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HomeMy WebLinkAboutFramingham Retirement System Actuarial Valuation Report Retirement System Actuarial Valuation Report January 1, 2014 PUBLIC EMPLOYEE ADMINISTRATION COMMISSION COMMONWEALTH OF MASSACHUSETTS TABLE OF CONTENTS SectionPage 1. Introduction & Certification ............................................................................................................. 1 2. Executive Summary A. Costs under Current Valuation ............................................................................................ 2 B. Comparison with Prior Valuation ........................................................................................ 3 C. Plan Experience and Changes from Prior Valuation ........................................................ 5 3. Summary of Valuation Results .......................................................................................................... 9 4. Appropriation Development for Fiscal Year 2015 A. Derivation of Appropriation ................................................................................................ 10 B. Current Funding Schedule .................................................................................................... 11 5. GASB Statement No. 25: Actuarial Information ........................................................................ 12 6. Plan Assets A. Breakdown of Assets by Investment Type ....................................................................... 13 B. Breakdown of Assets by Fund ............................................................................................ 13 C. Market Value of Assets ......................................................................................................... 13 D. Actuarial Value of Assets ..................................................................................................... 13 E. Development of Actuarial Value of Assets ....................................................................... 14 7. Information on System Membership A. Active Members ...................................................................................................................... 15 B. Retirees and Survivors ........................................................................................................... 17 8. Valuation Cost Methods A. Actuarial Cost Method ......................................................................................................... 19 B. Asset Valuation Method ........................................................................................................ 19 9. Actuarial Assumptions ..................................................................................................................... 20 10. Summary of Plan Provisions ......................................................................................................... 23 11. Glossary of Terms .......................................................................................................................... 30 1. INTRODUCTION & CERTIFICATION This report presents the results of the actuarial valuation of the Framingham Contributory Retirement System. The valuation was performed as of January 1, 2014 pursuant to Chapter 32 of the General Laws of the Commonwealth of Massachusetts. This valuation was based on member data as of December 31, 2013, which was supplied by the Retirement Board. Such tests as we deemed necessary were performed on the data to ensure accuracy. Asset information as of December 31, 2013 was provided in the Annual Statement for the Financial Condition as submitted to this office in accordance with G.L. c. 32, ss. 20(5)(h), 23(1) and 23(2)(e). Both the membership data and financial information were reviewed for reasonableness, but were not audited by us. I am a member of the Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained in this report. In my opinion, the actuarial assumptions used in this report are reasonable, are related to plan experience and expectations, and represent our best estimate of anticipated experience under the system. I believe this report represents an accurate appraisal of the actuarial status of the system performed in accordance with generally accepted actuarial principles and practices relating to pension plans. Respectfully submitted, Public Employee Retirement Administration Commission ___________________________________ James R. Lamenzo Member of the American Academy of Actuaries Associate of the Society of Actuaries Enrolled Actuary Number 14-4709 ___________________________________ Joseph E. Connarton Executive Director ___________________________________ John F. Boorack Senior Actuarial Associate March 17, 2015 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 1 2. EXECUTIVE SUMMARY PART A | COSTS UNDER CURRENT VALUATION The principal results of the January 1, 2014 actuarial valuation are shown below. Present Value of Future Benefits Actives $224,780,212 Retirees, Survivors, and Inactives 180,450,648 Total $405,230,860 Normal Cost Total Normal Cost $7,703,847 Expected Employee Contributions 4,889,978 Net Normal Cost $2,813,869 Actuarial Liability and Development of Unfunded Actuarial Liability Actives $158,732,142 Retirees, Survivors, and Inactives 180,450,648 Total $339,182,790 Assets 228,738,704 Unfunded Actuarial Liability $110,444,086 The Board recently adopted a funding schedule effective in FY15. The appropriation for FY15 under this funding schedule is shown on page 10 and the complete funding schedule is shown on page 11. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 2 2. EXECUTIVE SUMMARY (continued) PART B | COMPARISON WITH PRIOR VALUATION The last full valuation was performed by PERAC as of January 1, 2012. The investment return assumption was decreased from 8.0% to 7.75% effective with this valuation. In addition, the salary increase assumption has been lowered to better reflect the current economic environment and the mortality assumption has been modified to reflect future mortality improvement (see Part C). Other assumptions are based on our Local Experience Study Analysis issued in March, 2002. Below we have shown a comparison of the results between the two valuations. PERAC PERAC Increase % Increase 1/1/14 1/1/12 (Decrease) (Decrease) Total Normal Cost $7,703,847 $7,607,387 $96,460 1.3% Expected Employee 4,889,978 4,536,189 353,789 7.8% Contributions Net Normal Cost $2,813,869 $3,071,198 ($257,329) (8.4%) Actuarial Liability Actives $158,732,142 $145,034,782 $13,697,360 9.4% Retirees and Inactives 180,450,648 164,660,770 15,789,878 9.6% Total $339,182,790 $309,695,552 $29,487,238 9.5% Assets 228,738,704 208,293,697 20,445,007 9.8% Unfunded Actuarial Liability $110,444,086 $101,401,855 $9,042,231 8.9% Funded Ratio67.4%67.3%0.1% FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 3 2. EXECUTIVE SUMMARY (continued) PART B | COMPARISON WITH PRIOR VALUATION (continued) Actives PERAC PERAC % 1/1/14 1/1/12 Difference Number 1,110 1,072 3.5% Total Payroll $55,765,757 $51,901,796 7.4% Average Salary $50,239 $48,416 3.8% Average Age 47.2 47.1 0.2% Average Service12.612.50.8% Retirees and Survivors PERAC PERAC % 1/1/14 1/1/12 Difference Number 806 809 (0.4%) Total Benefits* $19,226,814 $17,978,448 6.9% Average Benefits* $23,855 $22,223 7.3% Average Age 74.0 73.7 0.4% *excluding State reimbursed COLA FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 4 2. EXECUTIVE SUMMARY (continued) PART C | PLAN EXPERIENCE AND CHANGES FROM PRIOR VALUATION Plan Experience Plan Liabilities Since the last valuation, there was a gain on plan liabilities of approximately $4.8 million (the actuarial liability was less than expected). This gain is primarily due to salary increases for continuing active members increasing less than assumed (average pay increased 3.6% per year for continuing actives). This gain is determined before reflecting the assumption changes discussed below. Plan Assets The Board previously adopted an asset smoothing methodology to determine the actuarial value of assets. As of January 1, 2014, the actuarial value of assets is $228.7 million compared with the market value of $243.8 million. There was an asset gain on a market value basis of approximately $26.9 million over the 2-year period. The rates of return on a market value basis in 2012 and 2013 were 13.9% and 15.2% respectively. In the 2012 valuation, primarily due to the significant investment loss in 2008, the calculated AVA was approximately 109 of the market value. As of January 1, 2014 the % 2008 loss has been completely recognized. However, the final recognition of the 2008 loss was greater than the recognition of the investment return gains during 2012 and 2013 and generated an asset loss of approximately $7.1 million over the 2-year period on an actuarial value basis. Total There was a total net loss of approximately $2.3 million since the last valuation ($4.8 million gain on actuarial liability less $7.1 million loss on the actuarial value of assets). FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 5 2. EXECUTIVE SUMMARY (continued) PART C | PLAN EXPERIENCE AND CHANGES FROM PRIOR VALUATION (continued) Actuarial Assumptions Investment Return For local retirement systems, PERAC’s “standard” investment return assumption was 8.0% in our 2012 actuarial valuations. This had been our standard assumption (assuming a reasonable asset allocation) for over 15 years. We believe this assumption could still be considered reasonable as of January 1, 2014. However, based on the current environment, asset allocation, and future expected returns, we recommended that the investment return assumption be decreased to 7.75% in this valuation (we first used an investment return assumption of 7.75% in our January 1, 2013 actuarial valuations for local systems). The trend both in Massachusetts and across the country over the past 10 years has been to reduce this assumption. A reduction in the investment return assumption increases the plan’s liabilities. This change increased the employer normal cost by approximately $410,000 and the total actuarial liability by approximately $8.2 million. Salary increase In the current environment, we believe the salary increase assumption used in the prior valuation is conservative. Therefore, we lowered the salary increase assumption in this valuation. This change decreases the plan’s liability. Over the long term, the investment return assumption and the salary increase assumption should move together. This is because both assumptions have an inflation component. The change in the salary increase assumption partially mitigates the impact of the change in the investment return assumption. The prior salary increase assumption is based on job group and service. The largest increases are in the first few years of service. The assumption grades down each year to an ultimate rate of 4.75% - 5.25% after 10 years of service. For the past 4-5 years, most plans have had significant actuarial gains due to actual salary increases being less than assumed. Our revised assumption slightly reduces the assumption at each year of service. The revised ultimate rates are 4.25% - 4.75%. Although these may still seem somewhat high in the current environment, these are intended to be long term, not short term, rates. This change decreased the employer normal cost by approximately $472,000 and the total actuarial liability by approximately $2.6 million. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 6 2. EXECUTIVE SUMMARY (continued) PART C | PLAN EXPERIENCE AND CHANGES FROM PRIOR VALUATION (continued) Mortality In local actuarial valuations performed by PERAC as of January 1, 2010, we used the RP- 2000 mortality table. This is a standard table we have used since 2002 and is based on an experience analysis of local systems we performed in 2002. A revision to the actuarial standards of practice in 2010 required that future mortality improvements (longer life expectancy) be considered in valuations performed after July, 2011. To begin recognizing this change, as part of our January 1, 2011 local actuarial valuations, we used the RP-2000 mortality table adjusted 10 years with Scale AA which projects mortality improvement. In our 2012 and 2013 valuations, to reflect future mortality improvement, we extended the mortality improvement scale beyond the valuation date (to approximately 2020 for active members and 2015 for retirees). We extended the mortality improvement assumption two years in our 2014 valuations. Therefore, the projection is to 2022 for active members and 2017 for retirees. A revised mortality table, developed in the same manner as the current table, was recently published. The primary difference between the revised table and the current table is the projection scale for future mortality improvement. The revised table has limited experience related to public plans. It is not clear at this time how the revised table might affect the mortality assumption we would recommend for your 2016 actuarial valuation when we consider actual mortality experience for local systems. We expect to move to a fully generational table of some type in the next valuation. This change increased the employer normal cost by approximately $40,000 and the total actuarial liability by approximately $2.1 million. Overall Impact The overall impact of these assumption changes increased the plan’s actuarial liability by approximately $7.7 million. However the total normal cost decreased by $22,000. The funding schedule shown in this report reflects these revised assumptions. Chapter 176 Provisions Chapter 176 of the Acts of 2011, An Act Providing for Pension Reform and Benefit Modernization made a number of changes to the Chapter 32 pension law. There are several changes that will have the most impact on decreasing plan liabilities over the longer term. These include an increase in the normal retirement age by two years (for example, from age 65 to age 67 for Group 1 members), an increase in the age (early retirement) reduction factor for ages below the maximum age (from a 4.0% to a 6.0% annual reduction), and an increase in the period for determining a member’s average annual compensation (from 3 years to 5 years). Since these changes are effective only for members hired after April 1, 2012, this is the first actuarial valuation to reflect these changes. As of January 1, 2014, there were 182 members hired after April 1, 2012. Since these members have less than two years of service and are generally young, there is relatively little impact on plan costs in this valuation. The normal cost decreased approximately $257,000 and the actuarial liability decreased approximately $1.0 million for these members compared to the figures under the prior provisions. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 7 2. EXECUTIVE SUMMARY (continued) PART C | PLAN EXPERIENCE AND CHANGES FROM PRIOR VALUATION (continued) Funding Schedule The funding schedule presented in this report was recently adopted by the board. The schedule has the total cost increase 5.0% each year through FY29 with a final amortization payment in 2030. GASB 67/68 The results of this valuation will be used to implement two statements of the Governmental Accounting Standards Board (GASB) that replace GASB 25 and GASB 27. The statements are commonly referred to as GASB 67 and GASB 68. GASB 67 relates to financial reporting for state and local government pension plans (plan financials) and is effective for fiscal years beginning after June 15, 2013. GASB 68 relates to financial reporting by state and local governments for pension plans (employer financials) and is effective for fiscal years beginning after June 15, 2014. We have not provided any GASB 67/68 exhibits in this report. We will work with the Town, retirement board, and auditor to complete the necessary disclosures. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 8 3. SUMMARY OF VALUATION RESULTS A. Number of Members on Current Valuation Date Active Members 1,110 Vested Terminated Members 24 Retired Members and Survivors 806 Total 1,940 B. Total Regular Compensation of Active Members $55,765,757 C. Normal Cost Superannuation $5,201,454 Death 437,427 Disability 1,383,299 Termination 681,667 Total Normal Cost $7,703,847 Expected Employee Contributions 4,889,978 Net Employer Normal Cost $2,813,869 D. Actuarial Liability Active Superannuation $145,924,535 Death 2,706,661 Disability 7,282,962 Termination 2,817,984 Total Active $158,732,142 Vested Terminated Members 3,075,128 Non-Vested Terminated Members 2,965,762 Retirees and Survivors 174,409,758 Total Actuarial Liability $339,182,790 E. Actuarial Value of Assets 228,738,704 F. Unfunded Actuarial Liability: D – E $110,444,086 G. Funded Ratio: E/D 67.4% FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 9 4. APPROPRIATION DEVELOPMENT FOR FISCAL YEAR 2015 PART A | DERIVATION OF APPROPRIATION Cost Under Current Funding Schedule 1. a. Normal Cost as of January 1, 2014 $2,813,869 b. For FY15 (adjusted for timing) $2,922,906 c. Estimated Expenses $425,000 d. Total Employer Normal Cost (b+c) $3,347,906 2. Net 3(8)(c) payments $160,000 3. a. Unfunded Actuarial Liability as of January 1, 2014 $110,444,086 b. FY15 amortization payment (16-year, 5.0% total increasing) * $8,906,094 6. Total FY15 Payment \[Sum of 1(d), 2 and 3(b)\] $12,414,000 * FY15 appropriation was maintained at the same level as the prior schedule. All amounts assume payments will be made July 1 of each fiscal year. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 10 4. APPROPRIATION DEVELOPMENT FOR FISCAL YEAR 2015 (continued) PART B | CURRENT FUNDING SCHEDULE Percent Fiscal Normal Net Amort. Of Total Unfunded Increase YearCost 3(8)(c) UAL Cost Act. Liab. Total Cost 2015 3,347,906 160,000 8,906,094 12,414,000 114,723,794 2016 3,498,562 160,000 9,376,138 13,034,700 114,018,573 5.00% 2017 3,655,998 160,000 9,870,437 13,686,435 112,752,223 5.00% 2018 3,820,517 160,000 10,390,239 14,370,757 110,855,124 5.00% 2019 3,992,441 160,000 10,936,854 15,089,295 108,250,914 5.00% 2020 4,172,101 160,000 11,511,659 15,843,759 104,855,899 5.00% 2021 4,359,845 160,000 12,116,102 16,635,947 100,578,419 5.00% 2022 4,556,038 160,000 12,751,707 17,467,745 95,318,147 5.00% 20234,761,060160,00013,420,07218,341,13288,965,3395.00% 2024 4,975,307 160,000 14,122,881 19,258,188 81,400,025 5.00% 2025 5,199,196 160,000 14,861,902 20,221,098 72,491,123 5.00% 2026 5,433,160 160,000 15,638,993 21,232,153 62,095,486 5.00% 2027 5,677,652 160,000 16,456,108 22,293,760 50,056,871 5.00% 2028 5,933,147 160,000 17,315,302 23,408,448 36,204,822 5.00% 2029 6,200,138 160,000 18,218,733 24,578,871 20,353,459 5.00% 2030 6,479,145 160,000 2,300,167 8,939,312 2,300,167-63.63% 2031 6,770,706 160,000 6,930,706 0 -22.47% All amounts assume payments will be made July 1 of each fiscal year. Total Cost increases 5.0% each year through FY29 with a final amortization payment in FY30. FY15 normal cost includes assumed expenses of $425,000 and is assumed to increase 4.5% per year. FY15 appropriation was maintained at the same level as the prior schedule. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 11 5. GASB STATEMENT NO. 25: ACTUARIAL INFORMATION The actuarial information required by Governmental Accounting Standards Board (GASB) Statement No. 25 is shown below. Schedule of Funding Progress Actuarial Actuarial Actuarial Unfunded Funded Covered UAAL Valuation Value of Accrued AAL (UAAL) Ratio Payroll as a % of Date Assets Liability (b-a) (a/b) (c) Cov. Payroll (a) (AAL)* ((b-a)/c) (b) 1/1/2014 $228,738,704 $339,182,790 $110,444,086 67.4% $55,765,757 198.1% 1/1/2012 $208,293,697 $309,695,552 $101,401,855 67.3% $51,901,796 195.4% 1/1/2010 $192,218,521 $283,866,634 $91,648,113 67.7% $53,311,255 171.9% *excludes State reimbursed COLA Notes To Schedules Additional information as of the latest actuarial valuation follows. Valuation Date January 1, 2014 Actuarial Cost Method Individual entry age normal Amortization Method Total appropriation increases 5.0% Remaining Amortization Period 16 years Asset Valuation Method Actuarial value, 5-year smoothing Principal Actuarial Assumptions: Investment Rate of Return 7.75% Projected Salary IncreasesService based table with ultimate rates of 4.25%, 4.50%, and 4.75% for groups 1, 2, and 4 respectively. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 12 6. PLAN ASSETS A | BREAKDOWN OF ASSETS BY INVESTMENT TYPE Cash and Cash Equivalents $202,781 PRIT Cash 1,014,164 PRIT Fund 242,598,940 Accounts Receivable 112 Total $243,815,997 B | BREAKDOWN OF ASSETS BY FUND Annuity Savings Fund $58,849,930 Annuity Reserve Fund 15,157,572 Military Fund 4,983 Pension Fund 5,430,425 Pension Reserve Fund 164,373,087 Total $243,815,997 C | MARKET VALUE OF ASSETS $243,815,997 D | ACTUARIAL VALUE OF ASSETS $228,738,704 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 13 6. PLAN ASSETS (continued) E | DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS 20132014 A. Development of total investment income including appreciation 1. Beginning of year market value 214,945,639243,815,997 2a. Employee contributions 5,261,713 b. Employer contributions 11,823,000 c. Other receipts 1,879,346 d. Total receipts: (a) + (b) + (c) 18,964,059 e. Benefit payments 18,943,009 f. Expenses 1,598,717 g. Other disbursements 2,197,348 h. Total disbursements: (e) + (f) + (g) 22,739,074 i. Cash flow: (d) – (h)(3,775,015) 3. End of year market value 243,815,997 4. Investment income including appreciation: (3) – (1) – (2(i)) 32,645,373 B. Expected market value development 1. Beginning of year market value 214,945,639 2. Cash flow (A2(i)) (3,775,015) 3. Expected Return on (1) 17,195,651 4. Expected return on cash flow (151,001) A2(i) x 0.08 / 2 5. Expected market value end of year 228,215,274 (1)+(2)+(3)+(4) 15,600,723 C. Gain/(loss) for year: A3-B5 D. Development of Actuarial Value of Assets 1. Beginning of year market value 214,945,639243,815,997 2a. Asset gain/(loss) in prior year 11,294,09815,600,723 nd b. Asset gain/(loss) in 2 prior year(15,299,967)11,294,098 rd c. Asset gain/(loss) in 3 prior year 9,701,214(15,299,967) d. Asset gain/(loss) in 4 th prior year 14,059,8319,701,214 3. Unrecognized gain/(loss) 6,547,75015,077,293 .8 x \[2a\] + .6 x \[2b\] + .4 x \[2c\] +.2 x \[2d\] 4. Beginning of year actuarial value of assets: \[1\] - \[3\] 208,397,889228,738,704 5. Actuarial value / Market value 97.0%93.8% 6. Adjusted actuarial value: (4) but not less than 90% nor greater than 110% of market value 208,397,889228,738,704 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 14 7. INFORMATION ON SYSTEM MEMBERSHIP A critical element of an actuarial valuation is accurate and up-to-date membership information. PERAC conducted an extensive review of member data submitted for this valuation. PART A | ACTIVE MEMBERS Actives Vested Terminations Number of Members 1,110 24 Average Age 47.2 52.7 Average Service 12.6 14.4 Average Salary $50,239 $42,725 Average Annuity Savings Fund Balance $50,083 $46,460 Age by Service Distribution of Active Members Years of Service Present 0 - 4 5 –9 10 - 14 15 - 19 20 - 24 25 - 29 30+ Total Age 0 - 24 28 1 29 25 - 29 68 18 86 30 - 34 35 48 4 1 88 35 - 39 28 32 26 7 93 40 - 44 34 37 25 35 8 1 140 45 - 49 39 33 35 32 18 17 2 176 50 - 54 28 28 36 31 14 37 10 184 55 - 59 23 24 30 29 11 24 34 175 60 - 64 5 15 12 15 9 15 17 88 65+ 1 4 9 11 12 8 6 51 Total 289 240 177 161 72 102 69 1,110 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 15 7. INFORMATION ON SYSTEM MEMBERSHIP (continued) PART A | ACTIVE MEMBERS (continued) Salary by Age Distribution of Active Members Present Number of Total Average Age Members Salary Salary 0 - 24 29 $1,005,461 $34,671 25 - 29 86 $3,499,355 $40,690 30 - 34 88 $4,358,058 $49,523 35 - 39 93 $4,593,214 $49,389 40 - 44 140 $7,320,256 $52,288 45 - 49 176 $9,243,120 $52,518 50 - 54 184 $9,769,548 $53,095 55 - 59 175 $9,223,353 $52,705 60 - 64 88 $4,543,197 $51,627 65+ 51$2,210,195 $43,337 Total 1,110 $55,765,757 $50,239 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 16 7. INFORMATION ON SYSTEM MEMBERSHIP (continued) PART B | RETIREES AND SURVIVORS Superannuation Ordinary Accidental Survivors Total Disability Disability Number of Members 630 15 62 99 806 Average Age 74.5 67.8 65.0 77.8 74.0 Average Annual Benefit $24,123 $16,305 $37,213 $17,326 $24,150 Benefit by Payment and Retirement Type SuperannuationOrdinary Accidental SurvivorsTotal DisabilityDisability Total Annuity$2,594,528 $35,248 $199,438 $133,778 $2,962,992 Pension (excluding $12,462,043 $201,926 $2,070,480 $1,529,373 $16,263,822 State reimbursed COLA) State reimbursed $141,034 $7,400 $37,289 $52,144 $237,867 COLA Total$15,197,605 $244,574 $2,307,207 $1,715,295 $19,464,681 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 17 7. INFORMATION ON SYSTEM MEMBERSHIP (continued) PART B | RETIREES & SURVIVORS (continued) Benefit by Age Distribution Present Age Number of Total Benefits Average Benefits Members 1 $17,452 $17,452 Less than 40 4 $194,503 $48,626 40 - 44 45 - 49 8 $229,536 $28,692 50 - 54 15 $508,712 $33,914 55 - 59 55 $1,735,640 $31,557 60 - 64 85 $2,619,126 $30,813 65 - 69 124 $3,575,176 $28,832 70 - 74 136 $3,569,707 $26,248 75 - 79 132 $2,977,949 $22,560 80 - 84 104 $1,954,749 $18,796 85 - 89 88 $1,466,408 $16,664 90+ 54 $615,723 $11,402 Totals 806 $19,464,681 $24,150 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 18 8. VALUATION COST METHODS PART A | ACTUARIAL COST METHOD The Actuarial Cost Method which was used to determine pension liabilities in this valuation is known as the Under this method the Entry Age Normal Cost MethodNormal . for each active member on the valuation date is determined as the level percent of Cost salary, which, if paid annually from the date the employee first became a member of the retirement system, would fully fund by retirement, death, disability or termination, the projected benefits which the member is expected to receive. The for each Actuarial Liability member is determined as the present value as of the valuation date of all projected benefits which the member is expected to receive, minus the present value of future annual Normal Cost payments expected to be made to the fund. Since only active members have a Normal Cost, the Actuarial Liability for inactives, retirees and survivors is simply equal to the present value of all projected benefits. The sum of Normal Cost and Actuarial Liability for each member is equal to the Normal Cost and Actuarial Liability for the Plan. The is the Actuarial Liability less current assets. Unfunded Actuarial Liability The Normal Cost for a member will remain a level percent of salary for each year of membership except for changes in provisions of the Plan or the actuarial assumptions employed in projection of benefits and present value determinations. The Normal Cost for the entire system will also change due to the addition of new members or the retirement, death or termination of members. The Actuarial Liability for a member will increase each year to reflect the additional accrual of Normal Cost. It will also change if the Plan provisions or actuarial assumptions are changed. Differences each year between the actual experience of the Plan and the experience projected by the actuarial assumptions are reflected by adjustments to the Unfunded Actuarial Liability. An experience difference which increases the Unfunded Actuarial Liability is called an and one which decreases the Unfunded Actuarial Liability Actuarial Loss is called an Actuarial Gain. PART B | ASSET VALUATION METHOD The actuarial value of assets is determined in accordance with the deferred recognition method under which 20% of the gains or losses occurring in the prior year are recognized, 40% of those occurring 2 years ago, etc., so that 100% of gains or losses occurring 5 years ago are recognized. The actuarial value of assets will be adjusted, if necessary, in order to remain between 90% and 110% of market value. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 19 9. ACTUARIAL ASSUMPTIONS INVESTMENT RETURN 7.75% per year INTEREST RATE CREDITED TO THE ANNUITY SAVINGS FUND 3.5%per year COST OF LIVING INCREASES 3.0% per year (of the first $12,000) SALARY INCREASE Service Group 1 Group 2 Group 4 0 6.00% 6.00% 7.00% 1 5.50% 5.50% 6.50% 2 5.50% 5.50% 6.00% 3 5.25% 5.25% 5.75% 4 5.25% 5.25% 5.25% 5 4.75% 4.75% 5.25% 6 4.75% 4.75% 4.75% 7 4.50% 4.50% 4.75% 8 4.50% 4.50% 4.75% 9 4.25% 4.50% 4.75% 10+ 4.25% 4.50% 4.75% MORTALITY Pre-retirement rates reflect the RP-2000 Employees table projected 22 years with Scale AA (gender distinct). Post-retirement rates reflect the RP- 2000 Healthy Annuitant table projected 17 years with Scale AA (gender distinct). For disabled retirees, this table is set forward 3 years for males. It is assumed that 55% of pre-retirement deaths are job-related for Group 1 and 2 members and 90% are job-related for Group 4 members. For members retired under an Accidental Disability, 40% of deaths are assumed to be from the same cause as the disability. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 20 9. ACTUARIAL ASSUMPTIONS (continued) WITHDRAWAL Based on analysis of past experience. Annual rates are based on years of service. Sample annual rates for Groups 1 and 2 are shown below. For Group 4 members the rate is 0.015 each year for service up to and including 10 years. No withdrawal is assumed thereafter. Service Groups 1 & 2 0 0.150 5 0.076 100.054 150.033 200.020 DISABILITY Based on an analysis of past experience. It is also assumed that the percentage of job- related disabilities is 55% for Groups 1 & 2 and 90% for Group 4. Age Groups 1 & 2 Group 4 20 0.00010 0.0010 30 0.00030 0.0030 40 0.00101 0.0030 50 0.00192 0.0125 60 0.00280 0.0085 EXPENSES An amount of $425,000 has been included in the Normal Cost for FY15. This amount includes estimated administrative expenses and a portion of the investment related expenses. This amount is assumed to increase by 4.5% each year. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 21 9. ACTUARIAL ASSUMPTIONS (continued) RETIREMENT (SUPERANNUATION) Age Groups 1 & 2 Group 4 Male Female 45-49 0.000 0.000 0.010 50 0.010 0.015 0.020 51 0.010 0.015 0.020 52 0.010 0.020 0.020 53 0.010 0.025 0.050 54 0.020 0.025 0.075 55 0.020 0.055 0.150 56 0.025 0.065 0.100 57 0.025 0.065 0.100 58 0.050 0.065 0.100 59 0.065 0.065 0.150 60 0.120 0.050 0.200 61 0.200 0.130 0.200 62 0.300 0.150 0.250 63 0.250 0.125 0.250 64 0.220 0.180 0.300 65 0.400 0.150 1.000 66 0.250 0.200 1.000 67 0.250 0.200 1.000 68 0.300 0.250 1.000 69 0.300 0.200 1.000 70 and after 1.000 1.000 1.000 FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 22 10. SUMMARY OF PLAN PROVISIONS ADMINISTRATION There are 105 contributory retirement systems for public employees in Massachusetts. Each system is governed by a retirement board and all boards, although operating independently, are governed by Chapter 32 of the Massachusetts General Laws. This law in general provides uniform benefits, uniform contribution requirements and a uniform accounting and funds structure for all systems. PARTICIPATION Participation is mandatory for all full-time employees. Eligibility with respect to part-time, provisional, temporary, seasonal or intermittent employment is governed by regulations promulgated by the retirement board, and approved by PERAC. Membership is optional for certain elected officials. There are 3 classes of membership in the retirement system: Group 1 : General employees, including clerical, administrative, technical and all other employees not otherwise classified. Group 2: Certain specified hazardous duty positions. Group 4: Police officers, firefighters, and other specified hazardous positions. MEMBER CONTRIBUTIONS Member contributions vary depending on the most recent date of membership: Prior to 1975: 5% of regular compensation 1975 - 1983: 7% of regular compensation 1984 to 6/30/96: 8% of regular compensation 7/1/96 to present: 9% of regular compensation 1979 to present: an additional 2% of regular compensation in excess of $30,000. In addition, members of Group 1 who join the system on or after April 2, 2012 will have their withholding rate reduced to 6 % after achieving 30 years of creditable service. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 23 10. SUMMARY OF PLAN PROVISIONS (continued) RATE OF INTEREST Interest on regular deductions made after January 1, 1984 is a rate established by PERAC in consultation with the Commissioner of Banks. The rate is obtained from the average rates paid on individual savings accounts by a representative sample of at least 10 financial institutions. RETIREMENT AGE The mandatory retirement age for some Group 2 and Group 4 employees is age 65. Most Group 2 and Group 4 members may remain in service after reaching age 65. Group 2 and Group 4 members who are employed in certain public safety positions are required to retire at age 65. There is no mandatory retirement age for employees in Group 1. SUPERANNUATION RETIREMENT A person who became a member before April 2, 2012 is eligible for a superannuation retirement allowance (service retirement) upon meeting the following conditions: fied in Group 4, or 1978, and if classified in Group 1 or 2 A person who became a member on or after April 2, 2012 is eligible for a superannuation retirement allowance (service retirement) upon meeting the following conditions: , or if classified in Group 4. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 24 10. SUMMARY OF PLAN PROVISIONS (continued) AMOUNT OF BENEFIT A member’s annual allowance is determined by multiplying average salary by a benefit rate related to the member’s age and job classification at retirement, and the resulting product by his creditable service. The amount determined by the benefit formula cannot exceed 80% of the member’s highest three year (or five year salary as discussed below) average salary. For veterans as defined in G.L. c. 32, s. 1, there is an additional benefit of $15 per year for each year of creditable service, up to a maximum of $300. after January 1, 2011, regular compensation is limited to 64% of the federal limit found in 26 U.S.C. 401(a)(17). In addition, regular compensation for members who retire after April 2, 2012 will be limited to prohibit “spiking” of a member’s salary to increase the retirement benefit. prior to April 2, 2012, Average Salary is the average annual rate of regular compensation received during the 3 consecutive years that produce the highest average, or, if greater, during the last 3 years (whether or not consecutive) preceding retirement. Average Salary is the average annual rate of regular compensation received during the 5 consecutive years that produce the highest average, or, if greater, during the last 5 years (whether or not consecutive) preceding retirement. members prior to April 2, 2012 the highest rate of 2.5% applies to Group 1 employees who retire at or after age 65, Group 2 employees who retire at or after age 60, and to Group 4 employees who retire at or after age 55. A .1% reduction is applied for each year of age under the maximum age for the member’s group. For Group 2 employees who terminate from service under age 55, the benefit rate for a Group 1 employee shall be used. years of creditable service, the highest rate of 2.5% applies to Group 1 employees who retire at or after age 67, Group 2 employees who retire at or after age 62, and to Group 4 employees who retire at or after age 57. A .15% reduction is applied for each year of age under the maximum age for the member’s group. and retire with more than 30 years of creditable service, the highest rate of 2.5% applies to Group 1 employees who retire at or after age 67, Group 2 employees who retire at or after age 62, and to Group 4 employees who retire at or after age 55. A .125% reduction is applied for each year of age under the maximum age for the member’s group. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 25 10. SUMMARY OF PLAN PROVISIONS (continued) DEFERRED VESTED BENEFIT A participant who has attained the requisite years of creditable service can elect to defer his or her retirement until a later date. Group 4 employees cannot defer beyond age 65. All participants must begin to receive a retirement allowance or withdraw their accumulated deductions no later than April 15 of the calendar year following the year they reach age 70½. WITHDRAWAL OF CONTRIBUTIONS Member contributions may be withdrawn upon termination of employment. The interest rate for employees who first become members on or after January 1, 1984 who voluntarily withdraw their contributions with less than 10 years of service will be 3%. Interest payable on all other withdrawals will be set at regular interest. DISABILITY RETIREMENT The Massachusetts Retirement Plan provides 2 types of disability retirement benefits: ORDINARY DISABILITY Non-veterans who become totally and permanently disabled by reason of a Eligibility: non-job related condition with at least 10 years of creditable service (or 15 years creditable service in systems in which the local option contained in G.L. c. 32, s.6(1) has not been adopted). Veterans with ten years of creditable service who become totally and permanently disabled by reason of a non-job related condition prior to reaching “maximum age”. “Maximum age” applies only to employees classified in Group 4 who are subject to mandatory retirement. For persons who became members prior to April 2, 2012, the Retirement Allowance: benefit is equal to the accrued superannuation retirement benefit as if the member was age 55. If the member is a veteran, the benefit is 50% of the member’s final rate of salary during the preceding 12 months, plus an annuity based upon accumulated member contributions plus credited interest. If the member is over age 55, he or she will receive not less than the superannuation allowance to which he or she is entitled. For persons in Group 1 who became members on or after April 2, 2012, the benefit is equal to the accrued superannuation retirement benefit as if the member was age 60. If the member is a veteran, the benefit is 50% of the member’s final rate of salary during the preceding 12 months, plus an annuity based upon accumulated member contributions plus credited interest. If the member is over age 60, he or she will receive not less than the superannuation allowance to which he or she would have been entitled had they retired for superannuation. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 26 10. SUMMARY OF PLAN PROVISIONS (continued) ORDINARY DISABILITY (continued) For persons in Group 2 and Group 4 who became members on or after April 2, 2012, the benefit is equal to the accrued superannuation retirement benefit as if the member was age 55. If the member is a veteran, the benefit is 50% of the member’s final rate of salary during the preceding 12 months, plus an annuity based upon accumulated member contributions plus credited interest. If the member is over age 55, he or she will receive not less than the superannuation allowance to which he or she is entitled ACCIDENTAL DISABILITY Applies to members who become permanently and totally unable to perform the Eligibility: essential duties of the position as a result of a personal injury sustained or hazard undergone while in the performance of duties. There are no minimum age or service requirements. 72% of salary plus an annuity based on accumulated member Retirement Allowance: contributions, with interest. This amount is not to exceed 100% of pay. For those who became members in service after January 1, 1988 or who have not been members in service continually since that date, the amount is limited to 75% of pay. There is an additional pension of $797.64 per year (or $312.00 per year in systems in which the local option contained in G.L. c. 32, s. 7(2)(a)(iii) has not been adopted), per child who is under 18 at the time of the member’s retirement, with no age limitation if the child is mentally or physically incapacitated from earning. The additional pension may continue up to age 22 for any child who is a full time student at an accredited educational institution. For systems that have adopted Chapter 157 of the Acts of 2005, veterans as defined in G.L. c. 32, s. 1 receive an additional benefit of $15 per year for each year of creditable service, up to a maximum of $300. ACCIDENTAL DEATH Applies to members who die as a result of a work-related injury or if the member Eligibility: was retired for accidental disability and the death was the natural and proximate result of the injury or hazard undergone on account of which such member was retired. An immediate payment to a named beneficiary equal to the accumulated Allowance: deductions at the time of death, plus a pension equal to 72% of current salary and payable to the surviving spouse, dependent children or the dependent parent, plus a supplement of $797.64 per year, per child (or $312.00 per year in systems in which the local option contained in G.L. c. 32, s. 9(2)(d)(ii) has not been adopted), payable to the spouse or legal guardian until all dependent children reach age 18 or 22 if a full time student, unless mentally or physically incapacitated. The surviving spouse of a member of a police or fire department or any corrections officer who, under specific and limited circumstances detailed in the statute, suffers an accident and is killed or sustains injuries while in the performance of his duties that results in his death, may receive a pension equal to the maximum salary for the position held by the member upon his death. In addition, an eligible family member may receive a one time payment of $100,000.00 from the State Retirement Board. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 27 10. SUMMARY OF PLAN PROVISIONS (continued) DEATH AFTER ACCIDENTAL DISABILITY RETIREMENT Effective November 7, 1996, Accidental Disability retirees were allowed to select Option C at retirement and provide a benefit for an eligible survivor. For Accidental Disability retirees prior to November 7, 1996, who could not select Option C, if the member’s death is from a cause unrelated to the condition for which the member received accidental disability benefits, a surviving spouse will receive an annual allowance of $6,000. For Systems that accept the provisions of Section 28 of Chapter 131 of the Acts of 2010 the amount of this benefit is $9,000 and for Systems that accept the provisions of Section 65 of Chapter 139 of the Acts of 2012 the amount of this benefit is $12,000. DEATH IN ACTIVE SERVICE An immediate allowance equal to that which would have been payable had Allowance: the member retired and selected Option C on the day before his or her death. For a member who became a member prior to April 2, 2012 whose death occurred prior to the member’s superannuation retirement age, the age 55 benefit rate is used. For a member classified in Group 1 who became a member on or after April 2, 2012 whose death occurred, the age 60 benefit rate is used. If the member died after age 60, the actual age is used. The minimum annual allowance payable to the surviving spouse of a member in service who dies with at least two years of creditable service is $3,000 unless the retirement system has accepted the local option increasing this minimum annual allowance to $6,000, provided that the member and the spouse were married for at least one year and living together on the member’s date of death The surviving spouse of such a member in service receives an additional allowance equal to the sum of $1,440 per year for the first child and $1,080 per year for each additional child until all dependent children reach age 18 or 22 if a full time student, unless mentally or physically incapacitated. COST OF LIVING If a system has accepted Chapter 17 of the Acts of 1997, and the Retirement Board votes to pay a cost of living increase (COLA) for that year, the percentage is determined based on the increase in the Consumer Price Index used for indexing Social Security benefits, but cannot exceed 3.0%. Section 51 of Chapter 127 of the Acts of 1999, if accepted, allows boards to grant COLA increases greater than that determined by CPI but not to exceed 3.0%. The first $12,000 of a retiree’s total allowance is subject to a COLA. The total COLA for periods from 1981 through 1996 is paid for by the Commonwealth of Massachusetts. Under the provisions of Chapter 32, Section 103(j) inserted by Section 19 of Chapter 188 of the Acts of 2010, systems may increase the maximum base on which the COLA is calculated in multiples of $1,000. Each increase must be accepted by a majority vote of the Retirement Board and approved by the legislative body. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 28 10. SUMMARY OF PLAN PROVISIONS (continued) METHODS OF PAYMENT A member may elect to receive his or her retirement allowance in one of 3 forms of payment. Total annual allowance, payable in monthly installments, commencing at Option A: retirement and terminating at the member’s death. A reduced annual allowance, payable in monthly installments, commencing at Option B: retirement and terminating at the death of the member, provided, however, that if the total amount of the annuity portion received by the member is less than the amount of his or her accumulated deductions, including interest, the difference or balance of his accumulated deductions will be paid in a lump sum to the retiree’s beneficiary or beneficiaries of choice. A reduced annual allowance, payable in monthly installments, commencing at Option C: retirement. At the death of the retired employee, 2/3 of the allowance is payable to the member’s designated beneficiary (who may be the spouse, or former spouse who is unmarried at the time of retirement for a member whose retirement becomes effective on or after February 2, 1992, child, parent, sister, or brother of the employee) for the life of the beneficiary. For members who retired on or after January 12, 1988, if the beneficiary pre-deceases the retiree, the benefit payable increases (or “pops up” to Option A) based on the factor used to determine the Option C benefit at retirement. For members who retired prior to January 12, 1988, if the System has accepted Section 288 of Chapter 194 of the Acts of 1998 and the beneficiary pre-deceases the retiree, the benefit payable “pops up” to Option A in the same fashion. The Option C became available to accidental disability retirees on November 7, 1996. ALLOCATION OF PENSION COSTS If a member’s total creditable service was partly earned by employment in more than one retirement system, the cost of the "pension portion" is allocated between the different systems pro rata based on the member’s service within each retirement system. If a member received regular compensation concurrently from two or more systems on or after January 1, 2010, and was not vested in both systems as of January 1, 2010, such a pro-ration will not be undertaken. This is because such a person will receive a separate retirement allowance from each system. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 29 11. GLOSSARY OF TERMS ACTUARIAL ACCRUED LIABILITY That portion of the Actuarial Present Value of pension plan benefits which is not provided by future Normal Costs or employee contributions. It is the portion of the Actuarial Present Value attributable to service rendered as of the Valuation Date. ACTUARIAL ASSUMPTIONS Assumptions, based upon past experience or standard tables, used to predict the occurrence of future events affecting the amount and duration of pension benefits, such as: mortality, withdrawal, disablement and retirement; changes in compensation; rates of investment earnings and asset appreciation or depreciation; and any other relevant items. ACTUARIAL COST METHOD (OR FUNDING METHOD) A procedure for allocating the Actuarial Present Value of all past and future pension plan benefits to the Normal Cost and the Actuarial Accrued Liability. ACTUARIAL GAIN OR LOSS (OR EXPERIENCE GAIN OR LOSS) A measure of the difference between actual experience and that expected based upon the set of Actuarial Assumptions, during the period between two Actuarial Valuation dates. The effect on the Accrued Liability and/or the Normal Cost resulting from changes Note: in the Actuarial Assumptions, the Actuarial Cost Method, or pension plan provisions would be described as such, not as an Actuarial Gain (Loss). ACTUARIAL PRESENT VALUE The dollar value on the valuation date of all benefits expected to be paid to current members based upon the Actuarial Assumptions and the terms of the Plan. AMORTIZATION PAYMENT That portion of the pension plan appropriation which represents payments made to pay interest on and the reduction of the Unfunded Accrued Liability. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 30 11. GLOSSARY OF TERMS (continued) ANNUAL STATEMENT The statement submitted to PERAC each year that describes the asset holdings and Fund balances as of December 3l and the transactions during the calendar year that affected the financial condition of the retirement system. ANNUITY RESERVE FUND The fund into which total accumulated deductions, including interest, is transferred at the time a member retires, and from which annuity payments are made. ANNUITY SAVINGS FUND The fund in which employee contributions plus interest credited are held for active members and for former members who have not withdrawn their contributions and are not yet receiving a benefit (inactive members). ASSETS The value of securities as described in Section VIII. COST OF BENEFITS The estimated payment from the pension system for benefits for the fiscal year. This was the minimum amount payable during the first six years of some funding schedules. FUNDING SCHEDULE The schedule based upon the most recently approved actuarial valuation which sets forth the amount which would be appropriated to the pension system in accordance with Section 22(6A), Section 22D or Section 22F of M.G.L. Chapter 32. GASB Governmental Accounting Standards Board FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 31 11. GLOSSARY OF TERMS (continued) NORMAL COST Total Normal Cost is that portion of the Actuarial Present Value of pension plan benefits, which is to be paid in a single fiscal year. The Employee Normal Cost is the amount of the expected employee contributions for the fiscal year. The Employer Normal Cost is the difference between the Total Normal Cost and the Employee Normal Cost. PENSION FUND The fund into which appropriation amounts as determined by PERAC are paid and from which pension benefits are paid. PENSION RESERVE FUND The fund which shall be credited with all amounts set aside by a system for the purpose of establishing a reserve to meet future pension liabilities. These amounts would include excess interest earnings. SPECIAL FUND FOR MILITARY SERVICE CREDIT The fund which is credited with amounts paid by the retirement board equal to the amount which would have been contributed by a member during a military leave of absence as if the member had remained in active service of the retirement board. In the event of retirement or a non-job related death, such amount is transferred to the Annuity Reserve Fund. In the event of termination prior to retirement or death, such amount shall be transferred to the Pension Fund. UNFUNDED ACCRUED LIABILITY The excess of the Actuarial Accrued Liability over the Assets. FRAMINGHAM ACTUARIAL VALUATION REPORT | JANUARY 1, 2014 32 PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION COMMISSION Five Middlesex Avenue | Suite 304 | Somerville, MA 02145 Ph: 617.666.4446 | Fax: 617.628.4002 TTY: 617.591.8917 | Web: www.mass.gov/perac