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HomeMy WebLinkAboutOPEB - Retiree Medical Actuarial Valuation TOWN OF FRAMINGHAM RETIREE MEDICAL ACTUARIAL VALUATION REPORT ON COMPLIANCE WITH GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT#45 ACCOUNTING AND FINANCIAL REPORTING BY EMPLOYER FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 PREPARED: October 2014 008648932 ........ ER - MARKHOFF L l..x October 2014 Town of Framingham 150 Concord Street Framingham,MA 01702 Dear Sir/Madam: This report was preparecl to provide ananagenic!rr,t with the accounting for the Government Accountrt°rg Statidards Bogard Statement Number 45 — Accounting and Financial Repor.'titag by para plovers for Postemployment Benefits Other Than Pensions (GASB 45) for the Retiree 1 eafth Valuation Under GASB #45 for the fiscal year ended Juné 30, 2015. Our results and accompanying disclosures reflect plan provisions in effect for the plan year ended June 30, 2015. The Annual OPEB Cost for the Town of Framingham is $22,347,706. In conn e.re thi g the va l r a a tion, we, relied ied ori iii,formation supplied to us by the Town of lira�rringharr'a This hifcarn-Nation included f.r�articipant data, the terms of the written and trrtwr rtteri lalati, prealiut�a°arates aria other policies and practices of plan. We have relied oaa this i:r-tforraa�atrcara 0,1, Zacc°errate, aaad applied estimates as necessary. The discount rate used for this year is 4.0%. As requested, select results based ora fi.f.l%o have also been included on pale 213, for illustrative purposes. The %, restift�s inau1a�at be relied upon for GASB #45 disclosure purposes; the plan is not "fully" pre-ferrrded at this time. To they best of knowledge e . ú , , . and, f c�c aardar�rc�e h ge�tae�rall ac l atueavvact e. alelrrtr�alct 'ile�srt�and, practices and ii,a, ac�corclar�rc�� orr, � �rc erc tc� rrr with dof GASB# ��ratrc the ra_ri �letnet�rtatrora guidelines published vvrtla dcr �ta� S i the r��el ley tlae cra 1 f y p �r ter c1 r t7 C�,cavc>rtarraerat eernrar�a w_,tanc arcls 13cararel. Thcw ctraleayy�e�r aria rracacirl ese�ratatrear of these disclosures as treede& 1 �ara�r arr l,a�r°call(--,' 1. Actuary who safisfies the Qt,talificatioii.s Staamlards for Ac:trtarjes of the AAA that bec�atiie effective January 1, 2003. / a y t y Yours, P Ó f ,r í f < lwi,lu "c h�ewc�r°r-1a, 1 Sl.��,A � .,�"íA , . EA Senior Actuary 00864893-2 DANZI .A a p� 11 n v '9r 8 a t 1., ra W TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY OF RESULTS.................... ....... .................,. .., ......... ,..,.,,,.., 1 RESULTSAND DISCLOSURES.. .........-........................... ......... .............. ... ......... 2 CONSIDERATIONS--.............--'-......--........ ...... ............. .. ....,.... .....,.,,.,, .........7 SUMMARY OF PLAN PROVISIONS... ......... .......................... ...........,,...., 9 ACTUARIALBASIS......w.......... ......... .......................... .................. .... ...,.. ......... ,........12 W864V3 2 DA N ...m .._. - TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 EXECUTIVE SUMMARY OF RESULTS Valuation Date lull 1, 2014 Number of Plan Members: Active Participants 1,695 Retired Participants 1,,495 Total 3,190 Average Age of Actives 46 yrs. Average Credited Service of Actives 11 yrs. Current Covered Payroll $ 111,670,736 Market value of OPEB Trust Assets as of July 1 $ 2,516,635 Unfunded Accrued Liability $ 288,645,545 Annual Required Contribution $ 21,976,575 (ARC) OPEB Cost for the Year $ 22,347,706 -1- 00864893 2 MARK1.10F.F .I.AT -.-I-1-1............. o x iia e y " � a a wr TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB#45 RESULTS AND DISCLOSURES (APB®) VALUATION RESULTS - (Cost to Town) (EPBO) Proi. Unit Credit Projected Accrued 1. Actuarial present values as of July 1, 2014: Benefits Liability (a) Actives $279,520,191 $133,463,832 (b) Retirees &Beneficiaries 7 $L55,181 L3 1115,181 J ---,7713 — (c) Total $434,701,904 $288,645,545 2. Accrued liability as of July 1, 2014 $288,645,545 3. Actuarial value of assets, July 1, 2014 $ 2,516,635 4. Unfunded accrued liability, July 1, 2014 $286,128,910 5. Normal cost As of July 1, 2014 $ 10,815,426 6 Amortization of unfunded accrued liability(level percentage of payroll/open, over 30 years) $ 10,315,896 7, Interest (rounded) on Normal Cost ($432,617) and Amortization ($412,636) $ 845,253 8, Annual Required Contribution (ARC) $ 21,976,575 (5+6+7) 2- 00864893-2 F F 1,1,A3 a 'y TOWN OF A RETIREE HEALTHVALUATION UNDER GASB SULTS AND DISCLOSURES RESULTS ( on Town Sewer Water School Total Active 527 25 33 1110 1695 Retirees 495 6 5 989 1495 Total 1022 31 38 2099 3190 Accrued Liability 121,026,200 2,460,216 3,444,737 161,714,392 288,645,545 Assets(subt.) 1,055,200 21,450 30,034 1,409,951 2,516,635 Unfunded Accrued Liability 119,971,000 2,438,766 3,414,703 160,304,441 286,128,910 Normal Cost 3,340,848 157,472 252,940 7,064,166 10,815,426 Amortization of UAL 4,325,352 87,926 123,111 5,779,507 10,315,896 Interest to end of year 306,648 9,816 15,042 513,747 845,253 Annual Required Contribution 7,972,848 255,214 391,093 13,357,420 21,976,575 -2A... TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB#45 RESULTS AND DISCLOSURES COMPARISON OF 4.0% VS.8.0% DISCOUNT RATE 4.00% 8.00% Active 1,695 1,695 Retirees&Spouses 1,495 1,428 Total 3,190 3,190 Accrued Liability 288,645,545 164,680,490 Assets(subt.) 2,516,635 2,516,635 Unfunded Accrued Liability 286,128,910 162,163,855 Normal Cost 10,815,426 4,390,867 Amortization of UAL 10,315,896 9,031,682 Interest to end of year 845,253 1,073,804 Annual Required Contribution 21,976,575 14,496,353 Note: Because only about$700,000 of the Annual Cost is being "pre-funded", 8.0%is IM too high an interest rate to satisfy the GASB#45 requirements at this time. -213 DA N'Z I CX M.AR..KHOFF I...,I,P A I 1� it 1rn V )r' S A V. II:.. a vy TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 RESULTS AND DISCLOSURES DEVELOPNMNT OFT OPEB COST FOR THE YEAR ENDING JUNE 3 , 2015 Actual contribution information is included below. Contribittion rates: Varies by employee class Plan Members (See Summary of Plan Provisions) Town: Actuarially determined, equals the balance not paid by plan members Annual required contribution (ARC) $ 21,976,575 Interest on net OPEB obligation 3,761,443 Adjustment to annual required contribution (-) 3,390,312 Annual OPEB cost $ 22,347,706 Contributions made* $ 12,685,000 Increase in net OPEB obligation $ 9,662,706 Net OPEB obligation-beginning $ 94,036,071 of year Net OPEB obligation-end of year $ �103698,777 *Contributions made include prof.Medical,Dental,Life.Ins premium payments of$11,985,000 and proj.OPEB Trust contributions of$700,000. -3- .....................................................................;..... ........ D ......:.............::::::...:I.:.. :...: ..: :...... .,,,,, .-N Z I.1..........11 i M.A RK f 10 F F' I.,t,P A 6 I o B n 4, "/ i a t �' a w TOWN OF FAINGA RETIREE HEALTH VALUATION UNDER GASB #45 RESULTS AND DISCLOSURES DEVELOPMENT OF THE OPEB COST FORT E YEAR ENDING JUNE 30, 2016 Actual contribution information is included below. ontribtitioti rates: Varies by employee class Plan Members (See Summary of Plan Provisions) Town: Actuarially determined, equals the balance not paid by plan members Annual required contribution (ARC) $ 23,411,718 Interest on net OPEB obligation 4,147,951 Adjustment to annual required contribution (-) 3,888,233 Annual OPEB cost $ 23,671,436 Contributions made* $ 13,165,000 Increase in net OPEB obligation $ 10,506,436 Net OPEB obligation-beginning $ 103,698 777 of year Net OPEB obligation-end of year $ I 1 x,20,52]3 *Contributions made include prof.Medical,Dental,Life.Ins premium payments of$12,465,000 and proj.OPEB Trust contributions of$700,000. -3A- TOWN OF FRAMI NGHAM RETIREE HEALTH VALUATION UNDER GASB #45 RESULTS AND DISCLOSURES DEVELOPMENT OF UNFUNDED ACTUARIAL ACCRUED LIABILITY AND FUNDED RATIO (actual) Actuarial accrued liability (a) $ 288,645,545 Actuarial value of plan assets (b) $ 2,516,635 Unfunded actuarial accrued liability $ 286,128,910 (a—b) Funded ratio (b/a) 0.9% Covered payroll (c) $ 111,670,636 Unfunded actuarial accrued liability as percentage of covered payroll [(a—b)/c] 256% -4- D MA.RKII.OFF LIT TOWN OF FRAMINGHAM RETIREE HEALTH VALL)ATION UNDER GASB #45 RESULTS AND DISCLOSURES DEVELOPMENT OF OPEB COST AND OPEB OBLIGATION FOR THE LAST THREE YEARS (actual) Percentage of Year Annual OPEB Cost Net OPEB Ended OPEB Cost Contributed Obligation 6/30/2013 $22,589,477 57.1% $83,421,437 6/30/2014 $22,838,955 53.5% $94,036,071 6/30/2015 $22,347,706 56.8% $103,698,777 Pre-2015 entries were developed from FYE 2013 OPEB Note and Valuation Report, DA.N Z I G E R MARKHOFF I A.A.) ii y v a L T, I w TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 RESULTS AND DISCLOSURES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (actual) Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage of Actuarial Value of (AAL) AAL Funded Covered Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date Lal LLI b - a a/b I LCI b -a /c 7/1/2010 $0 371,530,000 371,530,000 0.0% 113,924,000 326% 7/1/2012 $0 327,067,000 327,067,000 0.0% 104,423,000 313% 7/1/2014 $2,516,635 288,645,545 286,128,910 0.9% 111,670,636 256% Pre-2015 entries were developed from FYE 2013 OPEB Note and Valuation Report. -6- DAN Z IE � ° ..........-------- ---- - ........ ... .` R I IIIA 11; �1., ,. 1 4 dr ! 0.A s ,n d0. �, .'N ti•." 'TOWN OF FRA MINGHAM RETIREE IJEAI,TH VALUATION 1JNI)ER GASB #45 CONSIDERATIONS NEW STATEMENT Government Accounting Standards Board Statement No. 45 (GASB#45) was first applied by the Town of Framingham beginning with the fiscal year ended June 30, 2009. GASB#45 establishes standards for the measurement, recognition and display of the expense and liabilities of your retiree medical program (Other Post-Employment Benefits; "OPEB"). As a result, reporting of expense and liabilities will no longer be done under the "pay-as-you-go" approach. Instead of expensing the current year premiums paid, a per capita claims cost will be determined,which will be used to determine a "normal cost", an "actuarial accrued liability", and ultimately the Annual Required Contribution (ARC). The ARC is not "required" to be contributed each year, but in your case,will accumulate as a liability on the Town's financial statements (called the "OPEB Obligation") to the extent that the ARC exceeds the amount of premiums paid in a year. To date, the Town has chosen to partially pre-fund retiree medical and other OPEB benefits in a Trust. To fully pre-fund,would permit the use of a higher discount rate (to reflect higher returns from an equity/bond mix of a Trust, rather than short term returns of the Town's funds), which would reduce liabilities. PLAN DESIGN We received detailed employee and dependent data, information on the plans, past and current employer practices, and medical premium cost data. 00864893 2 DA.N Z I G E R M.A.R.K.110F.F .1 1j) A P ¢ ei n I I s e Y s a ¢ I, a W TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 CONSIDERATIONS For FYE 2015, there are 1,495 retirees plus dependents who are receiving employer subsidized benefits. We reflected known retirements and terminations in our database through June 30, 2014. Where data was missing or inaccurate, we assumed reasonable estimates. In all,we valued 1,695 active employees plus dependents. Retiree medical coverage is provided through Massachusetts GIC. Future retirees are assumed to be covered by this existing arrangement as outlined in the materials forwarded by the Town. Those provisions, as they relate to employer liability, can be found in the Summary of Plan Provisions section of this report. ASSUMPTIONS/RECOGNITION To establish the per capita claims cost of medical benefits for your group, we used current premium rates provided by the Town as the starting point for our calculations. We then employed a health care trend rate that begins at 8.0% for the first year, decreases by 0.5%per year through year 7 to 5.0% thereafter. This assumption needs to be reviewed periodically. The health care trend rate is a major contributor to widening the gap between pay-as-you-go recognition and GASB#45 recognition. Adjustments were also required to be made to recognize differences between the average age of the 'full' population and the average age of a 'retiree only' population (to develop "age adjusted" current premium rates/equivalents). 00864893 2 I)ANZIG M.A R K I 10 FT L L,P d i, o , y , A I i. It Wv TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 ,,,,,,,,,,,MARY MARY OF PLAN PROVISIONS ....... The following is a summary of the current major provisions of the retiree medical program. 1. MEDICAL BENEFITS The Plan is a fully insured plan. Current medical retiree premium rates provided to us by the Town include: a) Pre-age 65 Individual MED: Ranges from $457 to $2,185 per month. b) Pre-age 65 Family MED: Ranges from $1,096 to $1,701 per month. c) Post-age 65 MED: Ranges from $267 to $395 per month. d) Individual Dental: Generally$38 per month. e) Family Dental: Generally $98 per month. Adjustments to these premium rates to reflect the difference between the active/retiree group (for which the current premium rates were based on) and the retiree-only group, were required, in accordance with ASOP 6. The retiree and the spouse are covered under the program. For Town of Framingham, these adjustments were required for the Pre-Medicare liabilities. 2. MEDICA—_RE PART B PREMIUMS — Generally, the Town currently pays $50/mo. .................. toward the premium, as applicable, 3. LIFE INSURANCE—Generally, the Town pays 75% toward $5,000 of coverage. 00864893 2 D A N Z I G E R o, . . ................ ..... MARK11OFF LAT A A S o z n ,, y ,, rdw t 1L a w TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 SUMMARY OF PLAN PROVISIONS 4. ELIGIBILITY: Generally, an employee may retire after the earlier of (i) age 55 with at least 10 years of service, and (ii) 20 years of service. 5. TOWN SUBSIDY: The Town will generally 75% - 84%toward medical coverage and 15% toward dental coverage, for both individual and dependent coverage. The Town will generally pay 75% toward $5,000 life insurance coverage. -10® 2 DA.N Z I C�,,E R ........-------- M.A.RKfIOF'F I.AT TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 SUMMARY OF PLAN PROVISIONS 6. FUNDING POLICY: The employer's funding policy is to contribute the current annual premium (net of employee contributions) for all retired participants (i.e., pay-as-you-go), as well as pre-fund a nominal amount (for FYE 2014, $700,000), toward future retiree medical benefit obligations in an OPEB Trust. _11- 00864893-2 DA N Z I G E,R .11,.................................................................................................... M.A.R.M.!OFF I IT TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 ACTUARIAL BASIS ACTUARIAL FUNDING METHOD: Projected Unit Credit ACTUARIAL ASSUMPTIONS 1. Valuation Date: July 1, 2014 2. Discount Rate: 4.0% per annum.—GASB discls. (8.0% full pre-funding/illustrative) 3. Salary Scale: Not applicable, but a 4% increase is applied for amortization purposes 4. Mortality: RP-2000 Mortality Table (proj. 27& 19 years). 5. Withdrawal: NON-Police/Fire/Teachers: Select rates include: Oyr, 15%; 5yr, 7.6%; 10yr, 5.4%; 15yr, 3.3%; 20yr, 2% Teachers: Select rates include: 0yr,11%; 5yr, 6%; 10yr, 3%; 15yr, 2% Police/Fire: 0.15% for each of the first ten years of employment; 0.0% thereafter. 6. Disability: N/A 42- 00864893-2 D AN_41 .M.A. .K 111..J - T ..'1,1.) Allciniys' ;a t. I' ay, ly TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 ACTUARIAL BASIS 7. Retirement: The following table illustrates the retirement rates: A) NON-Police/Fire/Teachers Retirement Retirement (10 years of service required Age Rates at retirement) 50-54 1.0% 55 2.0% 56-57 3.0% 58 5.0% 59 7.0% 60 12.0% 61 20.0% 62 30.0% 63 25.0% 64 22.0% 65 100.0% B) Teachers Retirement Retirement (10 years of service required Age Rates at retirement) 50-54 1.0% 55 3.0% 56 4.0% 57 7.0% 58 9.0% 59 15.0% 60 18.0% 61 22.0% 62 30.0% 63 30.0% 64 30.0% 65 100.0% -13- 00864893 2 DANZI E R. gar ...........................___ ­- _­__­11111111.11­­� 1,"" M.A.R.KHOFF P TOWN OF FRAMINGHAM RETIREE HEALTH VALUATIONS 5 ACTUARIAL BASIS 7. Retirement: e following table illustrates the retirement rates: C) Police/Fire Retirement Retirement (10 years of service required Age (Svc) Rates at retirement) 45-49 1.0% 50-52 2.0% 53 5.0% 55 8.0% 55 15.0% 56-58 10.0% 59 15.0% 60-61 20.0% 62-63 25.0% 64 30.0% 65 100.0% -14- 00864893 2 14-4086 4893..2 ...... ,. . )% I IF lea" LA,T TOWN OF FRAMINGHAM RETIREE HEALTH VALUATION UNDER GASB #45 CT IAL BASIS 8. Health Care Cost Trend Rate: The following table illustrates the assumed health care trend rate for each future year: (Medical) Year Assumed Increase 1 8.0% 2 7.5% 3 7.0% 4 6.5% 5 6.0% 6 5.5% 7+ 5.0% Dental: 4% per annum. 9. Marital-Actives: Wife is assumed to be same age as the husband. 70% of males and 50% of females are assumed married. 10. Participation Rate: Medical: 95%,Dental: 45% 11. Inflation Rate: 4.0%per annum. ASSET VALUATI ON METHOD: Market value, AMORTIZATION BASIS: Level percentage of payroll, Open, over 30 years. (4%per year increase applied since 2012) -15- 00864893 2 DA.N Z I .G R .. ....................... ---I I... ...... ---L-------------.) A a u o � n v V ,, a a 11 a 'A'