with which we address liabilities of this nature. This action sets the right precedent and sends exactly the right message in that regard. 2. Compared to other potential external organizations with which we could enter into a similar contractual arrangement, CalPERS provides the right blend of higher long -term investment returns, security, and flexibility. FUNDING AVAILABILITY There is no up -front administrative cost connected with participating in CEBRT. The annual cost of the program itself will almost certainly be decreased by this action, as opposed to holding the funds locally. Submitted by: Dennis C. Danner t Administrative Services Director City of Newport Beach RA KT E L Retiree Healthcare Plan T777rrs. [:i,r., Actuarial Valuation as of June 30, 2006 For Fiscal Year 2007/08 GASB 45 Information October 2007 Bartel Associates, LLC 411 Bortel Avenue, Suite 445 San Mateo, California 94402 Phone: 650/377 -1600 Fax: 650/345 -8057 Email: jbartel(abartel- associates.com O�W W:ny aNm"� PEBbG.'1606Vi1�UtepwtllBANmpM B bJOU MVa Re dW -1615 rvn B/1 U E L SSOCIATES, LLC ACTUARIAL VALUATION CERTIFICATION This report presents the June 30, 2006 actuarial valuation for the City of Newport Beach Retiree Healthcare Plan ( "Plan's. The purpose of this valuation is to: • determine the Plan Benefit Obligations as of June 30, 2006 pursuant to Governmental Accounting Standards Board Statement No. 45 (GASB 45), • determine the Plan Benefit Obligations as of June 30, 2007 based on an actuarial roll- forward of the June 30, 2006 valuation results, • calculate the Annual Required Contribution for the 2007 /08 fiscal year assuming GASB 45 is adopted for the 2007/08 fiscal year, and • provide estimated financial disclosure information for the fiscal year ending June 30, 2008. This report includes the following sections: • Section 1 presents an executive summary of the GASB 45 valuation results. • Section 2 provides financial accounting information for the fiscal year ending June 30, 2008. • Section 3 provides detailed June 30, 2007 results. • Sections 4, 5, and 6 summarize the census data, Plan provisions, funding methods, and actuarial assumptions that form the basis for the actuarial valuations. • Section 7 includes a summary of GASB 45. This report presents Bartel Associates' best estimate of the City of Newport Beach Retiree Healthcare Plan liabilities and costs in accordance with accepted actuarial principles and our understanding of GASB 45. The undersigned is a member of the American Academy of Actuaries and meets Academy Qualification Standards to render the actuarial results and opinions in this report. Respectfully submitted, Bianca Lin, ASA, MAAA, EA Assistant Vice President Bartel Associates, LLC John E. Bartel, ASA, MAAA, EA President Bartel Associates, LLC October 2007 411 KwO Arenuc, Suite 74S •San .Mates. C:hf..nin 044;)2. main. G ` 1 -, 1600 •fas: 651!!345 8057 Section Page 1 Executive Summary 1 2 Accounting Information 3 3 Actuarial Valuation Results 5 4 Demographic Information 11 5 Plan Provisions 17 6 Actuarial Methods and Assumptions 22 7 GASB OPEB Summary 25 • AAL — ActuarialAccruedLiability • AOC — Annual OPEB Cost • ARC — Annual Required Contribution • EAN — Entry Age Normal Cost Method • GASB 45 — Governmental Accounting Standards Board Statement No. 45 • NOO — Net OPEB Obligation • OPEB — Other (than pensions) Post Employment Benefits • PVB — Present Value of Benefits • UAAL — Unfunded Actuarial Accrued Liability City of Newport Beach t�� June 30, 2006 Valuation l SECTION 1_ ExECunw SUMMARY On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), Accounting Standards for Other (than Pensions) Post Employment Benefits (OPEB). The information presented in this report is based on the financial reporting standards established under GASB 45. GASB 45 is phased in similar to GASB 34. For Phase 1 governments, GASB 45 is effective for fiscal years beginning after December 15, 2006. GASB 45 is therefore first effective for the City of Newport Beach for the fiscal year beginning on July 1, 2007. The City of Newport Beach provides postretirement healthcare benefits to eligible employees who retire directly from the City. Effective December 31, 2003 the City established the Medical Expense Reimbursement Plan ("MERP ). The MERP is an individual account defined contribution plan established to replace the City's old retiree healthcare defined benefit plan ("Old Plan'). The benefit provisions, conversion rules and benefits included in the valuation are summarized in the Section 5. We understand the City will pre-fund the retiree healthcare benefit cash subsidy through Ca1PERS for the fiscal year 2007 /08. The implied subsidy component will not be pre - funded through an irrevocable bust. We further understand the City will make the following contributions for its 2007/08 fiscal year: ■ $6.2 million seed money will be transferred to Ca1PERS OPEB trust in the early part of the fiscal year in order to pre -fund the cash subsidy. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial accrued liability and creating a Net OPEB Asset at July 1, 2007 of the same amount, ■ $2.7 million for the cash subsidy 2007/08 Annual Required Contribution, and ■ Approximately $0.4 million for the 2007/08 implied subsidy cash flow paid through the medical premiums for the active employees. This valuation assumes the implied subsidy will not be pre- funded through an irrevocable trust. Therefore, we prepared the valuation results based on a 7.75% discount rate for the cash subsidy and 5% discount rate for the implied subsidy. The June 30, 2007 benefit obligations and the 2007/08 plan cost are as follows based on an actuarial roll - forward of the June 30, 2006 valuation results (amounts in 000's): June 30, 2007 • Present Value of Benefits (PVB) $69,371 The Present Value of Benefits is a measure of the total City obligation for expected retiree healthcare benefits due to both past and future service for current employees and retirees. • Actuarial Accrued Liability (AAL) $56,048 The Actuarial Accrued Liability is a measure of the City obligation for benefits earned or allocated to past service. City of Newport Beach (I TA) 30, 2006 Valuation 1 ' ITA The $6.2 million reserve was assumed to be transferred to Ca1PERS OPEB Trust in the early 2007 /08. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial liability and creating a Net OPEB Asset at July 1, 2007 of the same amount. The City should consult with its outside auditor whether this practice is acceptable under GASB 45. GASB 45 requires agencies with more than 200 members prepare actuarial valuations at least every two years. If there is a significant change in benefit provisions, participants, or factors that impact long -term assumptions during this period, a new valuation must be performed. City of Newport Beach June 30, 2006 Valuation - 2 " 1 4 SECTION 1 EXECUTIVE SUMMARY June 30, 2007 • Plan Assets $6,200 Plan Assets include funds that have been segregated and restricted in a trust so that they can only be used to pay plan benefits. • Unfunded Actuarial Accrued Liability (UAAL) . $49,848 Unfunded Actuarial Accrued Liability is the excess of the AAL over Plan Assets. This represents the amount of the Actuarial Accrued Liability at the valuation date that must still be funded. 2007 /08 Plan Cost • Normal Cost (NC) The value of employer promised benefits expected to be earned or $1,339 allocated to the current fiscal year. • Annual Required Contribution (ARC) 4,796 The Annual Required Contribution is the sum of the Normal Cost plus an amortization of the Unfunded Actuarial Accrued Liability (or less an amortization of excess assets) determined as of the end of the fiscal year. • Annual OPEB Cost (AOC) 4,801 The Annual OPEB Cost is the expense recognized on the City's income statement for providing post- retirement healthcare benefits. The AOC will equal the ARC, adjusted for prior differences between the ARC and actual contributions. • Net OPEB Obligation /(Asset) (NOO) (6,200) The July 1, 2007 Net OPEB Obligation is the historical difference between the ARC and actual contributions. • Estimated Benefit Payments $2,639 Benefit Payments, or the Pay- As- You-Go -Cost, are the City-paid retiree healthcare benefit payments for the current fiscal year. The $6.2 million reserve was assumed to be transferred to Ca1PERS OPEB Trust in the early 2007 /08. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial liability and creating a Net OPEB Asset at July 1, 2007 of the same amount. The City should consult with its outside auditor whether this practice is acceptable under GASB 45. GASB 45 requires agencies with more than 200 members prepare actuarial valuations at least every two years. If there is a significant change in benefit provisions, participants, or factors that impact long -term assumptions during this period, a new valuation must be performed. City of Newport Beach June 30, 2006 Valuation - 2 " 1 4 SECTION 2 ACCOUNTING INFORMATION GASB 45 is effective for the City for the 2007/08 fiscal year. We have performed a June 30, 2006 actuarial valuation and calculated the fiscal year 2007 /08 ARC. The unfunded actuarial accrued liability at June 30, 2007 was based on an actuarial roll- forward of the June 30, 2006 valuation results assuming no demographic and contribution gains/losses. All the gains/losses will reflect in the City's next valuation. The 2007 /08 ARC, AOC, and the estimated June 30, 2008 NOO are as follows. Annual Required Contribution (ARC) The 2007/08 Annual Required Contribution includes the Normal Cost plus a 20 -year amortization of the Unfunded AAL, both as a level percentage of payroll and determined as of the end of the fiscal year (amounts in 000's): Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a NOO at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2007/08 AOC is determined as follows (amounts in 000's): Cash Implied Subsidy Subsidy 7.75% 5% Total • Normal Cost $311 $1,029 $1,339 • UAAL Amortization 1,837 136.19 3.457 • Total ARC 2,148 2,648 4,796 • ARC as % of Payroll 3.9% 4.89/o 8.8% • Projected: 2007/08 Payroll 54,748 54,748 54,748 Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a NOO at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2007/08 AOC is determined as follows (amounts in 000's): Net OPEB Obligation (NOO) The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the ARC, then the NOO will equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for purposes of GASB 45. The June 30, 2008 NOO is (amounts in $000's): City of Newport Beach f> June 30, 2006 Valuation ' {? Cash Imptced Subsidy Subsidy 7.75% 5% Total • ARC 2,148 2,648 $4,796 • Interest on NOO (481) 0 (481) • Amortization of NOO 486 0 486 • Total AOC 2,153 2,648 4,801 • AOC as % of Payroll 3.9% 4.80/0 8.8% Net OPEB Obligation (NOO) The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the ARC, then the NOO will equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for purposes of GASB 45. The June 30, 2008 NOO is (amounts in $000's): City of Newport Beach f> June 30, 2006 Valuation ' {? SECTION 2 ACCOUNTING INFORMATION The City's actual June 30, 2008 NOO will differ slightly because actual benefit payments and contributions may differ from those assumed. The $6.2 million initial asset was assumed to be transferred to irrevocable trust in early 2007108 2 City's budget for the 2007/08 cash subsidy ARC 3 Estimated 2007/08 benefit Payments for implied subsidy City of Newport Beach f? June 30, 2006 Valuation - 4 - L) 1 Cash Implied Subsidy Subsidy 7.75% 5% Total ■ July 1, 2007 NOOI $ (6,200) $0 $ (6,200) ■ 2007/08 AOC 2,153 2,648 4,801 ■ Contributions/Benefit Payments (1700 427 )3 3( .127) ■ June 30, 2008 NOO (6,747) 2,221 (4,526) The City's actual June 30, 2008 NOO will differ slightly because actual benefit payments and contributions may differ from those assumed. The $6.2 million initial asset was assumed to be transferred to irrevocable trust in early 2007108 2 City's budget for the 2007/08 cash subsidy ARC 3 Estimated 2007/08 benefit Payments for implied subsidy City of Newport Beach f? June 30, 2006 Valuation - 4 - L) 1 SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations The following actuarial definitions are used in this section: • The Present Value of Benefits (PVB) or Present Value of Projected Benefits is a measure of the total City obligation for expected retiree healthcare benefits due to both past and future service for current employees and retirees. • The Actuarial Accrued Liability (AAL) is a measure of the City obligation for benefits earned or allocated to past service. • The Normal Cost is the value of City - provided benefits expected to be earned or allocated to the current fiscal year determined as of the end of the fiscal year. • Plan Assets must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for GASB 45. • The Unfunded Actuarial Accrued Liability (UAAL) is the difference between the AAL and the Plan Assets. • Expected Benefit Payments is the cash flow expected for the current year for City promised retiree healthcare benefits. It includes payments for current retirees and active employees expected toaetire during the year. • The Annual Required Contribution is the employer NC plus the amortized UAAL (or less the amortized excess assets.) For the City's valuation, the UAAL is amortized over 20 years as a level percent of pay. • GASB45 requires that the Implied Subsidy for retirees be included in the AAL and the ARC for plans that are not community rated. An Implied Subsidy exists when the premium for a group of employees is determined by aggregating the experience of the group. For example, assume the premium for actives and non - Medicare eligible retirees is $600 per month. The underlying medical cost varies by age and gender and might actually be $300 per month for a 40 year -old active employee and $900 per month for a 60 year -old retiree. In this case, the younger employee is subsidizing $300 of the older employee's cost. An Implied Subsidy is valued for the City's health plans but not the PEMHCA plans as the PEMHCA plans are considered a community rated for the City. City of Newport Beach June 30, 2006 Valuation -5- BA SECTION 3 ACTUARIAL VALUATION RESULTS This report develops the AAL and Normal Cost using the Entry Age Normal actuarial cost method. This method is designed to produce a Normal Cost which, if all assumptions are met, will be a level percent of payroll. The following charts illustrate the components of the PVB, with the shaded area representing the unfunded AAL: Prtaeot Value of Rojected Be nerds (w1houl 1'ka Assets) eaear C.t Present Value of Projected Benefits (With Plan Asse6) Normal Cos, City of Newport Beach June 30, 2006 Valuation -6- SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations - June 30, 2007 (amounts in 000's) • Present Value of Benefits • Actives • Retirees • Total • AAL • Actives • Retirees • Total • Plan Assets • UAAL • Normal Cost • Employee Cost • Employer Cost • Total $8,967 $5,956 $14,923 8,052 9831 17,883 17,019 15,787 32,806 6,846 4,910 11,756 8,052 9,831 17,883 14,898 14,741 29,639 3,116 1084 6200 11,782 11,657 23,439 191 89 280 175 135 311 366 224 591 • Present Value of Benefits • Actives • Retirees • Total • AAL • Actives • Retirees • Total • Plan Assets • UAAL • Normal Cost • Employee Cost • Employer Cost • Total • Pay as you go $14,414 $10,370 $24,784 6.481 5.299 11,780 20,896 15,669 36,565 8,577 6,052 14,629 6,481 5299 1 1,780 15,059 11,351 26,409 0 0 0 15,059 11,351 26,409 0 0 0 610 419 1 029 610 419 1,029 289 137 427 City of Newport Beach June 30, 2006 Valuation - 7 - l SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations — June 30, 2007 (amounts in 000's) ■ Present Value of Benefits We have used a discount rate of 7.75% to value the cash subsidy and 5% to value the implied subsidy since it is the City's intent to pre -fund the cash subsidy and not pre-fund the implied subsidy. All the plan assets were allocated to the cash subsidy and none to the implied subsidy. Plan asset were allocated between the Safety and Miscellaneous based its actuarial accrued liability for cash subsidy. City of Newport Beach r)� June 30, 2006 Valuation - 8 - [> • Actives $23,381 $16,326 $39,707 • Retirees 14,533 15.130 29.663 • Total 37,914 31,456 69,370 • AAL • Actives 15,423 10,962 26,385 • Retirees 14,533 15,130 29,663 • Total 29,956 26,092 56,048 • Plan Assets 3,116 3,084 6,200 • UAAL 26,841 23,008 49,849 • Normal Cost • Employee Cost 191 89 280 • Employer Cost 785 554 1_,339 • Total 976 643 1,619 • Pay as you go 1,366 1,272 2,639 We have used a discount rate of 7.75% to value the cash subsidy and 5% to value the implied subsidy since it is the City's intent to pre -fund the cash subsidy and not pre-fund the implied subsidy. All the plan assets were allocated to the cash subsidy and none to the implied subsidy. Plan asset were allocated between the Safety and Miscellaneous based its actuarial accrued liability for cash subsidy. City of Newport Beach r)� June 30, 2006 Valuation - 8 - [> SECTION 3 ACTUARIAL VALUATION RESULTS Annual Required Contribution (ARC) -2007M • ARC -$ • Normal cost $175 $135 $311 • UAAL Amortization 924 914 1,837 • Total ARC 1,099 1,049 2,148 • ARC -% • Normal cost 0.5% 0.6% 0.6% • UAAL Amortization 2.8% 4.1% 3.4% • Total ARC 3.4% 4.8% 3.9% ■ ARC -$ The UAAL amortization is based on 20 -year level percentage of payroll. City of Newport Beach p June 30, 2006 Valuation - 9 - R={ • Normal cost $610 $419 $1,029 • UAAL Amortization 923 696 1,619 • Total ARC 1,533 1,115 2,648 • ARC -% • Normal cost 1.90/0 1.90/0 1.9% • UAAL Amortization 2.8% 3.2% 3.0% • Total ARC 4.7% 5.1% 4.8% j; -ey'} N 7't: ire'µ �"'" .?`���� �,a �y `Y�'y� �• �Y�.' ;�-�' _ -3 .. ,'F. • ARC - $ • Normal cost $785 $554 $1,339 • UAAL Amortization 1.847 13610 3.457 • Total ARC 2,632 2,164 4,796 • Total Payroll 32,677 22,071 54,748 • ARC -% • Normal cost 2.4% 2.5% 2.4% • UAAL Amortization 5.7% 7.3% 6.3% • Total ARC 8.1% 9.8% 8.8% The UAAL amortization is based on 20 -year level percentage of payroll. City of Newport Beach p June 30, 2006 Valuation - 9 - R={ SECTION 3 ACTUARIAL VALUATION RESULTS Cash Flow Proiection (amounts in 000's) The following table shows the projected "pay -as- you -go" benefit payments for the next 10 years as estimated from the June 30, 2006 actuarial valuation. The projection assumes the number of City employees remains constant. City of Newport Beach June 30, 2006 Valuation -10- 4 Cash Implied Year Subsidy Subsidy Total 2007/08 $2,212 $427 $2,639 2008109 2,286 517 2,803 2009/10 2,398 607 3,005 2010/11 2,471 716 3,187 2011/12 2,549 803 3,352 2012/13 2,638 923 3,561 2013/14 2,695 1,030 3,725 2014/15 2,746 1,162 3,908 2015/16 2,793 1257 4,050 2016/17 2,835 1,367 4,202 ` City of Newport Beach June 30, 2006 Valuation -10- 4 SECTION 4 DEMOGRAPHIC INFORMATION Participant Statistics 6/30/06 Participants by Benefit Types Actives • Count 498 262 760 • Average Age 43.7 40.1 42.4 • Average Service 11.0 12.8 11.6 • Average Pay $63,551 $81,590 $69,769 • Total Payroll (000's) $31,648 $21,377 $53,025 ■ Retirees 39 Waived 0 • Count 178 178 356 • Average Age 68.4 60.7 64.5 • Average Retirement Age 58.1 1 51.0 54.5 Participants by Benefit Types Actives Retirees R 'iY ss p {{ J2'F S A C'..: 3 PEMECA 0 115 115 139 139 City Plan 0 108 179 0 35 39 Waived 0 55 127 0 18 178 Total 251 498 128_N Retirees 10 miscellaneous retirees also have MERP account balances. ' 23 safety retirees also have MERP account balances. City of Newport Beach June 30, 2006 Valuation I I P Tof6i PEMHCA 0 115 115 0 139 139 City Plan 0 63 63 0 39 39 Total 0 178 178 0 178 178 10 miscellaneous retirees also have MERP account balances. ' 23 safety retirees also have MERP account balances. City of Newport Beach June 30, 2006 Valuation I I P SECTION 4 DEMOGRAPHIC INFORMATION Actives Converted to MERP Under 25 1 100% 100% 1 100% 25-29 100% 1000/0 100% 1000/0 3034 100% 1000/0 97% 1000/0 - 99% 35-39 100% 100% 86% 78% 53% - 85% 40-44 1000/0 95% 53% 29% 26% 13% - 45% 4549 1000/0 77% 22% 11% 100/0 4% 5% - 190/0 50-54 100% 29% 0% 00/0 0% 00/0 00/0 00/0 4% 55 59 - 0% 00/0 0% 0% 00/0 0% 0% 00/0 60-64 00/0 0% 0% 0% 00/0 00/0 00/0 0% 00/0 65 & Over - 1000/0 - - 0% - - 00/0 33% Total 98% 92% 61% 32% 19% 3% 2% 0% 50% City of Newport Beach t? June 30, 2006 Valuation -12- L) SECTION 4 DEMOGRAPHIC INFORMATION Active Employee Coverage 6/30/06 Retiree Coverage — Under 65 6/30/06 �L�ikra°�'Q,�s lsa a� f�i if c.^j•u ' T 'z' �"G�7 �IiSip L �S3`y it Blue Weld HA40 ' 25 17 47 89 Kaiser HA40 41 6 17 6' PERS Choice PPO T 41 18 21 iT PERSCare 1 3 4 1 8 'PORAC PEMHCA 19 26 9 54 Subtotal PEMHCA 7 2 0 9 Blue Cross IMO PEMHCA 13 23 I 48 Blue Cross 46 68 25 139 SubtoW City 9 9 7 25 Blue Cross POS City 6 4 4 14 Blue Cross PPO OOS City 3 4 1 8 Retiree Coverage — Under 65 6/30/06 6 Medicare Risk, Burnham POS, "Thomson POS City of Newport Beach [)� June 30, 2006 Valuation -13- L) 13 3 Blue Shield HMO PEMHCA 4 20 Kaiser HMO PEMHCA 3 4 1 8 PERS Choice PPO PEMHCA 19 26 9 54 PERSCare PPO PEMHCA 7 2 0 9 PORAC PEMHCA 13 23 12 48 PEMHCA Subtotal 46 68 25 139 Blue Cross HMO City 9 9 7 25 Blue Cross POS City 6 4 4 14 Blue Cross PPO OOS City 3 4 1 8 City Subtotal 1 18 1 17 1 12 47 Other6 0 0 2 2 Total 64 85 39 188 6 Medicare Risk, Burnham POS, "Thomson POS City of Newport Beach [)� June 30, 2006 Valuation -13- L) SECTION 4 DEMOGRAPHIC INFORMATION Retiree Coverage — Over Age 65 6/30/06 s Blue Shield HMO PEMHCA 11 12 0 23 Kaiser HMO PEMHCA 2 5 0 7 PERS Choice PPO PEMHCA 18 19 0 37 PERSCare PPO PEMHCA 26 15 0 41 PORAC PEMHCA 2 5 0 7 PEMHCA Subtotal 59 56 0 115 Blue Cross HMO Medicare City 9 12 3 24 Bluff Cross HMO No Medicare City 1 0 0 1 Blue Cross POS Medicare City 17 3 0 20 Blue Cross PPO OOS Medicare City 0 1 0 1 Blue Cross PPO OOS No Medicare City 1 0 0 1 Blue Cross IND OOS Medicare City 2 1 0 3 Chy Subtotal 30 17 3 50 Other' 1 2 0 3 Total 90 75 3 168 l Medicare Risk, Burnham POS, Thomson POS City of Newport Beach June 30, 2006 Valuation -14- `t SECTION 4 DEMOGRAPHIC INFORMATION Age/Service/Pay Distribution Active Employees - Safety '96iV0i� Uuder25 Count 1 5 - - Under 1 -' - - 6 ISII - Averse Pay 54 55,598 Under25 Cmnrt Average Pay 36,136 55 }93 2529 Count 5 38 6 - Count 32 - 49 - Average L&L 62JU 60,510 73,196 Average Pa 49,628 49,201 62,303 Count 1 17 IS 2 Count 24 - 38 3034 Avers Pa 1 76,216 85 462 Avenge Pay 53,426 - 839 35-39 Count 3 8 16 8 8 dio 26 43 7 Avers Pe 030 83,304 85,326 91296 58,597 59,115 VIM 1 64.629 Count 3 11 7 12 2 16 19 35 40 <4 Average Pa 64,159 77 ,364 85,655 94,348 119 50,801 70,980 86,122 4549 Count - - 2 3 9 16 13 16 40 20 Average Pa 10 - 81 ,380 93,288 86,938 97 729 98311 68,777 94 50-64 Count - - - 3 3 8 21 4 39 • Average Pay 7 6 63 124,982 99,398 92,125 100424 89.310 98,622 55-59 Count - - - - I - 5 4 10 9 Avers Pa 8 8 59 86,658 61,012 73 8& 187 67.981 Count 64.= - - - - 3 I 1 7 Average Pa 3 1 22 Avers Ps 108,879 91052 9 Q52 65 & Over E Count - - - 65& er - - I I 1 Average Pa - - 2 Average Pay 42,276 77 58 77,558 39884 Count to 71 53 23 33 33 129 10 262 Total Average Pay 65,021 63496 78,446 91,649 90,903 90" 55A10 85636 81.590 Active Employees - Miscellaneous 6130/06 City of Newport Beach t? June 30, 2006 Valuation I S t Under 1 -' - 1-4 -b t9 Ti - -- ISII - 'll 23 25-29 ;1 30 l O_�er Under25 Cmnrt Average Pay 36,136 - _ - 36,788 25-29 Count 32 6 - - 49 Average Pa 49,628 49,201 4V12 30.34 Count 24 13 3 - 48 Avenge Pay 53,426 56,254 86,989 55,929 35-39 Count 22 26 10 7 - W- Average Pa 58,597 59,115 64,301 1 64.629 59,441 4044 Count 16 19 13 26 6 - 83 Average Pay 50,801 70,980 69,820 62,903 64,554 - 63,824 4549 Count 13 16 16 20 11 10 - 89 Average Pay 61,270 68,777 62,W 70,011 60,679 57,387 65,337 Count 7 11 7 10 13 7 6 63 Average Pay 69,791 7032 87,364 67,046 462 72,106 83,867 73,379 55-59 Count 5 12 10 9 7 8 8 59 Average Pa 61,012 73 70.590 67.981 72,975 64.= 93,587 53 60.64 Count 3 3 3 7 1 3 1 22 Avers Ps 108,879 124,687 60,875 71.5 46,618 7&875 107,484 86,615 65& er Count 1 - 1 - - 2 Average Pay 42,276 39884 41,080 .I.� ET:�w Count 129 106 62 8o 38 28 15 498 Averse Pay 55A10 66,509 69,735 66,387 67,217 65,513 K626 63,551 City of Newport Beach t? June 30, 2006 Valuation I S t SECTION 4 DEMOGRAPHIC INFORMATION Age/Service/Pay Distribution All Active Employees 6/30/06 City of Newport Beach ?� June 30, 2006 Valuation 16 - G Under 25 Count 10 11 21 Average Pay 38,938 44.992 42,104 25-29 Count 16 70 12 - - - 98 Ave Pay 49,894 55,536 61,193 55 ,307 30.34 Count 9 41 31 5 - 86 Average Pay 51,896 59,618 67,945 87,578 - - - 63,401 3539 Count 6 30 42 18 15 Ill Avery e Pay 56,541 62,171 68,330 73,645 78,851 - 68,312 4044 Count 3 19 30 20 38 8 118 Avenge 6k501 52,910 73.321 75,362 72,833 78,293 - - 70438 45-09 Count 3 13 18 19 29 27 20 129 Average Pay 619TO 70,177 67,670 75,264 82,635 77,849 74X7 50.54 , Count 2 7 11 10 13 21 28 10 102 Average La 58,500 69,791 71,332 98,649 72,202 79952 93,370 96,044 83,030 5559 Count - 5 12 10 10 7 13 12 69 Av Pa 61,012 73,229 70,590 69,849 72,975 75,624 89,934 74,802 60-64 Count 1 3 3 3 7 1 3 2 23 Avery e. Pav 130,780 108,879 124,687 60,875 71,530 46,618 78,875 99;20 86,808 65 & Over Count - 1 - 1 1 3 Averse Pa 42,276 - 39,884 77,558 53,239 Total Count 50 200 159 85 113 64 64 25 760 Average Pay 54,359 58,281 70,488 75,665 73,547 79,593 84 98,630 69,769 City of Newport Beach ?� June 30, 2006 Valuation 16 - SECTION 5 PLAN PROVISIONS The following table summaries medical benefits: ■ Plan Type • Defined contribution plan • Defined benefit plan • Individual accounts • E8setive 12/31/05 ■ Old Plan • N/A • CalPERS Service and disability Eligibility retirement from the City • Benefit • Reimbursement from Employee • Miscellaneous Account for retirees and dependents: > $400 per month > Medical • PEA & PMA Ret < 1 /l /06 > Dental > $450 per month > Vision • PEA & PMA Ret> 1/1/06 > Long -term care > $400 per month > Miscellaneous medical expenses • Retiree & surviving spouse > PEMHCA minimum • Not less than PEMHCA min if part. in PEMHCA ($64.60 in 2006) • Individual MERP account • Pre Retirement • Part A - Mandatory contribution of • $100 per month while active Employee 1% of pay • PEA & PMA + $25 for current Contributions 9 Immediate upon enrollment retirees • Pre Retirement • Part B - City contributes $1.50 per • N/A City month for each year of age + service Contributions • Employee 100% vested in City contributions at 5 years of service • Leave • Part C — Mandatory transfer of a portion of accumulated leave at Conversion termination • Amount of sick and vacation/flex leave conversion varies by Association • Converted to Employee Account value using cash conversion rates • Not payable in cash • Conversion from • New employees only participate in MERP Old Plan to • Certain employees must convert: ME" > Sworn Safety: age + service < 45 > Miscellaneous: age + service < 49 • Others allowed to convert • Conversion For Employees electing to move from Old Plan to MERP: Contribution • $100 x months contributed to prior plan, max 180 months ($18,000) • Credited to MERP account at retirement City of Newport Beach �, June 30, 2006 Valuation -17- i A / ■ Post Retirement Contributions SECTION 5 PLAN PROVISIONS For Employees electing to remain in Old Plan: • $75 x months contributed to prior plan, max 180 months ($13,500) • Credited to MERP account at retirement • No firture Part B contributions • City - PEMHCA minimum only when account value exhausted • Miscellaneous $400 per month Retiree & surviving spouse • PEA & PMA Ret < 1/1/06 ➢ 5450 per month Retiree & surviving spouse • PEA & PMA Ret> 1 /l /06 D $400 per month ➢ Retiree & surviving spouse • Contribution goes to individual ■ Forfeitures • Unused Part B account forfeited upon death of retiree and dependents • Used to offset PEMHCA minimum City of Newport Beach June 30, 2006 Valuation SECTION 5 PLAN PROVISIONS City of Newport Beach f �� June 30, 2006 Valuation -19- SECTION 5 PLAN PROVISIONS 2006 Medical Premiums — Under Age 65 Southern California 2007 Medical Premiums — Under Age 65 Southern Califernia Blue Shield HMO PEMiICA $407.02 $814.04 $1,05825 Kaiser HMO PEMHCA 360.60 721.20 937.56 PERS Choice PPO PEM RCA 432.64 865.28 1,124.86 PERSCare PPO PEMHCA 731.40 1,462.80 1,901.64 PORAC PEMHCA 439.00 822.00 1,045.00 Blue Cross HMO City 394.01 772.05 985.10 Blue Cross POS City 499.45 1,02021 1,220.46 City of Newport Beach June 30, 2006 Valuation -20- B SECTION 5 PLAN PROVISIONS 2006 Medical Premiums - Over Age 65 Blue Shield HMO PEMHCA Yes $ 286.49 $ 572.98 $ 859.47 Kaiser HMO PEMHCA Yes 218.59 437.18 655.77 PERS Choice PPO PEMHCA Yes 322.03 644.06 966.09 PERSCare PPO PEMHCA Yes 34720 694.40 1,041.60 PORAC PEMHCA Yes 351.00 701.00 1,049.00 Blue Cross HMO City Yes No 351.80 97526 689.32 1,989.18 879.56 N/A Blue Cross POS City Yes No 445.94 1,365.43 910.90 2,730.66 N/A N/A Blue Cross IND OOS City Yes 436.48 891.58 1,066.62 Blue Cross PPO OOS City No 436.48 891.58 1,066.62 2007 Medical Premiums - Over Age 65 Blue Shield HMO PEMHCA Yes a $318.95 $637.90 $956.85 Kaiser HMO PEMHCA Yes 289.68 57936 869.04 PERS Choice PPO PEMHCA Yes 341.75 683.50 1,02525 PERSCare PPO PEMHCA Yes 371.68 743.36 1,115.04 PORAC PEMHCA Yes 351.00 701.00 1,049.00 Blue Cross HMO City Yes No 394.00 1,09426 772.01 2,231.88 985.06 2,231.88 Blue Cross POS City Yes No 499.44 1,52923 1,020.18 3,058.25 1,020.18 3,05825 Blue Cross IND OOS City Yes 488.85 998.55 1,194.60 Blue Cross PPO OOS City No 488.85 998.55 1,194.60 City of Newport Beach 21 �� June 30, 2006 Valuation SECTION 6 Actuarial Methods and Assumptions Actuarial Methods The actuarial cost method used for this valuation is the Entry Age Normal (EAN) cost method- Under the EAN cost method, the Normal Cost for each participant is determined as a level percent of payroll throughout the participant's working lifetime. The Actuarial Accrued Liability (AAL) is the cumulative value, on the valuation date, of prior Normal Costs. For retirees, the AAL is the present value of all projected benefits. The unfunded AAL is amortized over 20 years as a level percent of payroll The Plan is assumed to be ongoing for cost purposes. This does not imply that an obligation to continue the Plan exists. Actuarial Assumptions • Valuation Date • June 30, 2006 • Roll forward valuation from June 30, 2006 to June 30, 2007 to determine the 2007/08 plan cost. • Discount-Rate • 7.75% for cash subsidy, full pre - funding through CalPERS.OPEB Trust • 5% for im tied subsidy, no pre-fimding, benefits paid from the City's General fund. • Inflation Rate • 3.0% per annum. • Same as CaIPERS assumption. • Aggregate Payroll Increases • 3.25% per annum. • Same as CaIPERS assumption. • Salary Merit Increases • CalPERS' 1997 -2002 Experience Study • Demographic Assumptions (Mortality, Withdrawal, Disability) • CalPERS' 1997 -2002 Experience Study. • Retirement • CalPERS' 1997 -2002 Experience Study • Miscellaneous: 2° /6@55 • Police Safety: 3 %@50 • Fire Safety: 3% @50 (Currently 3° /u(a),55, will change to 3 %@,,50 by 12/31/07) City of Newport Beach /n 1 June 30, 2006 Valuation -22- (j �� SECTION 6 ACTUARIAL METHODS AND ASSUMPTIONS • Healthcare Cost Inereases Non- Medicare Medicare Eligible FY HMO PPO HMO PPO 2007 Actual 2007 premiums 2008 10.40% 11.30% 10.80% 11.70% 2009 9.70% 10.60% 10.10% 10.90% 1 1 1 1 1 2017+ 4.50% 4.50% 4.50% 4.50% • Old Plan Cap Increase • 0% • Participation atRetimment • Current covered —100% • Not current Covered — 95% • MedicalTian at Retirement Same. proportion as current retirees — 30% elect City Plans ■ Marital:Statas • Married if EE +l or family coverage Same proportion 60% for actives waiving coverage ■ Spouse Age Actives: Males 3 years older than females. Retirees: actual age ■ Medicare Eligible • Hired <4 /1/8690% • Hired >4 /1/86100% • Everyone eligible for Medicare will elect Part B cov ■ Future New Participants • Closed Group — no future new participants assumed. City of Newport Beach j> June 30, 2006 Valuation " 23 " `? SECTION 6 ACTUARIAL METHODS AND ASSUMPTIONS ■ Age Based Claim Cost for City's Healtheare Plans Because early retirees and Medicare eligible retirees are paying the same premium rates as actives, an implied subsidy (the difference between expected claims and premiums paid for retirees) is valued for lifetime. The following age -based monthly claim costs are used to calculate the implied subsidy for the City's healthcare plans: (Based on 2007 premium rates) HMO POS Age Male Female Male Female 30 $155.73 $286.78 $162.24 $296.70 35 193.26 310.46 202.16 323.64 40 235.36 343.01 247.04 359.49 45 293.04 380.27 308.63 399.58 50 379.01 443.51 400.46 466.73 55 527.60 520.05 559.91 548.18 60 719.80 636.43 765.77 671.30 Non Medicare Eligible 65 807.26 952.87 862.81 1,002.08 70 1,055.89 1,091.28 1,127.25 1,150.95 Medicare Eligible 65 458.99 497.93 491.51 521.39 70 655.84 607.92 701.14 639.70 City of Newport Beach 24 June 30, 2006 Valuation SECTION 7 GASB OPEB SUMMARY On lure 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), accounting standards for other (than pensions) postemploy rent benefits (OPEB). Accounting for these benefits — primarily postretirement medical — can have significant impact on state and local government financial statements. This section summarizes GASB 45. Background Historically, most public sector entities have accounted for OPEB using a "pay -as- you -go" approach; very few have prefunded or even accrued for these benefits. This means OPEB costs are ignored while an employee renders service and recognized only after an employee retires. GASB argues this delayed recognition shifts "costs" from one taxpaying generation to another. The GASB position is that OPEB, like pension benefits, are a form of deferred compensation. Accordingly, GASB 45 requires recognizing OPEB (in the financial statement) as employees render service (and consequently earn the benefit), rather than when paid. Effective Dates GASB 45 effective dates are phased in similar to GASB Statement No. 34: • Fiscal years beginning after December 15, 2006 for GASB 34 phase l governments (total annual revenue of $ 100 million or more) • Fiscal years beginning after December 15, 2007 for GASB 34 phase 2 governments (total annual revenue of $10 million to $100 million) • Fiscal years beginning after December 15, 2008 for GASB 34 phase 3 governments (total annual revenue less than $10 million). What Benefits are OPEB? OPEB includes most postemployment benefits, other than pensions, that employees are entitled to after leaving employment: • Retiree medical • Dental • Prescription drug • Vision • Life insurance • Outside group legal • Long -term care • Disability benefits outside a pension plan OPEB does not include vacation, sick leave, COBRA, or ad hoc early retirement incentives, which fall under other GASB accounting statements. City of Newport Beach June 30, 2006 Valuation -25- t SECTION 7 GASB OPEB SUMMARY Accounting Standards Under GASB 45, pay -as- you -go accounting is replaced with accrual accounting. This is virtually identical to GASB's approach under Statement No. 27, with the key financial statement components being an Annual Required Contribution, an Annual OPEB Cost, and a Net OPEB Obligation. • Annual Required Contribution (ARC): GASB 45 doesn't require an agency to make up any shortfall (unfunded Acriiarial Liability) immediately, nor does it allow an immediate credit for any excess Plan Assets. Instead, the difference is amortized over time. An agency's ARC is nothing more than the employer current Normal Cost (value of benefits being "earned" during a year), plus the amortized unfunded Actuarial' Liability (or less the amortized excess Plan Assets). Simply put, ARC is the value of benefits earned during the year plus (or minus) something to move the plan toward being on track for funding. GASB 45 allows actuaries to amortize the unfunded Actuarial Liability (or excess Plan Assets) on a level dollar or level percent of payroll basis. We believe most agencies will want to use a level percent of payroll amortization because it's more consistent with the budget process and how pension contributions are usually calculated. ARC must be based on the underlying OPEB promise (as understood by the plan sponsor and employees). • Annual OPEB Cost (AOC): The first year an agency complies with the new standards, the AOC equals the ARC. In subsequent years, the AOC will equal the ARC, adjusted for prior differences between the ARC and AOC. ■ Net OPEB Obligation (NOO): An agency's NOO is the historical difference between actual contributions made and the ARC. If an agency has always contributed the ARC, the NOO equals zero. However, an agency has not "made" the contribution unless it has been set aside and cannot legally be used for any other purpose. Implementation Process The implementation process will be relatively straightforward: An agency will hire an actuary to calculate the ARC. The first time an agency does this, their AOC equals their ARC. The agency then decides whether to contribute all, none, or part of the ARC into a Trust that cannot legally be used for any purpose other than paying OPEB. If an agency always contributes the ARC, then each subsequent year's AOC equals their ARC — and the NOO is zero. The first year an agency does not contribute the ARC, they must establish an NOO equal to the difference between their actual l contribution and the ARC. The subsequent year's AOC equals the ARC, adjusted for interest and amortization of the NOO. Disclosure Requirements This may be the most important aspect of GASB 45. When disclosed, some agencies will show large OPEB unfunded liabilities, while others will show small or no unfunded liabilities. These differences may require an adjustment in an agency's bond rating. Plan sponsors must disclose in their financial statement footnotes: City of Newport Beach June 30, 2006 Valuation -26- 1. SECTION 7 GASB OPEB SummARY • Basic plan information Plan type ➢ Benefits provided ➢ Authority under which benefits were established • Plan funding/contribution policy information: ➢ Required contribution rates for active members and employers shown in dollars or as a percent of payroll • Plan Funded Status information: ➢ AOC and the dollar contributions actually made If the employer has a NOO, also • Components of the AOC • NOO increase or decrease during the year • End of year NOO ➢ 3 -year history of • AOC • Percent of AOC contributed during the year • End of year NOO • Most recent year's plan Funded Status • Actuarial methods and assumptions used to determine the ARC, AOC, and Funded Status. In addition, plan sponsors must provide 3 years of historical required supplementary information: • Valuation dates • Actuarial asset values • Actuarial Liability • Unfunded Actuarial Liability (excess Plan Assets) • Plan funded ratio • Annual covered payroll • Ratio of unfunded Actuarial Liability (excess Plan Assets) to annual covered payroll • Factors that significantly affect comparing the above information across the years. City of Newport Beach June 30, 2006 Valuation -27- SECTION 7 GASB OPEB SUMMARY Defining the Plan GASB 45 refers to the substantive plan as the basis for accounting. It may differ from the written plan in that it reflects the employer's cost sharing policy based on: • Past practice or communication of intended changes to a plan's cost sharing provisions, or • Past practice of cost increases in monetary benefits. The substantive plan is the basis for allowing recognition of potential future plan changes. This approach requires entities to acknowledge the underlying promise, not just the written plat[. What if retirees participate in the active healthcare plan, but are charged a Tate based on composite active and retiree experience? (This was a contentious issue during the statement drafting, with one of the seven board members dissenting from Board adoption of the final statement.) In general, GASB 45, requires recognition of the implied subsidy. However, if benefits are provided through a community rated plan (premium rates based on experience of multiple employers rather than a single employer), and the same premium is charged for active and retired participants, it is appropriate to value unadjusted premiums. Actuat ial Assumptions and Discount Rate Requirements Under GASB 45, the actuary must follow current actuarial standards of practice, which generally call for explicit assumptions — meaning each individual assumption represents the actuary's best estimate. GASB 45 also requires basing the discount rate on the source of funds used to pay the benefits. This means the underlying expected long -term rate of return on Plan Assets for funded plans. Since the source of funds for unfunded plans is usually an agency's general fund, and California and most other state law restricts what investments agencies can have in their general fund, unfunded plans will need to use a low (for example, 4% to 5 %) discount rate. If an agency sets up a Trust and diversifies Trust Plan Assets, however, the discount rate might be much higher (such as 7 %) depending on the Trust fund's expected long -term investment return. Transition Issues Typically, new accounting standards allow transition from old to new requirements. Because historical ARC calculations will rarely be available, GASB 45 takes a prospective transition approach: there is no requirement for an initial transition obligation. But if ADCs, before transition, were calculated consistently with the standard, a NOO at transition can be established at an agency's discretion. Valuation Frequency Requirements and Small Plans GASB 45 requires an actuarial valuation at least every two years for plans with more than 200 (active, inactive, and retired) members. Plans with fewer than 200 members will need a valuation every 3 years. In a significant departure from prior standards, though, GASB 45 allows plans with fewer than 100 members to elect a simplified measurement method not requiring an actuarial certification. City of Newport Beach [) June 30, 2006 Valuation -28- 1 4 SUMMARY OF ACTUARIAL INFORMATION REQUIRED FOR CALIPERS FINANCIAL STATEMENTS As part of your agreement to use CaIPERS to pre -fund OPEB, the following information must be provided to CaIPERS each time an OPEB actuarial valuation report is delivered to CaIPERS. For actuarial valuations performed once every two or three years, employers must in addition to first year information, provide additional information for the other years. This information is extremely important to CalPERS since it will be used to satisfy the requirements of GASB Statement No- 43. If you have questions, please call (888) CalPERS (225- 7377). Contact Information for Employer ER Name: City of Newport Beach Contact Name: Dan Matusiewicz Phone Number: (949) 644 -3126 Column (c) applies to employers who file actuarial valuations every year. Columns (c) and (d) apply to those who file actuarial valuations every two years. Columns (c), (d) and (e) apply to those who file actuarial valuations every three years. Contact Information for Actuarial Firm Name of actuarial Firm: Bartel Associates. LLC Actuary/Contact Name: John Bartel / Bianca Lin Phone Number: 650 - 377 -1601 / 650 - 377 -1604 Item No Item Description First Year Second Year Third Year Comments (a) (b) (c) (d) (e) (0 1 Actuarial Valuation Date 0 613012 00 6 2 Frequency of Actuarial valuations biennial 3 Fiscal Year for ARC 2007108 Roll - forward valuation from 6.'30/06' 4 Actuarial Value of Assets S 6.200,000 5 Market Value of Assets S 6,200.000 6.0 Actuarial Accrued Liability for Active Members $ 26,385,000 as of 6/30107 6.1 Actuarial Accrued Liability for Separated /Inactive Members n/a 6.2 Actuarial Accrued Liability for Recipients $ 29.663,000 as of 6130/07. 6.3 Total Accrued Liability S 56 n48,000 as of 6130/07 7 Annual Covered Payroll S 54,748,000 Projected 2007108 total payroll S Present Value of Future Benefits $ 69.371.000 as of 6130107 Amortization Method (whether its based on closed or open Open Group. Level percentage of Amortization is based on level 9 approach) pay with fixed percentage of pay assuming aggregate payroll growth at amortization period 3.25 °,b per year. - 10.0 Average Remaining Amortization Period 20 11.0 Annual Required Contribution (ARC) in dollars S 4,796,000 end of fiscal year 11.1 Annual Required Contribution (ARC) as a percentage of payroll 8 8% 12.0 Normal Cost in dollars 5 1,339,000 - end of fiscal year 12.1 Normal Cost as a perceritage of payroll 2.5% 13.0 UAL Amortization in dollars S 3,457,000 - end of fiscal year 13.1 UAL Amortization as a percentage of payro ll 6.3% 7.75% for Cash 14 Discount Rate Assumption Subsidy & 5% for Only prefunding the cash Implied Subsidy. - subsidy, not implied subsidy For a partially funded plan, the method used to determine Only prefunding the 15 the blended discount rate cash subsidy, not implied subsidy Salary Increase Assumption (if relevant to benefit 16 levels) nia 17 Expected Benefit Payments 5 2,639.000 18 Number of Active Members 760 Select Period at 6730/06 19 Average Attained Age of Actives 42.4 PPO Indemnity Plan at 6130/06 20 Average Years of Service of Actives 11.6 n/a Actual premium at 6/30/06 21 Number of Recipients 356 10.4% 11.3% at 6/30106 22 Average Attained Age of Recipients 64,5 2009 at 6130106 23 Vision Trend Rates (If Applicable) n!a 10.6° 24 Dental Trend Rates (If Applicable) n!a 9.1% 9.8° 25 Health Assumptions FILL IN THE TABLE BELOW WHERE APPLICABLE (for 6130/06 Valuation) Provide in the table below the select and ultimate medical and pharmacy cost trend rates where applicable. F:! Uwrs1A0M %$hareMwuncl_agenda_items4008 staff reportslOPEBTrusryBAC7 -08-17 Newport Beach CaIPERB OPEB Trust Required IrdQ.%1aj081a Requirements Pre - Medicare Eligible Post- Medicare Eligible Select Period HMO PPO Indemnity Plan HMO. PPO Indemnity Plan Pharmacy, 2007 Actual premium Actual premium n/a Actual premium Actual premium n1a Included in medical rate 2008 10.4% 11.3% 10.4% 11.3% 2009 9.7-A 10.6% 9.7% 10.6° 2010 9.1% 9.8% 9.1% 9.8° 2011 &4% 9.0% 8.4% 9.0° 2012 7.8% 8.3% 7.8% 8.3° 2013 7.1% 7.5% 7.1% 7.5° 2014 6.5% 6.8% 6.5% 6.8 2015 5.8% 6.0% 6.8% 6.0 2018 5.2% 5.3% 5.2% 5.3 2017+ Ultimate Medical Rates 4.50 4.5° 4.5% 4.5% F:! Uwrs1A0M %$hareMwuncl_agenda_items4008 staff reportslOPEBTrusryBAC7 -08-17 Newport Beach CaIPERB OPEB Trust Required IrdQ.%1aj081a Requirements CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ( "CERBT ") AGREEMENT AND ELECTION OF CITY OF NEWPORT BEACH (NAME OF EMPLOYER) TO PREFUND OTHER POST EMPLOYMENT BENEFITS THROUGH CaIPERS WHEREAS (1) Government Code Section 22940 establishes in.the State Treasury the Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for annuitants ( Prefunding Plan); and WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board of Administration (Board) has sole:and exclusive control and,power over he administration and investment of the Prefuntling,Plan (sometimes also referred to as CERBT), the purposes ofi'.which include, buf,aree not limited to (i }:receiving.contributions from participating employers and establiShing.separate:Employer Prefunding Accounts in the Prefunding .Plan for the performance of amossential governmental function (ii) investing contributed amounts andt income thereon, if any, in order to receive yield.on the funds and (iii) disbursing contributed amounts and income thereon, if any, to.pay for costs of administration of the Prefunding Plan and to pay for health care costs or other post employment benefits in accordance with the terms of participating employers' plans; and WHEREAS (3) CITY OF NEWPORT BEACH (NAME OF EMPLOYER) (Employer) desires to participate in the Prefunding Plan upon the terms and conditions set by the Board and as set forth herein; and WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by the Board and (ii) filing a duly adopted and executed Agreement and Election to Prefund Other Post Employment Benefits (Agreement) as provided in the terms and conditions of the Agreement; and WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an essential governmental function within the meaning of Section 115 of the Internal Revenue Code as an agent multiple- employer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of single - employer plans, with pooled administrative and investment functions; Rev. 2/712007: Rev 611812007. Rev 1011012007 NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS: A. Representation and Warranty Employer represents and warrants that it is a political subdivision of the State of California or an entity whose income is excluded from gross income under Section 115 (1) of the Internal Revenue Code. B. Adoption and Approval of the Agreement; Effective Date; Amendment (1) Employer's governing body shall elect to participate in the Prefunding Plan by adopting this Agreement and filing with the CalPERS Board a true and correct original or certified copy of this Agreement as follows: Filing by mail, send to: CalPERS Constituent Relations Office CERBT.(OPEB) P.O. Box 942709 Sacramento, CA 94229 -2709 Filing in person, deliver to: CalPERS Mailroom Attn: Employer Services Division 400 Q Street Sacramento, CA 95814 (2) Upon receipt of the executed Agreement, and after approval by the Board, the Board shall fix an effective date and shall promptly notify Employer of the effective date of the Agreement. (3) The terms of this Agreement may be amended only in writing upon the agreement of both CalPERS and Employer, except as otherwise provided herein. Any such amendment or modification to this Agreement shall be adopted and executed in the same manner as required for the Agreement. Upon receipt of the executed amendment or modification, the Board shall fix the effective date of the amendment or modification. (4) The Board shall institute such procedures and processes as it deems necessary to administer the Prefunding Plan, to carry out the purposes of this Agreement, and to maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such procedures and processes. Rev 10/10/2007 2 C. Actuarial Valuation and Employer Contributions (1) Employer shall provide to the Board an actuarial valuation report on the basis of the actuarial assumptions and methods prescribed by the Board. Such report shall be for the Board's use in financial reporting, shall be prepared at least as often as the minimum frequency required by GASB Statement No. 43, and shall be: (a) prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries or a person with equivalent qualifications acceptable to the Board; (b) prepared in accordance with generally accepted actuarial practice and GASB Statement Nos. 43 and 45; and, (c) provided to the Board prior to the Board's acceptance of contributions for the valuation period or as otherwise required by the Board. (2) The Board may reject any actuarial valuation report submitted to it, but shall not unreasonably do so. In the event that the Board determines, in its sole discretion, that . the actuarial valuation report is not suitable for use in the Board's financial statements or if Employer fails to provide a required actuarial valuation, the Board may obtain, at Employees expense, an actuarial Valuation that meets the Board's financial reporting needs. The Board may recover from Employer the cost of obtaining such actuarial valuation by billing and collecting from Employer or by deducting the amount from Employer's account in the Prefunding Plan. (3) Employer shall notify the Board of the amount and time of contributions which contributions shall be made in the manner established by the Board. (4) Employer contributions to the Prefunding Plan may be limited to the amount necessary to fully fund Employer's actuarial present value of total projected benefits, as supported by the actuarial valuation acceptable to the Board. As used throughout this document, the meaning of the term "actuarial present value of total projected benefits" is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in the Prefunding Plan to exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board may refuse to accept the contribution. (5) Any Employer contribution will be at least $5000 or be equal to Employees Annual Required Contribution as that term is defined in GASB Statement No. 45. Contributions can be made at any time following the seventh day after the effective date of the Agreement provided that Employer has first complied with the requirements of Paragraph C. Rev 10/1072007 3 D. Administration of Accounts, Investments, Allocation of Income (1) The Board has established the Prefunding Plan as an agent plan consisting of an aggregation of single - employer plans, with pooled administrative and investment functions, under the terms of which separate accounts will be maintained for each employer so that Employer's assets will provide benefits only under employer's plan. (2) All Employer contributions and assets attributable to Employer contributions shall be separately accounted for in the Prefunding Plan (Employer's Prefunding Account). (3) Employer's Prefunding Account assets may be aggregated with prefunding account assets of other employers and may be co- invested by the Board in any asset classes appropriate for a Section 115 Trust. (4) The Board may deduct the costs of administration of the Prefunding Plan from the investment income or Employer's Prefunding Account in a manner determined by the Board. (5) Investment income shall be allocated among employers and posted to Employer's Prefunding Account as determined by the Board but no less frequently than annually. (6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board, in compliance with applicable accounting and legal requirements, may return such excess to Employer. E. Reports and Statements (1) Employer shall submit with each contribution a contribution report in the form and containing the information prescribed by the Board. (2) The Board shall prepare and provide a statement of Employer's Prefunding Account at least annually reflecting the balance in Employer's Prefunding Account, contributions made during the period and income allocated during the period, and such other information as the Board determines. F. Disbursements (1) Employer may receive disbursements not to exceed the annual premium and other costs of post employment healthcare benefits and other post employment benefits. (2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the persons authorized to request disbursements from the Prefunding Plan on behalf of Employer. Rev IQf10f2007 4 (3) Employer's request for disbursement shall be in writing signed by Employer's authorized representative, in accordance with procedures established by the Board. The Board may require that Employer certify or otherwise establish that the monies will be used for the purposes of the Prefunding Plan. (4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3) that are received on or after the first of a month will be processed by the 15th of the following month. (For example, a disbursement request received on or between March 1st and March 31st will be processed by April 15th; and a disbursement request received on or between April 1st and April 30th will be processed by May 15th.) (5) CalPERS shall not be liable for amounts disbursed in error if it has acted upon the instruction of an individual authorized by Employer to request disbursements. In the event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the actual dollar amount of the disbursement, plus interest at the actual earnings rate but not less than zero. (6) No disbursement shall be made from the Prefunding Plan which exceeds the balance in Employer's Prefunding Account. G. Costs of Administration Employer shall pay its share of the costs of administration of the Prefunding Plan, as determined by the- Board. H. Termination of Employer Participation in Prefunding Plan (1) The Board may terminate Employer's participation in the Prefunding Plan if: (a) Employer gives written notice to the Board of its election to terminate; (b) The Board finds that Employer fails to satisfy the terms and conditions of this Agreement or of the Board's rules or regulations. (2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding Plan, except as otherwise provided below, and shall continue to be invested and accrue income as provided in Paragraph D. (3) After Employer's participation in the Prefunding Plan terminates, Employer may not make contributions to the Prefunding Plan. Rev 10/1012007 (4) After Employer's participation in the Prefunding Plan terminates, disbursements from Employer's Prefunding Account may continue upon Employers instruction or otherwise in accordance with the terms of this Agreement. (5) After thirty -six (36) months have elapsed from the effective date of this Agreement: (a) Employer may request a trustee to trustee transfer of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that the transfer will satisfy applicable requirements of the Internal Revenue Code and the Board's fiduciary duties, then the Board shall effect the transfer within one hundred twenty (120) days. The amount to be transferred shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date. In no event shall the investment earnings allocation date precede the transfer by more than 120 days. (b) Employer may request a disbursement of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that all of Employer's obligations for payment of post employment health care benefits and other post employment benefits and reasonable administrative costs of the Board have been satisfied, then the Board shall effect the disbursement within one hundred.. twenty (120) days. The amount to be disbursed shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date. In no event shall the investment earnings allocation date precede the disbursement by more than 120 days. (6) After Employer's participation in the Prefunding Plan terminates and at such time that no assets remain in Employer's Prefunding Account, this Agreement shall terminate. (7) If, for any reason, the Board terminates the Prefunding Plan, the assets in Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts sufficient to pay post employment health care benefits and other post employment benefits to annuitants for current and future annuitants, and (ii) amounts sufficient to pay reasonable administrative costs of the Board. (8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if no provision has been made by Employer for ongoing payments to pay post employment health care benefits and other post employment benefits to annuitants for current and future annuitants, the Board is authorized to and shall appoint a third party administrator to carry out Employer's Prefunding Plan. Any and all costs associated Rev 10/ICi2007 6 with such appointment shall be paid from the assets attributable to contributions by Employer. (9) If Employer should breach the representation and warranty set forth in Paragraph A., the Board shall take whatever action it deems necessary to preserve the tax- exempt status of the Prefunding Plan. I. General Provisions (1) Books and Records. Employer shall keep accurate books and records connected with the performance of this Agreement. Employer shall ensure that books and records of subcontractors, suppliers, and other providers shall also be accurately maintained. Such books and records shall be kept in a secure location at the Employer's office(s) and shall be available for inspection and copying by CalPERS and its representatives at any time. (2) Audit. (a) During and for three years after the term of this Agreement, Employer shall permit the Bureau. of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, at all reasonable times during normal business hours to inspect and copy, at the expense of CaIPERS, books and records of Employer relating to its performance of this Agreement. (b) Employer shall be subject to examination and audit by the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, during the term of this Agreement and for three years after final payment under this Agreement. Any examination or audit shall be confined to those matters connected with the performance of this Agreement, including, but not limited to, the costs of administering this Agreement. Employer shall cooperate fully with the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, in connection with any examination or audit. All adjustments, payments, and /or reimbursements determined to be necessary by any examination or audit shall be made promptly by the appropriate party. (3) Notice. (a) Any notice, approval, or other communication required or permitted under this Agreement will be given in the English language and will be deemed received as follows: Rev 10/1=007 Personal delivery. When personally delivered to the recipient. Notice is effective on delivery. 2. First Class Mail. When mailed first class to the last address of the recipient known to the parry giving notice. Notice is effective three delivery days after deposit in a United States Postal Service office or mailbox. 3. Certified mail. When mailed certified mail, return receipt requested. Notice is effective on receipt, if delivery is confirmed by a return receipt. 4. Overnight Delivery. When delivered by an overnight delivery service, charges prepaid or charged to the senders account, Notice is effective on delivery, if delivery is confirmed by the delivery service. 5. Telex or Facsimile Transmission. When sent by telex or fax to the last telex or fax number of the recipient known to the parry giving notice. Notice is effective on receipt, provided that (i) a duplicate copy of the notice is promptly given by first -class or certified mail or by overnig ht. delivery, or (ii) the receiving party delivers a written confirmation of receipt. Any notice given by telex or fax shall be deemed received on the next business day if it is received after 5:00 p.m. (recipients time) or on a nonbusiness day. 6. E -mail transmission. When sent by e-mail using software that provides unmodifiable proof (i) that the message was sent, (ii) that the message was delivered to the recipient's information processing system, and (iii) of the time and date the message was delivered to the recipient along with a verifiable electronic record of the exact content of the message sent. Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this Agreement. (b) Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the parry to be notified shall be deemed effective as of the first date that said notice was refused, unclaimed, or deemed undeliverable by the postal authorities, messenger or overnight delivery service. (c) Any parry may change its address, giving the other parry notice of the Agreement. Rev 10/1012007 telex, fax number, or e-mail address by change in any manner permitted by this (d) All notices, requests, demands, amendments, modifications or other communications under this Agreement shall be in writing. Notice shall be sufficient for all such purposes if personally delivered, sent by first class, registered or certified mail, return receipt requested, delivery by courier with receipt of delivery, facsimile transmission with written confirmation of receipt by recipient, or e-mail delivery with Verifiable and unmodifiable proof of content and time and date of sending by sender and delivery to recipient. Notice is effective on confirmed receipt by recipient or 3 business days after sending, whichever is sooner. (4) Modification This Agreement may be supplemented, amended, or modified only by the mutual agreement of the parties. No supplement, amendment, or modification of this Agreement shall be binding unless it is in writing and signed by the party to be charged (5) Survival All representations, warranties, and covenants contained in this Agreement, or in any instrument: exhibit, or other writing intended by the parties to be a part of their Agreement shall survive the termination of this Agreement until such time as all amounts in Employer's Prefunding Account have been disbursed. (6) Waiver No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement shall be effective unless it is in writing and signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor shall any waiver constitute a continuing waiver unless the writing so specifies. (7) Necessary Acts, Further Assurances The parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement. Rev 10/10120D7 0 A majority vote of Employer's Governing Body at a public meeting held on the day of the month of into this Agreement. Signature of the Presiding Officer: Printed Name of the Presiding Officer: Name of Goveming Body: Name of Employer: Date: in the year , authorized entering BOARD OF ADMINISTRATION CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM BY KENNETH W. MARZION ACTUARIAL AND EMPLOYER SERVICES BRANCH CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM To be completed by CalPERS The effective date of this Agreement is: Rev 01/09/2008 10 Ca1PERS DELEGATION OF AUTHORITY TO REQUEST DISBURSEMENTS RESOLUTION OF THE CITY COUNCIL (GOVERNING BODY) OF THE CITY OF NEWPORT BEACH (NAME OF EMPLOYER( The CITY COUNCIL delegates to the incumbents in (GOVERNING BODY) the positions of Administrative Services Directorand (TITLE) Deputy Director of Administrative Services authority to request on behalf (TITLE) of the Employer disbursements from the Other Post Employment Prefunding Plan and to certify as to the purpose for which the disbursed funds will be used. a Title MAYOR Witness Date OPEB Delegation of Authority (2/07) �- CERTIFICATION OF OPEB ACTUARIAL CaIPERS INFORMATION AND FUNDING POLICY CERTIFICATION OF OPE13 ACTUARIAL INFORMATION As Actuary for the plan, I certify that the valuation for the City of Newport Beach upon which the enclosed summary of actuarial information is based, meets the following criteria: • The valuation was prepared on the basis of the OPEB assumption model prescribed by the CalPERS Board and in effect at the time of the valuation. • The valuation has been prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries.' • The valuation has been prepared in accordance with generally accepted actuarial principles. • In the case where the actuarial valuation is to be performed on a biennial cycle: • this valuation includes (ARC) information that covers two Fiscal years other actuariat:information :for the second.fisral year will be provided after benefit payments and contributions are provided by the agency. • The valuation has been prepared in accordance with the requirements set forth in Governmental Accounting Standards Board (GASB) Statements No. 43 and No. 45. • If employer assets to pre -fund other post - employment benefits are invested in an irrevocable OPEB trust other than the California Employers' Retiree Benefit Trust, the liabilities associated with those assets are not included in the summary of actuarial Information. I further certify that the discount rate is consistent with the anticipated level of funding pursuant to the relevant section of GASB 43, and the employer's certification. June 30, 2006 Valuation Date John E. Bartel, ASA, FCA, EA, MAAA Printed Name of ctua and Designation] A,,J i` ,? co-7 Signature Date 'In cases where the actuary performing the work does not meet these criteria, the valuation may be acceptable If the person has equivalent qualifications that are acceptable to the CaIPERS Board. Please provide the qualifications of the actuary performing the valuation. O:UientACity of Newport Bewh%0PEB \06 -30-06 ValuationV2eportABA 07-N-xx Newport Beach CaIPERS OPEB Tnut Certification.doc CERTIFICATION OF FUNDING POLICY As the employer, I certify that our funding policy is to contribute consistently an amount at least equal to * % of the ARC. CITY OF NEWPORT BEACH Name of Employer Homer L. Bludau, City Manager Printed Name and Title of Person Signing the Form Signature Date * 0% of the ARC related to the implicit subsidy and an amount greater than:.or equal to 100% of the ARC related to the cash (explicit) subsidy. OAClientslCity of Newport Bea0kOPEM -30-06 ValuationkRepor&BA 07 -08 -x Newport Beach CatPERS OPEB Trust Certificatioa.doc