HomeMy WebLinkAbout2008-05-20; City Council; 19456; Prefunding agreement with CALPERS10
CITY OF CARLSBAD AND
CARLSBAD MUNICIPAL WATER DISTRICT - AGENDA BILL
AB# 19456 AGREEMENT WITH THE CALIFORNIA
MTG n^O/08 PUBLIC EMPLOYEES' RETIREMENT
- SYSTEM (CALPERS) TO PREFUNDnF PTUtr 1 .OTHER POST EMPLOYMENT
BENEFITS (OPEB)
DEPT. HEAD
CITY ATTY.
CITY MGR.
RECOMMENDED ACTION:
Adopt Resolution No. 2008-151 , approving the agreement and election to prefund
other post employment benefits through CalPERS with the City of Carlsbad.
Adopt Resolution No. 1321 , approving the agreement and election to prefund
other post employment benefits through CalPERS with the Carlsbad Municipal Water District.
ITEM EXPLANATION:
The purpose of this agenda bill is to request Council's approval of two resolutions necessary
to prefund the City of Carlsbad's (City) and the Carlsbad Municipal Water District's (CMWD)
accrued liabilities as calculated by the actuary firm of Gabriel, Roeder and Smith for other post
employment benefits (OPEB). The attached resolutions will establish Prefunding Plans with the
California Public Employees' Retirement System (CalPERS) and allow CalPERS to receive
contributions from the City and CMWD, invest the contributed amounts, and disburse amounts
as authorized by the City and CMWD.
BACKGROUND:
In order to ensure that retiree health care costs are included in the financial statements of
entities, the Government Accounting Standards Board (GASB) implemented GASB 45. This
new rule set the standard by which retiree health care costs are reflected in the financial
statements. GASB 45 requires government organizations to hire an actuary to calculate the
unfunded liability and the annual required contribution (ARC) for retiree health care costs.
These calculations provide the data for an agency to determine the cost of matching the
expense of the future benefit with the period in which the employee was providing the
service, thus allocating the future cost over the working life of the employee. Similar
calculations are already performed for the City's retirement benefits.
The City of Carlsbad retained the actuary firm of Gabriel, Roeder and Smith to calculate
these amounts in preparation of implementing the GASB 45 requirements. GASB 45
requires the City and CMWD to record the actuarial determined liabilities and associated
expenses in the financial statements for the fiscal year ending June 30, 2008. While GASB
45 allows governmental agencies to amortize the calculated liabilities over a 12 to 30 year
period, staff is recommending that the City and CMWD fund the current liabilities with
existing fund balances to smooth out and lower future annual expenses.
DEPARTMENT CONTACT: Kevin Branca 760-602-2430 kbran@ci.carlsbad.ca.us
FOR CITY CLERKS USE ONLY.
COUNCIL ACTION: APPROVED
DENIED
CONTINUED
WITHDRAWN
AMENDED
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CONTINUED TO DATE SPECIFIC
CONTINUED TO DATE UNKNOWN
RETURNED TO STAFF
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The City of Carlsbad contributes to two retiree health care plans: the City and CMWD.
CMWD has a defined benefit plan whereas the City has a defined contribution plan. These
plans are as follows:
Carlsbad Municipal Water District
Former employees (24) of CMWD (including dependents) are eligible for post-retirement
health care benefits if 1) they voluntarily retire after the age of 50 with no less than five years
of service, 2) if their age combined with years of service equals 70 or more. CMWD will pay,
after retirement of CMWD employees, premiums for existing medical coverage. Medical
coverage for retired CMWD employees will be coordinated with Medicare and other benefits
provided by federal and state law, and will thereby be reduced when the retirees qualify for
those benefits. There are approximately eleven active and thirteen retired plan members as
of June 30, 2006.
Based on the actuarial valuation performed as of June 30, 2006, CMWD's liability for the
current and past services for these benefits is approximately $2,549,000. In addition, the
annual required contribution (ARC) is $45,000. The ARC is comprised of two components,
the normal cost ($45,000) and the amortization of the unfunded liability ($0). The normal
cost measures the cost of benefits accruing in the current year for active employees. The
amortization of the unfunded liability measures the financing costs attributed to past service.
Since CMWD set aside funds in the amount equal to the liability in Fiscal Year 2006-07,
there will be no amortization costs associated with the liability, and the ARC is equal to the
normal cost. If CMWD decided not to fund the liability, the annual ARC expense would
increase to $195,000 if the liability were to be amortized over the maximum length of time
(30 years).
City of Carlsbad
Currently, City employees are eligible for a post-retirement health care subsidy, as the City
provides health insurance coverage under the Public Employees' Medical and Hospital Care
Act (PEMHCA), which is administered by CalPERS. Under PEMHCA, the City is required to
pay a small portion of the monthly medical premiums of retired employees (considered a
subsidy), if the retired employees continue their medical coverage under PEMHCA. There
are approximately 630 active and 93 retired plan members as of June 30, 2006. Surviving
spouses of eligible retirees are also eligible for the City subsidy. Surviving
spouses/domestic partners of deceased active members are eligible for the City subsidy
only if the employee had attained age 50 with five years of service.
Based on the actuarial valuation performed as of June 30, 2006, the City's liability for the
current and past services for these benefits is approximately $5.4 million. The General
Fund's share of this unfunded liability is approximately $4.8 million. In addition, the annual
required contribution (ARC) is $324,000, of which $288,000 is attributable to the General
Fund. The ARC is comprised of two components, the normal cost ($324,000) and the
amortization of the unfunded liability ($0). The normal cost measures the cost of benefits
accruing in the current year for active employees. The amortization of the unfunded liability
measures the financing costs attributed to past service. Since the City set aside funds in the
amount equal to the liability in Fiscal Year 2006-07, there will be no amortization costs
associated with the liability, and the ARC is equal to the normal cost. If the City decided not
to fund the liability, the annual ARC expense would increase to $643,000 if the liability were
to be amortized over the maximum length of time (30 years).
PageS
Irrevocable Trusts and Trustee
Under GASB 45, in order for the City and CMWD to remove the OPEB liabilities from their
financial statements, the funds must be invested in irrevocable trusts. Staff evaluated three
possible irrevocable trusts. These trusts are administered by CalPERS, the Public Agency
Retirement Services (PARS), and the International City/County Management Association
(ICMA). Staff evaluated these plans based on cost of the plan, role of the City and CMWD
in choosing investment options, track record of the organization, and restrictions of the plan.
Based on these criteria, staff is recommending that the City and CMWD use CalPERS as
their trustee for the City's and CMWD's irrevocable trusts.
Under the CalPERS irrevocable trust agreements, the City and CMWD are required to leave
their investments with CalPERS for a three year period after the initial investment. After that
date, the City and CMWD may transfer the trusts to another qualified irrevocable trust and
trustee, or the City if the City no longer has post retirement health care expenses. The City
and CMWD are not required to continue to offer health insurance under PEMHCA to remain
with CalPERS for their irrevocable trusts. Currently, CalPERS uses the following investment
mechanisms and diversification percentages for their irrevocable trusts: U.S. equities
(35%), international equities (29%), REITs (10%), U.S. fixed income (20%) and high yield
instruments (6%). With CalPERS, the City and CMWD do not have to decide the risk or
targeted return on the trusts, as CalPERS invests all irrevocable trusts in the same fashion
as part of their Annuitants' Healthcare Coverage Fund. Although the expected rate of return
on this fund is 7.75%, the rolling average for these types of investments over the past 15
years has been 10%. The average cost for administering these trusts is 50 basis points
(.5%) annually.
The City Attorney has reviewed the agreements establishing the irrevocable trust and has
determined and is satisfied that this trust will be legally protected from creditors of the City,
the plan administrator, or both the creditors of the City and the plan administrator.
FISCAL IMPACT:
The total fiscal impact for the City and CMWD for approving these two agreements is
$7,953,180. These funds were set aside for this purpose during Fiscal Year 2006-07. The
ongoing fiscal impact for the ARC expense ($369,000) will be addressed during the budget
adoption each fiscal year (the fiscal impact for Fiscal Year 2007-08 was appropriated as part
of the annual budget). GASB 45 requires the City and CMWD to update the actuarial
calculations every two years. Therefore, the City and CMWD will be required to update the
liability and ARC calculations as of June 30, 2008.
EXHIBITS:
1. Resolution No. 2008-151 , approving the agreement and election to prefund other post
employment benefits through CalPERS with the City of Carlsbad.
2. Resolution No. 1321 , approving the agreement and election to prefund other post
employment benefits through CalPERS with the Carlsbad Municipal Water District.
3. Agreement and Election of the City of Carlsbad to Prefund Other Post Employment Benefits
Through CalPERS.
4. Agreement and Election of the Carlsbad Municipal Water District to Prefund Other Post
Employment Benefits Through CalPERS.
5. City of Carlsbad Actuarial Valuation of Retiree Health Benefits as of June 30, 2006 (on file
with the City Clerk's Office).
Exhibit 1
1 RESOLUTION NO. 2008-151
2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA, APPROVING AN AGREEMENT
3 AND ELECTION TO PREFUND OTHER POST
4 EMPLOYMENT BENEFITS THROUGH CalPERS
5
WHEREAS, in order to ensure that retiree health care costs are included in the
6
financial statements of entities, the Government Accounting Standards Board (GASB)
7
implemented GASB 45 ; and8
9 WHEREAS, GASB 45 requires government organizations to hire an actuary to
IQ calculate the unfunded liability and the annual required contribution (ARC) for retiree
11 health care costs; and
12 WHEREAS, the City retained the actuary firm of Gabriel, Roeder and Smith to
13 calculate these amounts; and
WHEREAS, in Fiscal Year 2006-07, the City set aside the actuarial calculated
15 liability in the amount of $5.4 million; and
16
WHEREAS, under GASB 45, in order for the City to remove the liability from its
17
financial statements, the funds must be invested in an irrevocable trust; and18
WHEREAS, staff evaluated three possible irrevocable trusts based on the cost of
20 the plan, role of the City in choosing investment options, track record of the
21 organization, and restrictions of the plan; and
22 WHEREAS, based on these criteria, staff is recommending that the City use
23 CalPERS as their trustee for the City's irrevocable trust.
24 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
25 Carlsbad, California, as follows:
26
1. That the above recitations are true and correct.
27
4
Exhibit 1
1 2. That the Mayor of the City of Carlsbad is authorized to sign the Agreement
2 and Election of the City of Carlsbad to Prefund Other Post Employment Benefits
3 (OPEB) through CalPERS.
4
3. That the City Council delegates authority to request disbursements from
5
the Other Post Employment Prefunding Plan to the City Manager and the Deputy City
6
Manager, based upon review and recommendation by the Finance Director.
8 4. That the disbursements requested by authorized representatives of the
9 City will be used to reimburse the City for OPEB payments as per the terms of the
10 Agreement to Prefund Other Post Employment Benefits through CalPERS.
11
OPEB liability to the CalPERS Other Post Employment Prefunding Plan.
5. That the City Council authorizes staff to transfer the actuarial calculated
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PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the
Carlsbad City Council and the Carlsbad Municipal Water District Board of Directors,
held on the 20th day of May. 2008, by the following vote:
AYES: Council Members Lewis, Kulchin, Packard and Nygaard.
NOES: Council Member Hall.
ABSENT: None.
LORRAINE M. WOOD, Clerk
(SEAL)
Exhibit 2
1 RESOLUTION NO. 1321
2 A RESOLUTION OF THE BOARD OF DIRECTORS OF
THE CARLSBAD MUNICIPAL WATER DISTRICT,
3 CARLSBAD, CALIFORNIA, APPROVING AN AGREEMENT
4 AND ELECTION TO PREFUND OTHER POST
EMPLOYMENT BENEFITS THROUGH CalPERS
5
6 WHEREAS, in order to ensure that retiree health care costs are included in the
7 financial statements of entities, the Government Accounting Standards Board (GASB)
8 implemented GASB 45 ; and
9 WHEREAS, GASB 45 requires government organizations to hire an actuary to
10
calculate the unfunded liability and the annual required contribution (ARC) for retiree
11
health care costs; and
12
WHEREAS, the Carlsbad Municipal Water District (CMWD) retained the actuary
firm of Gabriel, Roeder and Smith to calculate these amounts; and
15 WHEREAS, in Fiscal Year 2006-07, the CMWD set aside the actuarial calculated
16 liability in the amount of $2.5 million; and
17 WHEREAS, under GASB 45, in order for the CMWD to remove the liability from
18 its financial statements, the funds must be invested in an irrevocable trust; and
19 WHEREAS, staff evaluated three possible irrevocable trusts based on the cost of
20 the plan, role of the CMWD in choosing investment options, track record of the
21
organization, and restrictions of the plan; and
22
WHEREAS, based on these criteria, staff is recommending that the CMWD use
23
CalPERS as their trustee for the CMWD's irrevocable trust.
25 NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
26 Carlsbad Municipal Water District, as follows:
27
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Exhibit 2
1 1. That the above recitations are true and correct.
2 2. That the President of the Carlsbad Municipal Water District is authorized
3 to sign the Agreement and Election of the Carlsbad Municipal Water District to Prefund
4
Other Post Employment Benefits (OPEB) through CalPERS.
5
3. That the Board of Directors delegates authority to request disbursements6
from the Other Post Employment Prefunding Plan to the Executive Manager and the
8 Deputy City Manager, based upon review and recommendation by the Finance Director.
9 4. That the disbursements requested by authorized representatives of the
10 CMWD will be used to reimburse the CMWD for OPEB payments as per the terms of
the Agreement to Prefund Other Post Employment Benefits through CalPERS.
12
5. That the Board of Directors authorizes staff to transfer the actuarial
13
calculated OPEB liability to the CalPERS Other Post Employment Prefunding Plan.
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PASSED, APPROVED AND ADOPTED at a Joint Special Meeting of the
Carlsbad Municipal Water District Board of Directors and the Carlsbad City Council,
held on the 20- day of May. 2008, by the following vote:
AYES: Commission Members Lewis, Kulchin, Packard and Nygaard.
NOES: Commission Members Hall.
ABSENT: None.
ATTEST:
(§P.
LORRAINE M. WOOD, Secretary
(SEAL)
Exhibit 3
AGREEMENT AND ELECTION
OF
CITY OF CARLSBAD
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CalPERS
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 (CalPERS) Board
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to:
1) receiving contributions from participating employers and establishing
separate Employer Prefunding Accounts in the Prefunding Plan for the performance of
an essential governmental function; and
2) investing contributed amounts and income thereon, if any, in order to
receive yield on the funds; and
3) 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) the City of Carlsbad 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:
1) approval by the Board; and
2) 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;
Exhibit 3
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 the 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 the 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 the Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
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 and shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
Exhibit 3
(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
Employer's 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 projected benefits, the
Board may refuse to accept the contribution.
(5) The minimum Employer contribution shall be the lesser of $5,000 or be equal to
Employer's 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.
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).
Exhibit 3
(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 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 as
defined in GASB 43.
(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.
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representatives, 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.)
Exhibit 3
(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 CalPERS' liability shall be the
actual dollar amount of the disbursement, plus interest at the actual earnings rate by 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 Prefundinq 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
the 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.
(4) After Employer's participation in the Prefunding Plan terminates, disbursements from
Employer's Prefunding Account may continue upon Employer's instruction or otherwise
in accordance with the terms of the Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of the 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.
Exhibit 3
(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:
(a) amounts sufficient to pay post employment health care benefits and other
post employment benefits to annuitants for current and future annuitants
described by the Employer's current substantive plan (as defined in GASB
43), and
(b) 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
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.
Exhibit 3
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.
(2) Audit,
(a)
(b)
(3) Notice,
(a)
During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CalPERS, 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 CalPERS, books and records of Employer relating to its
performance of this Agreement.
Employer shall be subject to examination and audit by the Bureau of State
Audits, CalPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of the Agreement
and for three years after final payment under the Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of the Agreement, including, but not limited to, the costs of
administering the Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CalPERS, 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.
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:
1. 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 party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
Exhibit 3
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 sender's 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 party 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 overnight 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.
(recipient's 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 the
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party 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 party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement.
(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
Exhibit 3
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 the
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 the Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of the 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 breach, failure, right,
or remedy, whether or not similar, not 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 the
Agreement.
Exhibit 3
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad,
California, as follows:
1. That the above recitations are true and correct.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the
City of Carlsbad on the 20tb day of Msy ,
2008, by the following vote, to wit:
AYES: Council Members Lewis, Kulcbin, Packard and Nygaard.
NOES: Council Member Hall.
ABSENT: None.
CLAUDE A. l(EW~IS, Mayor
ATTEST:
(SEAL)
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 the Agreement is:
APPROVED AS TO FORM
no.
Exhibit 4
AGREEMENT AND ELECTION
OF
CARLSBAD MUNICIPAL WATER DISTRICT
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CalPERS
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 (CalPERS) Board
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to:
1) receiving contributions from participating employers and establishing
separate Employer Prefunding Accounts in the Prefunding Plan for the performance of
an essential governmental function; and
2) investing contributed amounts and income thereon, if any, in order to
receive yield on the funds; and
3) 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) the Carlsbad Municipal Water District 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:
1) approval by the Board; and
2) 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;
Exhibit 4
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 the 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 the 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 the Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
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 and shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
Exhibit 4
(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
Employer's 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 projected benefits, the
Board may refuse to accept the contribution.
(5) The minimum Employer contribution shall be the lesser of $5,000 or be equal to
Employer's 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.
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).
Exhibit 4
(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 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 as
defined in GASB 43.
(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.
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representatives, 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.)
Exhibit 4
(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 CalPERS' liability shall be the
actual dollar amount of the disbursement, plus interest at the actual earnings rate by 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 Prefundinq 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
the 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.
(4) After Employer's participation in the Prefunding Plan terminates, disbursements from
Employer's Prefunding Account may continue upon Employer's instruction or otherwise
in accordance with the terms of the Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of the 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.
Exhibit 4
(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:
(a) amounts sufficient to pay post employment health care benefits and other
post employment benefits to annuitants for current and future annuitants
described by the Employer's current substantive plan (as defined in GASB
43), and
(b) 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
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.
Exhibit 4
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.
(2) Audit.
(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CalPERS, 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 CalPERS, 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, CalPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of the Agreement
and for three years after final payment under the Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of the Agreement, including, but not limited to, the costs of
administering the Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CalPERS, 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:
1. 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 party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
Exhibit 4
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 sender's 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 party 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 overnight 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.
(recipient's 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 the
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party 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 party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement.
(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
Exhibit 4
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 the
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 the Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of the 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 breach, failure, right,
or remedy, whether or not similar, not 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 the
Agreement.
Exhibit 4
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Carlsbad
Municipal Water District, as follows:
1. That the above recitations are true and correct.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the Carlsbad Municipal
Water District on the 20tb day of May ,
2008, by the following vote, to wit:
AYES: Council Members Lewis, Kulcbin, Packard and Nygaard.
NOES: Council Member Hall.
ABSENT: None.
, President
ATTEST:
LORRAINE M. WOOD, Secreta
(SEAL)
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 the Agreement is:
APPROVED AS TO FORM
GRS Gabriel Roeder Smith & Company
Consultants 8c Actuaries
4600 S. Ulster Street
Suite 700
Denver, CO 80237-2882
303.846.3031 phone
303.846.3028 fax
www.gabriclrocdcr.com
May 8, 2007
Ms. Helga Stover
City of Carlsbad-Finance
1635 Faraday Avenue
Carlsbad, CA 92008
Re: Update to the 2006 Actuarial Valuation for Retiree Health Benefits
Dear Helga:
Per your request we have updated the results of the 2006 actuarial valuation so that the
assumptions and methods match those described by CalPERS in their "OPEB assumption
model".
The results, when compared to the June 30, 2006 report, are as follows:
Normal Cost - Actives
Accrued Liability - Total
Amortization of the Accrued Liability
Actuarial Required Contribution
CITY
6/30/2006 Valuation
$602,939
$7,771,200
$329,811
$932,750
Update to Valuation
$323,747
5,404,319
$319,362
$643,109
WATER DISTRICT
6/30/2006 Valuation
Normal Cost - Actives $59,351
Accrued Liability - Total $2,821,490
Amortization of the Accrued Liability $59,351
Actuarial Required Contribution $179,095
Update to Valuation
$44,613
$2,548,860
$150,622
$195,235
•Ms. Hclga Stover
May 8, 2007
Page 2
TOTAL
6/30/2006 Valuation Update to Valuation
Normal Cost-Actives $662,290 $368,360
Accrued Liability - Total $10,592,690 $7,953,179
Amortization of the Accrued Liability $449,555 $469,984
Actuarial Required Contribution $1,111,845 $838,344
The revised methods and assumptions include:
1. Using the entry age normal funding method (not the projected unit credit);
2. Using a discount rate of 7.75% (not 5% as in the previous valuation)
3. Using medical trend of 10% in 2007, grading down by '/2 % to 4.5% in 2018; the
increases in the City subsidy rate were not changed.
4. The amortization period is 30 years, level percent of pay, payroll growth assumed at
3.25%.
Please let us know if we can answer any questions or be of any further assistance.
Sincerely,
Gabriel, Roeder, Smith & Co.
Leslie L. Thompson, EA, FSA, MAAA
Senior Consultant
LLT/klb
Gabriel Roeder Smith 3c Company
IT
CITY OF CARLSBAD
Actuarial Valuation of
Retiree Health Benefits
as of
I June 30, 2006
1I
I!
l
TABLE OF CONTENTS
Comments 3
Accounting for Other Postemployment Benefits 6
Summary of Benefit Provisions Evaluated 7
Summary of Actuarial Assumptions and Methods 9
Summary of Valuation Results 17
Sensitivity Testing 19
Projections of Annual Required Contributions and Benefits Paid 22
Participant Summary 23
Definitions of Technical Terms 26
GRS Gabriel Roeder Smith 8c Company 9171 Towne Centre Drive 858.535.1300 phone
Consultants 8c Actuaries Suite 440 858.535.1415 fax
San Diego, CA 92122-1238 www.gabrielroeder.com
June 23, 2006
Ms. Helga Stover
City of Carlsbad - Finance
1635 Faraday Avenue
Carlsbad, CA 92008
Dear Ms. Stover:
Submitted in this report are the results of an Actuarial Valuation as of June 30, 2006 of the benefit values
associated with the employer financed retiree health benefits provided by the City of Carlsbad.
The valuation was based upon information furnished by the Employer concerning retiree health benefits and
individual employees. Data was checked for internal consistency but was not otherwise audited.
To the best of our knowledge this report is complete and accurate and was made in accordance with
generally recognized actuarial methods. In our judgment the actuarial assumptions used for the valuation
are, individually and in the aggregate, reasonable.
Respectfully submitted,
Gabriel, Roeder, Smith and Company
JCUj/1
Rick A. Roeder, EA, FSA, MAAA Rebekah D. Bayram, EA, FSA, MAAA
City of Carlsbad
Retiree Health Benefits
June 30, 2006
COMMENTS
COMMENT A; Providing health care benefits to retired employees involves significant additional
uncertainties when compared to paying pensions. The additional uncertainties include the rate at which
medical costs will increase, changes in utilization, and changes in Medicare or other government regulations
that result in higher Plan costs.
For many years the cost of providing medical services has been increasing more rapidly than costs in general.
Each year in which that occurs the percentage that medical cost represents of all our goods and service
increases. The chart below shows the percentage of Gross Domestic Product (GDP) that we, as a nation,
spent on medical services for selected years.
Year % of GDP Spent on Health1
1960 5.2%
1970 7.2%
1980 9.1%
1990 12.4%
1993 13.8%
1997 13.6%
1998 13.7%
1999 13.7%
2000 13.8%
2001 14.6%
2002 15.4%
2003 15.9%
2004 16.0%
During the last 40 years, general inflation averaged 4%, while health expenditures have increased at a
significantly higher rate. On page 25, we show the medical care CPI over the last 40 years. If this trend is
projected to continue for years to come, it implies that years from now virtually all our expenditures will be
for health care - an impossible reality. The more reasonable alternative is to assume that medflation will
moderate in the not-too-distant future. It is on this basis that we project premium rates increases will
continue to exceed our long-term medflation assumption for the next 8 years, but by less each year until
leveling off at the 3% ultimate medflation assumption (CalPERS uses this rate for the general inflation
assumption in the City's pension valuation).
1 Source: Centers for Medicare & Medicaid Services
City of Carlsbad
Retiree Health Benefits
June 30, 2006
COMMENTS
COMMENT B: The Annual Required Contribution (ARC) is comprised of three components:
1) Normal cost-- measures cost of benefits accruing in current year for active employees
2) Amortization — a measure of financing the cost attributed to past service
3) Adjusting element ~ to reflect difference between funding and expensing in previous years.
This adjustment is not applicable in the first year of application.
COMMENT C: The City determines the amortization period to use for GASB expensing, as long as the
period does not exceed 30 years. While the City is not yet subject to GASB expensing rules under the new
standard, earlier compliance is encouraged.
After staff input, we have used 30 years as the amortization period. We would characterize 30-year
amortization as acceptable practice but not "best practice." We also show results using an amortization
period of 12 years, the average future working lifetime of total (both City and Water District) current active
employees. We have used a level-percent-of pay approach in calculating the amortization factor. Level-
percent-of-pay is generally used for governmental plans.
COMMENT D: The ARC is summarized as follows:
30-Year Amortization
Normal Cost
Amortization
Total
City
$602,939
329.811
$932,750
Water District
$59,351
119.744
$179,095
Total
$662,290
449.555
$1,111,845
12-Year Amortization
Normal Cost
Amortization
Total
City
$602,939
715,099
$1,318,038
Water District
$59,351
259,631
$318,982
Total
$662,290
$974,730
$1,637,020
Electing 12-year amortization would result in ARC increases of 41% and 78%, respectively, for the City and
Water District.
City of Carlsbad
Retiree Health Benefits
June 30,2006
COMMENTS
COMMENT E: The health care cost increase assumption anticipates that the rate of increase will be at
moderate levels and decline over several years. Increases higher than assumed would bring larger liabilities
and expensing requirements. Similarly, increases lower than assumed would generate reduced liability and
expensing requirements. The Sensitivity Testing beginning on page 19 of this report indicates that inflation
1% per year higher or lower results in roughly a 20% swing in the ARC for City employees and roughly a
15% swing for Water District employees.
COMMENT F: This valuation was conducted under the general assumption that the system for delivering
retiree healthcare benefits will continue unchanged. For the last decade there have been changes to Medicare
but the basic foundation of the program is still intact. The changes have been evolutionary, not
revolutionary. Notably, on December 8, 2003 President Bush signed into law the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (aka Medicare Part D). It is quite possible that the
prescription drug element of an employer's program may be reduced since the current estimate of
government expenditures for 2006-2013 on Medicare part D is in the range of $500 billion to $600 billion.
COMMENT G: One of the key assumptions used in any valuation of the post-retirement benefits is the rate
of return on Plan assets. Higher returns will tend to reduce the ARC. Lower returns will tend to increase the
ARC. We have assumed an asset return (the "discount rate") of 5.0% per year, net of expenses. This
assumes assets will continue to be commingled in a general fund of the Employer.
COMMENT H: As directed by staff, this valuation assumes retiree participation will be 100%. Based on
our experience with health plans at other government entities, we typically see participation closer to 85-
90%.
COMMENT I; GASB Statement 45 requires implicit rate subsidies to be considered. An implicit rate
subsidy occurs when the rates for retirees are the same as for actives. Since pre-Medicare age retirants are
typically much older than actives, their true actuarial costs are almost always higher than for actives. All
future benefit payments would need to be based on retiree (not active) claims costs, or age-adjusted
premiums approximating claims costs. However, our understanding is that the City participates in
community-rated health plans (CalPERS and ACWA). Therefore, it is appropriate to use unadjusted
premiums per GASB Statement 45, paragraph 13.a.(2).
City of Carlsbad
Accounting for Other Postemployment Benefits
June 30, 2006
The Government Accounting Standards Board (GASB) recently finalized two new accounting standards
applicable to Other Postemployment Benefits, or OPEB plans. OPEBs are non-pension benefits provided
after employment, and include the benefits valued in this report. One of the accounting standards relates to
sponsors of OPEB plans while the other is applicable to the OPEB plan itself.
The GASB standards require that the long-term cost of retiree health care and other OPEB benefits be
determined and accrued on an actuarial basis similar to pension plans. The results of these valuations,
including an annual OPEB expense, have to be disclosed on the Employer's financial statements.
The GASB standards allow for several actuarial cost methods to be used when calculating the Plan's annual
expense. After staff input, we have used the projected unit credit method with 30 and 12-year amortization
of unfunded accrued liabilities to illustrate the potential annual accounting expense that may have to be
booked after the effective date under the GASB standards.
It is important to note that the GASB standard does not mandate the pre-funding of OPEB liabilities, only
how one accounts for those benefits. However, any pre-funding of OPEB benefits at an amount less than the
annual expense required to be reported by GASB would produce a positive net OPEB obligation. This net
OPEB obligation would be required to be disclosed on the financial statements and may have a detrimental
impact on the Employer's perceived financial health.
City of Carlsbad
Summary of Benefit Provisions Evaluated
June 30, 2006
A. Eligibility
Employees retiring with at least 50 years of age with 5 years of service, or receiving the CalPERS
disability retirement. In addition, for Water District employees, age combined with years of service must
equal 70 or more. Spouses/domestic partners and dependent children under 23 years of age are eligible
to receive coverage.
Surviving spouses/domestic partners of eligible retirees are eligible for the City subsidy. Surviving
spouses/domestic partners of deceased active employees are eligible for the City subsidy only if the
employee had attained age 50 with 5 years of service.
B. Benefits
The City pays a monthly subsidy regardless of coverage elected:
Calendar year 2006 $64.60
Calendar year 2007 $80.80
Calendar year 2008 $97.00
Thereafter, the subsidy is adjusted annually to reflect changes in the medical component of the Consumer
Price Index.
Water District retirees' health premiums are fully subsidized, including dependent child coverage
until age 23 and spouse/domestic partner coverage.
City of Carlsbad
Summary of Benefit Provisions Evaluated
June 30, 2006
C. Premium Rates
Monthly rates used for 2006 are shown below.
Effective January 1, 2006
Employee Only Employee + 1 Dependent
Basic Monthly Rate
Blue Shield $357.67 $715.34
Kaiser $320.55 $641.10
PERS Choice $384.56 $769.12
PERSCare $646.74 $1,293.48
PORAC $399.00 $748.00
Supplement/Managed Medicare Monthly Rate
Blue Shield $286.49 $572.98
Kaiser $218.59 $437.18
PERS Choice $322.03 $644.06
PERSCare $347.20 $694.40
PORAC $351.00 $701.00
Water District (ACWA) Monthly Rates
Blue Cross $374.57 $880.99
Blue Cross Medicare Supplement $278.55 $653.30
NOTE: The summary of major plan provisions is designed to outline principal plan benefits. If the City
should find the plan summary not in accordance with the actual provisions, The City should alert
the actuary IMMEDIATELY so they can both be sure the proper provisions are valued.
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
Basic Benefits. Normal cost and the allocation of benefit values between service rendered before and after
the valuation date were determined using the projected unit credit cost method.
Financing of Unfunded Actuarial Liability. The unfunded actuarial liability was amortized by level percent
of payroll contributions over 30 years, the maximum period allowed under the GASB standards. For
comparison, we also present an amortization of 12 years, the average expected future working lifetime of
active employees. Wage inflation assumption of 3.25% (CalPERS uses this rate for the City's pension
valuation) was used for purposes of developing this factor.
The expensing and benefit values of the Plan are calculated by applying actuarial assumptions to the benefit
provisions and member information furnished, using the actuarial cost methods described above.
The principal areas of financial risk which require assumptions about future experiences are:
(i) long-term discount rates, which may be impacted by existence of
dedicated plan assets.
(ii) patterns of future medical inflation rates.
(iii) rates of mortality among actives, retirants, and beneficiaries.
(iv) rates of withdrawal of active employees (without entitlement to a
retirement benefit).
(v) the age patterns of actual retirements.
In performing a valuation, the monetary effect of each assumption is calculated for as long as a present
covered person survives — a period of time which can be as long as a century.
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
Actual experience of the system will not coincide exactly with assumed experience, regardless of the choice
of the assumptions, the skill of the actuary and the precision of the many calculations made. Each valuation
provides a complete recalculation of assumed future experience and takes into account all past differences
between assumed and actual experience. The result is a continual series of adjustments (usually small) to the
computed expense. From time to time it becomes appropriate to modify one or more of the assumptions, to
reflect experience trends (but not random year-to-year fluctuations).
The annual rate has been computed to remain relatively level from year to year so long as benefits and the
basic experience and make-up of employees do not change. Examples of favorable experiences which
would tend to reduce the amount expensed are:
1) Employee non-vested terminations at a higher rate than assumed.
2) Mortality among retirees and beneficiaries at a higher rate than indicated by our
mortality assumptions.
3) Lower rates of medical inflation than assumed.
4) Actual retirement ages higher than assumed.
Unfavorable risk experience in these areas would tend to increase the amount expensed in future
years.
10
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
The Projected Unit Credit Actuarial Cost Method is used in conjunction with the following actuarial
assumptions.
The investment return rate (the "discount rate") used for the actuarial valuation is 5.0% per annum,
compounded annually. This assumption is used to equate the value of payments due at different points in
time.
The inflation rate used for the actuarial valuation calculations was 3.0% per year, compounded annually
(CalPERS uses this rate for the City's pension valuation). It represents the difference between the
investment return rate and the assumed real rate of return.
Assumed future medical inflation. The valuation assumes that future medical inflation will be at a rate of
10% per annum graded down each year in 1% increments to an ultimate rate of 3%. For purposes of
sensitivity testing, liabilities were also shown with an increase or decrease in rates of 1%. The increase in
the City subsidy after 2008 is assumed to be 5% grading down to 3%:
Increase in Increase in
Date of Increase Total Premiums City Subsidy
12/31/2006 10% Planned increase to $80.80
12/31/2007 9% Planned increase to $97.00
12/31/2008 8% 5%
12/31/2009 7% 5%
12/31/2010 6% 5%
12/31/2011 5% 4%
12/31/2012 4% 4%
12/31/2013+ 3% 3%
11
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
The post-retirement mortality tables for healthy retirees and disabled retirees are shown below:
% of Retirees
Dying Within Next Year
Sample
Ages
50
55
60
65
70
75
80
Healthy
Men Women
0.245% 0.136%
0.429 0.253
0.721 0.442
1.302 0.795
2.135 1.276
3.716 2.156
6.256 3.883
Ordinary
Disability
Men Women
1.459% 1.129%
2.115 1.481
2.870 1.884
3.617 2.356
4.673 3.020
6.552 4.298
9.481 6.514
Duty Disability
Men Women
0.546% 0.388%
0.616 0.568
1.016 0.818
1.853 1.214
3.369 1.760
5.768 2.774
8.670 4.690
12
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30,2006
The pre-retirement mortality tables used are shown below. This assumption is used to measure the
probabilities of actives dying prior to retirement.
% of Actives
Dying Within Next Year
Sample
Ages
30
35
40
45
50
55
60
Ordinary
Men Women
0.038% 0.021%
0.054 0.031
0.077 0.046
0.110 0.068
0.156 0.102
0.221 0.151
0.314 0.226
Rates of retirement from active employment due to disability are she
the probabilities of employees
Sample
Ages
20
25
30
35
40
45
50
55
60
retiring due to disability.
% of Actives
Ordinary Disability
General Fire Police
0.01% 0.01% 0.01%
0.02 0.01 0.01
0.03 0.01 0.02
0.09 0.01 0.03
0.15 0.01 0.04
0.24 0.02 0.05
0.36 0.05 0.08
0.45 0.10 0.13
0.47 0.15 0.20
Duty
.010%
.013
.017
.020
.023
.027
.030
iwn below. This assumption measures
Duty Disability
Fire Police
0.02% 0.06%
0.10 0.28
0.21 0.56
0.31 0.84
0.41 1.12
0.51 1.40
0.62 1.67
6.01 5.81
6.01 5.81
13
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
Rates of separation from active employment are shown below (rates do not include separation on account of
retirement, disability, or death). This assumption measures the probabilities of actives separating from
employment. Rate is assumed to be 0% once the employee is eligible to retire with health benefits.
% of Actives Separating Within Next Year
Years of Service
0
1
2
3
4
5
10
15
20
25
30
General
0.1553%
0.1353
0.1154
0.0955
0.0756
0.0557
0.0366
0.0064
0.0025
0.0002
0.0002
Fire
0.0947%
0.0739
0.0531
0.0323
0.0290
0.0257
0.0090
0.0079
0.0069
0.0057
0.0054
Police
0.1299%
0.0816
0.0348
0.0331
0.0314
0.0297
0.0213
0.0129
0.0097
0.0082
0.0076
14
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
The rates of retirement used to measure the probability of eligible actives retiring during the next year are as
follows:
Age
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
General
6.0%
3.5
4.0
4.0
4.5
8.5
7.5
7.5
10.0
10.5
17.0
14.5
28.0
24.0
17.0
30.0
17.5
15.5
14.0
13.0
100.0
Fire
4.8%
6.5
9.7
11.7
14.3
17.7
16.9
14.1
16.5
14.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Police
8.2%
7.3
11.6
13.0
13.4
17.0
13.0
15.2
15.0
15.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
15
City of Carlsbad
Summary of Actuarial Assumptions and Methods
June 30, 2006
The eligibility conditions for retirement we used were after attainment of age 50 and 5 years of service (or
eligible for CalPERS disability retirement). All retirements and deaths prior to attainment of these
conditions will not be eligible for a benefit.
Participation in retiree health plans: We assume 100% of future retirees meeting the eligibility conditions
above will participate in the retiree health plan.
The probability of electing spouse/domestic partner coverage at retirement was assumed to be 85% for
actives, with males assumed to be three years older than their spouses, and females assumed three years
younger. 100% of surviving spouses are assumed to continue coverage.
Election of retiree health plans: We have assumed that 100% of all future Water District retirees will elect
the Blue Cross (ACWA) plan. We assume all retirees will participate in one of the Supplement/Managed
Medicare plans upon attainment of age 65.
16
City of Carlsbad
Summary of Valuation Results
June 30,2006
The following summarizes the results for the June 30, 2006 valuation using the projected
unit credit funding method and assuming a discount rate of 5.0%.
Normal Cost
Actuarial Liability
Actuarial Liability - Active Lives
Actuarial Liability - Retired Lives
Total Actuarial Liability
Assumed Discount Rate
Medical Trend
City
$602,939
$5,580,220
$2.190,980
$7,771,200
5%
After 2008,
5% graded
down to 3%
Water District
$59,351
$1,279,374
$1,542,116
$2,821,490
5%
10% graded
down to 3%
Total
$662,290
$6,859,594
$3.733,096
$10,592,690
5%
Per Participant Summary
Active Liability per Active
Retirant Liability per Payee
Total Liability per Participant
$8,857
$23,559
$10,749
$116,307
$118,624
$117,562
$10,701
$35,218
$14,180
Actuarial Liability Per Participant
SO
City Water District Total
13 Active Liability per Active H Retirant Liability per Payee D Total Liability per Participant
17
City of Carlsbad
Summary of Valuation Results
June 30,2006
We have calculated the Annual Required Contribution (ARC) as described in GAS 45 for Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions. Note that this amount is an accounting requirement, not a funding requirement. GAS 45 does not mandate pre-funding (see also page 6).
The unfunded actuarial liability is amortized over 30 years, the maximum amortization period allowed under GASB 45. For comparison, we also show results if we use
12 years, the average future working lifetime for active employees.
Funded Status
Actuarial Value of Assets
Actuarial Liability
Unfunded Actuarial Liability
Plan Funded Ratio
Required Expense and Net Obligation
Normal Cost
Amortization of Unfunded Actuarial
Liability
Annual Required Contribution (ARC)
Annual OPEB Cost
Net OPEB Obligation
Amortization Period (years)
Assumed Discount Rate
Medical Trend
Payroll (City plus Water District)
ARC as percent of payroll
City Water District Total
30-Year
Amortization
$0
$7.771.200
$7,771,200
0%
$602,939
12-Year
Amortization
$0
$7.771.200
$7,771,200
0%
$602,939
30-Year
Amortization
$0
$2.821.490
$2,821,490
0%
$59,351
12-Year
Amortization
0
$2.821.490
$2,821,490
0%
$59,351
30-Year
Amortization
0
$10.592.690
$10,592,690
0%
$662,290
12-Year
Amortization
0
$10.592.690
$10,592,690
0%
$662,290
$329.811
$932,750
$932,750
$0
30
5%
After 2008,
5% graded
down to 3%
$40,544,474
2.3%
$715.099
$1,318,038
$1,318,038
$0
12
5%
After 2008,
5% graded
down to 3%
$40,544,474
3.3%
$119.744
$179,095
$179,095
$0
30
5%
10% graded
down to 3%
$40,544,474
0.4%
$259.631
$318,982
$318,982
$0
12
5%
10% graded
down to 3%
$40,544,474
0.8%
$449.555
$1,111,845
$1,111,845
$0
30
5%
$40,544,474
2.7%
$974.730
$1,637,020
$1,637,020
$0
12
5%
$40,544,474
4.0%
CD
City of Carlsbad
Sensitivity Testing - City
June 30, 2006
The calculation of the liabilities is sensitive to the assumption of medical inflation. To test the sensitivity we
have calculated the Annual Required Contribution using medical inflation rates 1% lower and 1% higher in
each future year.
Normal Cost - Active Lives
Actuarial Liability - Active Lives
Actuarial Liability - Retired Lives
Total Actuarial Liability
Required Expense
Actuarial Value of Assets
Actuarial Liability
Unfunded Actuarial Liability
Normal Cost
Amortization of Unfunded Actuarial Liability
Annual Required Contribution (ARC)
Amortization Period (years)
Assumed Discount Rate
Medical Trend
Payroll (City plus Water District)
ARC as percent of payroll
City
6/30/2006 Increase or Decrease in Medical Trend
Valuation
$602,939
$5,580,220
$2.190.980
$7,771,200
$0
$7,771,200
$7,771,200
$602,939
$329,811
, $932,750
^ „fjstfl 30
5%
After 2008,
5% graded
down to 3%
$40,544,474
2.3%
+1%
$751,816
$6,826,215
$2,480.371
$9,306,586
$0
$9.306.586
$9,306,586
$751,816
$394.973
$1,146,789
30
5%
After 2008,
6% graded
down to 4%
$40,544,474
2.8%
-1%
$489,916
$4,614,738
$1.952.376
$6,567,114
$0
$6.567.114
$6,567,114
$489,916
$278.709
$768,625
30
5%
After 2008,
4% graded
down to 2%
$40,544,474
1.9%
19
City of Carlsbad
Sensitivity Testing - Water District
June 30, 2006
The calculation of the liabilities is sensitive to the assumption of medical inflation. To test the sensitivity we
have calculated the Annual Required Contribution using medical inflation rates 1% lower and 1% higher in
each future year.
Water District
Normal Cost - Active Lives
Actuarial Liability - Active Lives
Actuarial Liability - Retired Lives
Total Actuarial Liability
Required Expense
Actuarial Value of Assets
Actuarial Liability
Unfunded Actuarial Liability •
Normal Cost
Amortization of Unfunded Actuarial Liability
Annual Required Contribution (ARC)
Amortization Period (years)
Assumed Discount Rate
Medical Trend
Payroll (City plus Water District)
ARC as percent of payroll
6/30/2006
Valuation
$59,351
$1,279,374
$1.542,116
$2,821,490
$0
$2,821,490
$2,821,490
$59,351
$119.744
$179,095
30
5%
10% graded
down to 3%
$40,544,474
0.4%
Increase or Decrease
+1%
$71,371
$1,525,582
$1.702.989
$3,228,571
$0
$3,228.571
$3,228,571
$71,371
$137,021
$208,392
30
5%
11% graded
down to 4%
$40,544,474
0.5%
in Medical Trend
-1%
$49,772
$1,081,825
$1.402.638
$2,484,463
$0
$2,484.463
$2,484,463
$49,772
$105.441
$155,213
30
5%
9% graded
down to 2%
$40,544,474
0.4%
20
City of Carlsbad
Sensitivity Testing - Total
June 30, 2006
The calculation of the liabilities is sensitive to the assumption of medical inflation. To test the sensitivity we
have calculated the Annual Required Contribution using medical inflation rates 1 % lower and 1 % higher in
each future year.
Total City and Water District
Normal Cost - Active Lives
Actuarial Liability - Active Lives
Actuarial Liability - Retired Lives
Total Actuarial Liability
Required Expense
Actuarial Value of Assets
Actuarial Liability
Unfunded Actuarial Liability
Normal Cost
Amortization of Unfunded Actuarial Liability
Annual Required Contribution (ARC)
Amortization Period (years)
Assumed Discount Rate
Payroll
ARC as percent of payroll
6/30/2006 Increase or Decrease in Medical Trend
Valuation
$662,290
$6,859,594
$3,733.096
$10,592,690
$0
$10,592.690
$10,592,690
$662,290
$449,555
$1,111,845
30
5%
$40,544,474
2.7%
+1%
$823,187
$8,351,797
$4,183,360
$12,535,157
$0
$12,535,157
$12,535,157
$823,187
$531,994
$1,355,181
30
5%
$40,544,474
3.3%
-1%
$539,688
$5,696,563
$3,355.014
$9,051,577
$0
$9.051.577
$9,051,577
$539,688
$384.150
$923,838
30
5%
$40,544,474
2.3%
21
City of Carlsbad
Projection of Future Annual Benefits Paid
Increasing Benefit Cap
June 30, 2006
We have projected health benefits to be paid for the next 15 years. Our calculations are based on
projected demographics of current and future retirees and their surviving spouses, and on assumed future
medical inflation and assumed premiums as described in the Summary of Actuarial Assumptions and
Methods.
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Future
Retirees
$12,588
$40,300
$69,850
$102,349
$138,856
$176,847
$217,216
$259,160
$301,577
$344,629
$389,008
$435,062
$482,500
$530,641
$578,708
City
Current
Retirees
$80,890
$98,297
$109,202
$113,835
$118,573
$122,806
$126,491
$129,540
$131,918
$134,218
$136,430
$138,530
$140,498
$142,302
$143,915
Water District
Total
$93,478
138,597
179,052
216,184
257,429
299,653
343,707
388,700
433,495
478,847
525,438
573,592
622,998
672,943
722,623
Future
Retirees
$4,544
$13,958
$25,133
$36,782
$47,405
$57,285
$66,151
$75,529
$83,698
$91,669
$99,862
$106,931
$114,924
$121,723
$128,584
Current
Retirees
$95,412
$101,211
$106,366
$110,934
$114,105
$116,497
$116,771
$117,197
$116,610
$113,332
$112,048
$110,344
$108,202
$105,619
$102,604
Total
$99,956
115,169
131,499
147,716
161,510
173,782
182,922
192,726
200,308
205,001
211,910
217,275
223,126
227,342
231,188
Grand Total
$193,434
$253,766
$310,551
$363,900
$418,939
$473,435
$526,629
$581,426
$633,803
$683,848
$737,348
$790,867
$846,124
$900,285
$953,811
22
City of Carlsbad
Participant Summary - City Employees
June 30,2006
Active Employees
Age
Group
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65+
Total
Years of Service
0-4
14
37
45
40
35
25
21
12
5
Q
234
5-9
0
3
22
45
28
25
24
13
2
2
164
Average Age:
Average Service:
Average Future Working Lifetime:
Aggregate Annual Payroll
Coverage
Single
Married
Total
Retirees
Type
10-14
0
0
1
7
11
7
7
8
3
Q
44
15-19
0
0
0
4
32
31
13
16
5
3
104
20 +
0
0
0
0
2
19
33
23
3
4
84
Total
14
40
68
96
108
107
98
72
18
9
630
43.9
9.7
11.9
$39,747,313
and Beneficiaries bv
Under 65
35
41
76
Coverage1
65 and Over
11
6
17
Total
46
47
93
Average Age:60.1
Excludes retirees and surviving spouses who declined coverage or
were not eligible for benefits.
23
City of Carlsbad
Participant Summary - Water District
June 30, 2006
Active Employees
Age
Group
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65+
Total
Average Age:
Average Service:
Years of Service
M
0
0
0
0
0
0
0
0
0
0
0
5-9
0
0
0
0
0
0
0
0
0
Q
0
Average Future Working Lifetime:
Aggregate Annual Payroll
Coverage
Single
Married
Total
Retirees
Type
10-14
0
0
0
0
0
0
0
0
0
Q
0
52.41
21.26
8.45
$797,161
15-19
0
0
0
0
1
3
0
0
2
0
6
20 +
0
0
0
0
0
1
2
2
0
0
5
Total
0
0
0
0
1
4
2
2
2
Q
11
and Beneficiaries by Coverage1
Under 65
1
2
3
65 and Over
3
7
10
Total
4
9
13
Average Age:67.2
1 Excludes retirees and surviving spouses who declined coverage or
were not eligible for benefits.
24
City of Carlsbad
Other Postemployment Benefits
June 30, 2006
National Medical Care Consumer Price Index
(Changes are December - December)
Year Annual Change
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
6.67%
6.25%
6.23%
6.19%
7.36%
4.57%
3.28%
5.29%
12.56%
9.82%
9.96%
8.87%
8.83%
10.14%
9.92%
12.50%
11.00%
6.40%
6.11%
6.76%
7.71%
5.80%
6.91%
8.50%
9.59%
7.92%
6.63%
5.39%
4.92%
3.95%
3.04%
2.82%
3.42%
3.67%
4.17%
4.72%
5.05%
3.71%
4.24%
4.29%
5 -Year Average
3.23%
4.05%
4.79%
5.62%
6.54%
6.12%
5.52%
5.33%
6.56%
7.05%
8.13%
9.28%
10.00%
9.52%
9.54%
10.04%
10.47%
9.97%
9.15%
8.52%
7.58%
6.55%
6.66%
7.13%
7.69%
7.74%
7.90%
7.60%
6.88%
5.75%
4.78%
4.02%
3.63%
3.38%
3.42%
3.76%
4.20%
4.26%
4.38%
4.40%
10- Year Average
3.54%
3.70%
3.87%
4.11%
4.52%
4.66%
4.78%
5.06%
6.09%
6.79%
7.12%
7.38%
7.64%
8.03%
8.29%
9.08%
9.87%
9.99%
9.34%
9.03%
8.80%
8.49%
8.30%
8.14%
8.11%
7.66%
7.23%
7.13%
7.00%
6.72%
6.25%
5.94%
5.59%
5.11%
4.58%
4.27%
4.11%
3.94%
3.88%
3.91%
25
City of Carlsbad
Definitions of Technical Terms
June 30, 2006
Actuarial Accrued Liability. The difference between the actuarial present value of system benefits and the
actuarial value of future normal costs. Also referred to as "accrued liability" or "actuarial liability".
Actuarial Assumptions. Estimates of future experience with respect to rates of mortality, disability,
turnover, retirement, rate or rates of investment income and salary increases. Actuarial assumptions (rates of
mortality, disability, turnover and retirement) are generally based on past experience, often modified for
projected changes in conditions. Economic assumptions (salary increases and investment income) consist of
an underlying rate in an inflation-free environment plus a provision for a long-term average rate of inflation.
Accrued Service. Service credited under the system which was rendered before the date of the actuarial
valuation.
Actuarial Equivalent. A single amount or series of amounts of equal actuarial value to another single
amount or series of amounts, computed on the basis of appropriate actuarial assumptions.
Actuarial Cost Method. A mathematical budgeting procedure for allocating the dollar amount of the
actuarial present value of retirement system benefits between future normal cost and actuarial accrued
liability. Sometimes referred to as the "actuarial funding method".
Actuarial Gain (Loss). The difference between actual experience and actuarial assumption anticipated
experience during the period between two actuarial valuation dates.
Actuarial Present Value. The amount of funds currently required to provide a payment or series of payments
in the future. It is determined by discounting future payments at predetermined rates of interest, and by
probabilities of payment.
Amortization. Paying off an interest-discounted amount with periodic payments of interest and principal —
as opposed to paying off with lump sum payment.
Annual OPEB Cost (AOC). As described in the GASB Statement No. 45 Accounting and Financial
Reporting by Employers for Postemployment Benefits Other Than Pensions, is the ARC adjusted for interest
and amortization of the NOO. In the first year the employer adopts the new standards, the AOC is equal to
the ARC. Also, if the employer contributes the ARC each year, the AOC will always equal the ARC.
26
City of Carlsbad
Definitions of Technical Terms
June 30, 2006
Annual Required Contribution (ARC). As described in the GASB Statement No. 45, is the sum of the
employer's current normal cost plus the amortized unfunded actuarial liability.
Net OPEB Obligation (NOO). As described in the GASB Statement No. 45, is the ARC adjusted for
historical differences between the ARC and actual contributions made. In the first year the employer adopts
the new standards, the NOO is equal to zero. Also, if the employer contributes the ARC each year, the NOO
will always equal zero.
Normal Cost. The actuarial present value of retirement system benefits allocated to the current year by the
actuarial cost method.
Unfunded Actuarial Accrued Liability. The difference between actuarial accrued liability and valuation
assets. Sometimes referred to as "unfunded actuarial liability" or "unfunded accrued liability".
Most retirement systems have unfunded actuarial accrued liability. They arise each time new benefits are
added and each time an actuarial loss is realized.
The existence of unfunded actuarial accrued liability is not in itself bad, any more than a mortgage on a
house is bad. Unfunded actuarial accrued liability does not represent a debt that is payable today. What is
important is the ability to amortize the unfunded actuarial accrued liability and the trend in its amount (after
due allowance for devaluation of the dollar). Unfunded actuarial accrued liability should be controlled.
27