OPEB Actuarial Valuation Report as of 6-30-13 for DISTRICT L
San • • Water District
Valuation GASB Actuarial
Retiree Health Program
As of
April
Prepared By:
Nyhart Epler
450 B Street, Suite 750
San Diego,CA 92101-8002
(619)239-0831 Indianapolis-Chicago-Kansas City
www.nyhart.com Atlanta-St.Louis-San Diego-Houston An Alliance Benefit Group Licensee
450 B Street,Suite 750
_ San Diego,CA 92101-8002
EPLER (p)619-239-0831
(f) 619-239-0807
www.nyhart.com
April 29, 2014
PRIVATE
Mr. Jay Lembach
Finance Manager
City of Encinitas
505 S. Vulcan Avenue
Encinitas, CA 92024
Re: GASB Actuarial Valuation
Dear Mr. Lembach:
We are presenting our report of the June 30, 2013 actuarial valuation conducted on behalf of the City of
Encinitas (the "City") for the San Dieguito Water District (the "District") retiree health program.
The purpose of the valuation is to measure the District's liability for retiree health benefits and to
determine the District's accounting requirements under the Government Accounting Standard Board
Statements No. 43 & 45 (GASB 43 & 45) in regard to unfunded liabilities for retiree health benefits. The
objective of GASB 45 is to improve the information in the financial reports of government entities
regarding their post-employment benefits (OPEB) including retiree health benefits. The objective of
GASB 43 is to establish uniform reporting for OPEB Plans.
Nyhart Epler is the San Diego office of the Nyhart Company, an employee owned actuarial, benefits and
compensation consulting firm specializing in group health and retiree health and qualified pension plan
valuations. We have set forth the results of our valuation in this report.
We have enjoyed working on this assignment and are available to answer any questions.
Sincerely,
Nyhart,Epler
garil" nes, ASA, MAAA, EA, FCA
Consulting Actuary
MKJ:rI
Enclosure
As required by U.S. Treasury Regulations governing tax practice, IRS Circular 230 Tax Advice
Disclaimer, you are hereby advised that any written tax advice contained herein was not written or
intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may
be imposed under the U.S. Internal Revenue Code.
.Indianapolis.Chicago.Kansas City.
.Atlanta.St.Louis.San Diego.Houston . An Alliance Benefit Group Licensee
San Dieguito Water District
GASB Actuarial Valuation
Retiree Health Program
As of June 30, 2013
Table of Contents
Paqe
Section I. Executive Summary................................................................................................... 1
Section 11. Financial Results ....................................................................................................... 4
Section 111. Projected Cash Flows................................................................................................ 9
Section IV. Benefit Plan Provisions.............................................................................................. 11
SectionV. Valuation Data........................................................................................................... 12
Section VI. Actuarial Assumptions and Methods.......................................................................... 13
Section VII. Actuarial Certification................................................................................................. 17
SectionVIII. Definitions.................................................................................................................. 18
SECTION L EXECUTIVE SUMMARY
Background
The San Dieguito Water District (the "District") selected Nyhart Epler to perform an updated actuarial
valuation of its retiree health program. The purpose of the actuarial valuation is to measure the District's
liability for retiree health benefits and to determine the District's accounting requirements for other post-
employment benefits (OPEB) under Governmental Accounting Standards Board Statements No. 43 &45
(GASB 43 and GASB 45). GASB 45 requires accrual accounting for the expensing of OPEB.The expense
is generally accrued over the working career of employees. GASB 43 requires additional financial
disclosure requirements for funded OPEB Plans.
To be eligible for retiree health benefits, an employee must retire from the District and commence pension
benefits under PERS (typically on or after age 50 with at least 5 years of PERS eligible service). The
District's financial obligation is to provide the CaIPERS minimum required employee contribution ($115
per month in 2013, $119 per month in 2014, and in future years, indexed to medical CPI increases). The
District currently has 25 active employees who are working and earning service credit for eligibility of
retiree health benefits. The District currently provides a contribution towards retiree medical benefits
which are provided through the CalPERS Health Program for 14 retirees. This information can be found
on page 13 in Valuation Data section.
Results of the Retiree Health Valuation
The amount of the actuarial liability for the District's retiree health benefits program as of June 30, 2013,
the measurement date, is $370,302. This amount is based on a discount rate of 7.61% which assumes
the District continues to pre-fund its annual required contribution in the California Employers' Retiree
Benefit Trust (CERBT) under the CERBT's asset allocation strategy 1. The amount represents the
present value of all contributions for retiree health benefits projected to be paid by the District for current
and future retirees. If the District were to place this amount in a fund earning interest at the rate of 7.61%
per year, and all other actuarial assumptions were met, the fund would have enough to pay all expected
benefits. This includes contributions for retiree health benefits for the current retirees as well as the
current active employees expected to retire in the future. The valuation does not consider employees not
yet hired as of the valuation date.
If the amount of the actuarial liability is apportioned into past service, current service and future service
components, the past service component (actuarial accrued liability) is $322,326, the current service
component (normal cost or current year accrual) is $5,930 and the future service component (not yet
accrued liability) is $42,046.
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Funding
The District's funding policy is to fund at least 100% of the annual required contribution as determined
under GASB 45 through the CERBT. The market value of assets in the CERBT as of June 30, 2013 is
$73,398. The actuarial value of assets at June 30, 2013 is $68,176. The actuarial value of asset method
phases gains and losses in over five years subject to a 20% corridor around the market value of assets.
The unfunded actuarial accrued liability at June 30, 2013 is $254,150 and the plan's funded ratio is 21%
using the actuarial value of assets.
The CERBT provides participating employers with the choice of three investment allocation strategies.
The expected rate of return of assets is dependent on the funding strategy of a participating employer
and which investment allocation strategy is selected. For employers fully funding their annual required
contribution, strategy 1 has a CERBT published median yield of 7.61%, strategy 2 has a published
median yield of 7.06% and strategy 3 has a published median yield of 6.39%. The valuation was
performed using a 7.61% discount rate assuming the District remains in strategy 1 for the 2014/2015 and
2015/2016 fiscal years and assumes no additional margin for adverse deviation applied to the CERBT
stated median discount rate. The results for alternative allocation strategies using a 7.06% and 6.39%
discount rate are provided in Section II-K of the report.
Annual Required Contribution
The District's annual required contribution (ARC) for the fiscal year ending June 30, 2015 is $28,597. The
ARC is comprised of the present value of benefits accruing in the current fiscal year (normal cost with
interest) plus a 26-year amortization (on a level dollar basis) of the unfunded actuarial accrued liability.
Thus, it represents a means to expense the plan's liabilities in an orderly manner. The increase in the net
OPEB obligation at the end of the fiscal year will reflect any actual contributions made by the District
during the period for retiree health benefits including any pre-funding amounts.
The valuation reflects updated census, asset and premium information. In addition, it reflects a change
to the spousal coverage assumption to reflect actual experience. A reconciliation of the approximate
changes in the annual required contribution (rounded to the nearest $1,000) is provided below:
2013/2014 Annual Required Contribution @7.61% $31,000
Change due to net experience loss (primarily less favorable retirement experience) 1,000
Increase due to new entrants (not included in prior valuation) 4,000
Decrease due to lowering of spouse coverage from 80% to 50% ( 7,000)
2014/2015 Annual Required Contribution @7.61% $29,000
Actuarial Basis
The actuarial valuation is based on the assumptions and methods outlined in Section VI of the report. To
the extent that a single or a combination of assumptions is not met the future liability may fluctuate
significantly from its current measurement. As an example, the healthcare cost increase anticipates that
the rate of increase in medical cost will be at moderate levels and decline over several years. Increases
higher than assumed would bring larger liabilities and expensing requirements. A 1% increase in the
healthcare trend rate for each future year would increase the annual required contribution by 21%.
Another key assumption used in the valuation is the discount (interest) rate which is based on the
expected rate of return of plan assets. The valuation is based on a discount rate of 7.61%. A 0.5%
decrease in the discount rate would increase the annual required contribution by 5%. A 0.5% increase in
the discount rate would decrease the annual required contribution by 4%.
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GASB 45 requires that implicit rate subsidies be considered in the valuation of medical costs. An implicit
rate subsidy occurs when the rates for retirees are the same as for active employees. Since pre-Medicare
retirees are typically much older than active employees, their actual medical costs are almost always
higher than for active employees. It is our understanding that the District participates in a community-
rated health plan (the CalPERS Health Plan) and is exempt from valuing the implicit rate subsidy. A
proposed Actuarial Standard of Practice would require all actuarial valuations to include the implicit rate
subsidy in the valuation of health benefits. If adopted, this could lead GASB to eliminate the exemption
from including the implicit rate subsidy in community-rated plans for future valuations. Inclusion of the
implicit rate subsidy would result in significantly higher liabilities and expense requirements for the
District. To date the District's specific experience data in aggregate or split by actives and retirees is not
available from the CalPERS Health Plan. An illustration of how the inclusion of the implied rate subsidy
could impact the District's liability and annual required contribution estimating the subsidy using health
cost factors based on age and the District's active and retiree populations is shown below:
Increase Due to Estimated
Implied Rate Subsidy
Unfunded Actuarial Accrued Liability (UAAL): $189,000
Annual Required Contribution (ARC): $ 22,000
Expected Subsidy Paid Thru Active Premiums: $ 32,000
The valuation is based on the census, plan and rate information provided by the District. To the extent
that the data provided lacks clarity in interpretation or is missing relevant information, this can result in
liabilities different than those presented in the report. Often missing or unclear information is not identified
until future valuations.
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SECTION H. FINANCIAL RESULTS
A. Valuation Results as of June 30, 2013
The table below presents the employer liabilities associated with the District's retiree health
benefits determined in accordance with GASB 45. The actuarial liability is the present value of all
benefits or contributions projected to be paid by the District under the program. The actuarial
accrued liability reflects the amount attributable to the past service of current employees and
retirees. The normal cost reflects the accrual attributable for the current period. The results were
determined using the 7.61% discount rate which reflects the District maintaining its current funding
policy.
1. Actuarial Liability (AL)
Actives $ 96,605
Retirees 273,697
Total AL $370,302
2. Actuarial Accrued Liability (AAL)
Actives $ 48,629
Retirees 273,697
Total AAL $322,326
3. Normal Cost $ 42,046
No. of Active Employees 25
Average Age 43.4
Average Past Service 8.7
No. of Retired Employees 14
Average Age 67.3
Average Retirement Age 58.2
B. Reconciliation of Market Value of Plan Assets
The reconciliation of Plan Assets for the last two fiscal years is presented below:
6/30/2012 6/30/2013
1. Beginning Market Value of Assets $ 42,228 $ 51,905
2. Contribution 25,000 30,836
3. Fund Earnings (gross) 36 9,859
4. Benefit Payments ( 15,281) ( 19,068)
5. Administrative Expenses ( 78) ( 134)
6. Ending Market Value of Assets $ 51,905 $ 73,398
7. Estimated Rate of Return 0% 17%
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C. Development of Actuarial Value of Assets
The actuarial value of assets is based on the expected market value appreciation. The actual
market appreciation or depreciation, both realized and unrealized, is phased in over five years as
the expected growth is phased out. The table below presents the development of the actuarial
value of assets.
6/30/2010 6/30/2011 6/30/2012 6/30/2013
1. Market value of assets $73,398
2. Actual gross rate of return 35.88% 25.99% 0.08% 17.08%
3. Expected rate of return 7.75% 7.75% 7.61% 7.61%
4. Actual fund earnings 5,122 7,762 36 9,859 22,779
5. Expected fund earnings 1,106 2,314 3,591 4,393 11,404
6. Gain(loss) [(4) - (5)] 4,016 5,448 (3,555) 5,466
7. Percent of gain/(loss) recognized
6/30/2013 80% 60% 40% 20%
8. Recognized gain/(loss)
[(6)x(7)] 3,213 3,269 (1,422) 1,093 6,153
9. Blended value of assets at 6/30/2013 [(1) - (4) + (5) + (8)] $68,176
10. Percent increase/(decrease) of(9) over(1) (7%)
11. Actuarial value of assets, not more than 120% nor less than 80% of market value $68,176
D. Development of Unfunded Actuarial Accrued Liability (UAAL) (O-)-June 30, 2013
The table below presents the development of the unfunded actuarial accrued liability(UAAL). The
UAAL is the excess of the actuarial accrued liability (AAL) over the actuarial value of eligible plan
assets. Eligible assets under GASB 45 must be segregated and secured for the exclusive purpose
of paying for the retiree health benefits.
1. Actuarial Accrued Liability (AAL) $322,326
2. Actuarial Value of Assets ( 68,176)
3. Unfunded AAL (UAAL) $254,150
E. Projected Actuarial Value of Assets a-June 30, 2014
The table below presents the development of the expected actuarial value of assets at June 30,
2014 for purposes of developing the annual required contribution.
1. Actuarial Value of Assets at June 30, 2013 $68,176
2. Expected Fund Earnings @7.61% 6,608
3. Actual Employer Contribution 31,268
4. Expected Benefit Payments & Expenses ( 20,003)
5. Expected Actuarial Value of Assets at June 30, 2014 $86,049
F. Projected Unfunded Actuarial Accrued Liability (UAAL) at June 30, 2014
The table below presents the projected unfunded actuarial accrued liability at June 30, 2014 for
the determination of the annual required contribution.
1. Projected AAL $332,472
2. Actuarial Value of Assets ( 86,049)
3. Unfunded AAL (UAAL) $246,423
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G. Amortization of Unfunded Actuarial Accrued Liability (UAAL)
The amortization of the UAAL component of the annual required contribution (ARC) is being
amortized over 26 years on a level-dollar basis. Under the level-dollar method, the amortization
payment is scheduled to remain constant in future years.
1. Unfunded AAL (UAAL) $ 246,423
2. Amortization Factor 11.188752
3. Amortization of UAAL $ 22,024
H. Annual Required Contribution (ARC)
The table below presents the development of the annual required contribution ARC for the fiscal
year ending June 30, 2015 and estimated for the fiscal year ending June 30, 2016.
2014/2015 2015/2016
1. Normal Cost at End of Year $ 6,573 $ 6,770
2. Amortization of UAAL at End of Year 22,024 22,024
3. Annual Required Contribution (ARC) $ 28,597 $ 28,794
4. Estimated Payroll $1,886,000 $1,942,000
5. Normal Cost a % of Payroll 0.3% 0.3%
6. Amortization as % of Payroll 1.2% 1.2%
7. ARC as % of Payroll 1.5% 1.5%
I. Estimated Net OPEB Obligation at June 30, 2015
The table below shows an estimate of the net OPEB obligation/(asset) at June 30, 2015 assuming
the net OPEB obligation at June 30, 2014 is $0 and that the District contributes the 2014/2015
annual required contribution inclusive of benefits paid by June 30, 2015:
1. Annual Required Contribution (ARC) $ 28,597
2. Interest on Net OPEB Obligation 0
3. Adjustment to ARC ( 0)
4. Annual OPEB Cost $ 28,597
5. Estimated District Contributions Made (Net of Benefit Payments) ( 28,597)
6. Increase in Net OPEB Obligation $ 0
7. Net OPEB Obligation — June 30, 2014 0
8. Net OPEB Obligation — June 30, 2015 $ 0
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J. Sensitivity Analysis:
1. The impact of a 0.5% decrease in the discount (interest) rate on the District's unfunded
actuarial accrued liability and the annual required contributions is provided below:
Dollar Percentage
($) Increase (%) Increase
- Unfunded Actuarial Accrued Liability $19,017 6%
- FY2014/2015 Annual Required Contribution $ 1,298 5%
- FY2015/2016 Annual Required Contribution $ 1,317 5%
2. The impact of a 0.5% increase in the discount (interest) rate on the District's total actuarial
liability, actuarial accrued liability, unfunded actuarial accrued liability and the annual required
contribution is provided below:
Dollar Percentage
($) Decrease (%) Decrease
- Unfunded Actuarial Accrued Liability ($17,367) ( 7%)
- FY2014/2015 Annual Required Contribution ($ 1,202) ( 4%)
- FY2015/2016 Annual Required Contribution ($ 1,219) ( 4%)
3. The impact of a 1% increase in the healthcare trend rates on the District's total actuarial
liability, actuarial accrued liability, unfunded actuarial accrued liability and the annual required
contribution is provided below:
Dollar Percentage
($) Increase (%) Increase
- Unfunded Actuarial Accrued Liability $45,369 18%
- FY2014/2015 Annual Required Contribution $ 5,620 20%
- FY2015/2016 Annual Required Contribution $ 6,042 21%
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K. Liabilities - Alternative Discount Rates
The District also requested the measurement of the liability and annual required contribution using
a discount rate to reflect pre-funding the retiree health benefits through the California Employers'
Retiree Benefit Trust (CERBT) alternative allocation strategies 2 and 3 with discount rates of
7.06% and 6.39%, respectively. Asset allocation strategies 2 and 3 reflect more conservative
allocations by asset classes than strategy 1 under which the District's assets are currently
invested. The impact under the alternative discount rates on the District liabilities is reflected in
the table below.
Discount Rate
Projected Liability & Assets 7.61% 7.06% 6.39%
1. Projected Actuarial Accrued Liability $ 332,472 $ 353,489 $382,187
2. Projected Actuarial Value of Assets ( 86,0491 ( 86,049) ( 86,049)
3. Projected Unfunded AAL (UAAL) $ 246,423 $ 267,440 $296,138
4. Amortization Factor* 11.188752 11.760568 12.522811
FY2014/2015 Annual Required Contribution (ARC)
1. Normal Cost at End of Year $ 6,573 $ 7,290 $ 8,312
2. Amortization of UAAL at End of Year 22,024 22,740 23,648
3. Annual Required Contribution (ARC) $ 28,597 $ 30,030 $ 31,960
4. Estimated Payroll $1,886,000 $1,886,000 $1,886,000
5. ARC as Percentage of Payroll 1.5% 1.6% 1.7%
FY2015/2016 Annual Required Contribution (ARC)
1. Normal Cost at End of Year $ 6,770 $ 7,509 $ 8,561
2. Amortization of UAAL at End of Year 22,024 22,740 23,648
3. Annual Required Contribution (ARC) $ 28,794 $ 30,249 $ 32,209
4. Estimated Payroll $1,942,000 $1,942,000 $1,942,000
5. ARC as Percentage of Payroll 1.5% 1.6% 1.7%
*Based on Level-Dollar Method over 26 years
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SECTION M. PROJECTED CASH FLOWS
The valuation process includes the projection of the expected retiree benefits/contributions to be paid by
the District under the Plan. This expected cash flow takes into account the likelihood of each employee
reaching age for eligibility to retire and receive health benefits. The projection is performed by applying
the turnover assumption to each active employee for the period between the valuation date and
retirement date. Once the employees reach their retirement date, a certain percent are assumed to enter
the retiree group each year. Employees already over the latest assumed retirement age as of the
valuation date are assumed to retire immediately. The per capita cost as of the valuation date is projected
to increase at the applicable healthcare trend rates both before and after the employee's assumed
retirement. The projected per capita costs are multiplied by the number of expected future retirees in a
given future year to arrive at the cash flow for that year. Also, a certain number of retirees will leave the
group each year due to expected deaths and this group will cease to be included in the cash flow from
that point forward. Because this is a closed-group valuation, the number of retirees dying each year will
eventually exceed the number of new retirees, and the size of the cash flow will begin to decrease and
eventually go to zero.
The expected employer cash flows for selected future years are provided in the following table:
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Projected Employer Cash Flows: All District Retirees- Representative Years
Fiscal Year Future Retirees Retired Employees District Total
2013/14 $ 347 $ 19,656 $ 20,003
2014/15 $ 731 $ 20,077 $ 20,808
2015/16 $ 1,188 $ 20,484 $ 21,672
2016/17 $ 1,684 $ 20,879 $ 22,563
2017/18 $ 2,128 $ 21,261 $ 23,389
2018/19 $ 2,701 $ 21,632 $ 24,333
2019/20 $ 3,282 $ 21,991 $ 25,273
2020/21 $ 3,825 $ 22,339 $ 26,164
2021/22 $ 4,403 $ 22,672 $ 27,075
2022/23 $ 5,033 $ 22,985 $ 28,018
2023/24 $ 5,658 $ 23,274 $ 28,932
2024/25 $ 6,255 $ 23,534 $ 29,789
2025/26 $ 6,823 $ 23,760 $ 30,583
2026/27 $ 7,553 $ 23,946 $ 31,499
2027/28 $ 8,135 $ 24,084 $ 32,219
2028/29 $ 8,746 $ 24,166 $ 32,912
2029/30 $ 9,445 $ 24,182 $ 33,627
2030/31 $ 10,113 $ 24,121 $ 34,234
2031/32 $ 10,865 $ 23,975 $ 34,840
2032/33 $ 11,727 $ 23,738 $ 35,465
2033/34 $ 12,575 $ 23,408 $ 35,983
2034/35 $ 13,387 $ 22,977 $ 36,364
2035/36 $ 14,215 $ 22,439 $ 36,654
2036/37 $ 15,079 $ 21,796 $ 36,875
2037/38 $ 16,026 $ 21,046 $ 37,072
2038/39 $ 16,928 $ 20,193 $ 37,121
2039/40 $ 17,732 $ 19,243 $ 36,975
2040/41 $ 18,473 $ 18,207 $ 36,680
2041/42 $ 19,161 $ 17,098 $ 36,259
2042/43 $ 19,789 $ 15,931 $ 35,720
2043/44 $ 20,323 $ 14,714 $ 35,037
2044/45 $ 20,800 $ 13,466 $ 34,266
2045/46 $ 21,201 $ 12,203 $ 33,404
2050/51 $ 22,017 $ 6,482 $ 28,499
2055/56 $ 21,035 $ 2,746 $ 23,781
2060/61 $ 18,699 $ 780 $ 19,479
2065/66 $ 15,515 $ 118 $ 15,633
2070/71 $ 11,180 $ 0 $ 11,180
2075/76 $ 6,084 $ 0 $ 6,084
2080/81 $ 2,134 $ 0 $ 2,134
2085/86 $ 405 $ 0 $ 405
2090/91 $ 0 $ 0 $ 0
2095/96 $ 0 $ 0 $ 0
2100/01 $ 0 $ 0 $ 0
All Years $864,918 $767,966 $1,632,884
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SECTION W. BENEFIT PLAN PROVISIONS
This study analyzes the postretirement health benefit plan provided by the District. The District
contributes to the retiree health coverage of eligible retirees and eligible surviving spouses. The District's
financial obligation is as follows:
The minimum required employer contributions is statutorily set under PEMHCA and is scheduled to
increase in the future based on the medical portion of CPI. A history of the increases in past years and
current amounts are as follows:
Calendar Year Minimum Required Employer Contribution
2006 $64.60
2007 $80.80
2008 $97.00
2009 $101.00
2010 $105.00
2011 $108.00
2012 $112.00
2013 $115.00
2014 $119.00
2015+ Adjusted Annually to reflect Medical Portion of CPI
Premium Rates
The District participates in the CalPERS Health Program, a community-rated program for its medical
coverage. The following tables summarize the 2013 and 2014 monthly health premiums paid by the
District on behalf of retirees for the primary health plans in which the retirees are enrolled. All premiums
are effective for the calendar year.
PIERS
Other So. Cal. Region Choice
• . • HMO Care Choice • •
Retiree Only $558.95 $643.93 $550.03 $992.61 $611.30 $754.21
Retiree Plus Spouse $1,117.90 $1,287.86 $1,100.06 $1,985.22 $1,222.60 $1,508.42
Retiree Only- Medicare $288.37 $261.32 $261.32 $370.43 $325.74 $325.74
Retiree Plus Spouse- Medicare $576.74 $522.64 $522.64 $740.86 $651.48 $651.48
. -
• Region BS BS NVP PIERS PIERS Choice
noted) • HMO Care Choice • •
Retiree Only $602.79 $543.21 $457.17 $638.22 $612.25 $706.40
Retiree Plus Spouse $1,205.58 $1,086.42 $914.34 $1,276.44 $1,224.50 $1,412.80
Retiree Only- Medicare $294.97 $298.21 $298.21 $327.36 $307.23 $307.23
Retiree Plus Spouse- Medicare $589.94 $596.42 $596.42 $654.72 $614.46 $614.46
New Plans Anthem Anthem Health Net Health Net
2014 Other So. Cal. Region • HMO Salud Smart
noted) • HMO Select Traditional Care
Retiree Only $538.59 $521.01 $536.99 $592.20 $489.82 $568.51
Retiree Plus Spouse $1,077.18 $1,042.02 $1,073.98 $1,184.40 $979.64 $1,137.02
Retiree Only- Medicare $306.51 $193.33 $341.12 $341.12 $261.24 $261.24
Retiree Plus Spouse- Medicare $613.02 $386.66 $682.24 $682.24 $522.48 $522.48
OOS= Out-of-State
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SECTION V. VALUATION DATA
The valuation was based on the census furnished to us by the District. The following tables display the
age distribution for retirees and the age/service distribution for active employees as of the Measurement
Date.
Age Distribution of Eligible Retired Participants & Beneficiaries
Age Totall*
<55 1
55-59 2
60-64 4
65-69 1
70-74 4
75-79 1
80-84 1
85+ 0
Total: 14
Average Age: 67.3
Average Retirement Age: 58.2
*Excludes retirees waiving coverage
Age/Service Distribution of Active Benefit Eligible District Employees
Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 Total
20-24 0 0
25-29 2 2
30-34 4 0 4
35-39 2 5 7
40-44 0 0 1 1
45-49 0 0 0 1 0 1 2
50-54 1 3 0 1 0 0 1 6
55-59 0 0 0 0 0 0 0 0
60-64 2 0 0 0 0 0 1 0 3
65-69 0 0 0 0 0 0 0 0 0 0
70+ 0 0 0 0 0 0 0 0 0 0
Total: 11 8 1 2 0 1 2 0 0 25
Average Age: 43.4
Average Service: 8.7
Average Pay: $73,224
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SECTION Vi. ACTUARIAL ASSUMPTIONS AND METHODS
The liabilities set forth in this report are based on the actuarial assumptions described in this section.
Fiscal Year: July 1St to June 301h
Measurement Date: June 30, 2013
Fiscal Years Covered: FY2014/2015 and FY2015/2016
Discount Rate: 7.61% per annum. This discount rate assumes the District continues to fully
fund for its retiree health benefits through the California Employers' Retiree
Benefit Trust (CERBT) under its investment allocation strategy 1. The
7.61% reflects the CERBT published median interest rate for strategy 1
without any additional margin for adverse deviation.
Sensitivity analysis showing a 0.5% increase or decrease in the discount
rate is also provided.
Inflation: 2.8% per annum consistent with the most recent CalPERS pension plan
study.
[The prior valuation used 3 51o]
Payroll Increases: 3.0% per annum, in aggregate with the most recent CalPERS pension
plan study.
[The prior valuation used 3.2551o]
Salary Increases: Merit increases from the most recent CalPERS pension plan study using
the average pay increase based on employee's date of hire. The benefits
are not payroll related but each individual's projected cost is allocated over
their lifetime as a level-percentage of pay.
Pre-retirement Turnover: According to the termination rates under the CalPERS pension plan
updated to reflect the most recent experience study. Sample rates for
Miscellaneous employees are as follows:
Entry Age
Service 20 30 40 50
0 17.42% 16.06% 14.68% 13.32%
5 8.68% 7.11% 5.54% 0.97%
10 6.68% 5.07% 0.71% 0.38%
15 5.03% 3.47% 0.23% 0.04%
20 3.70% 0.21% 0.05% 0.01%
25 2.29% 0.05% 0.01% 0.01%
30 0.05% 0.01% 0.01% 0.01%
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Pre-retirement Mortality: According to the pre-retirement mortality rates under the CalPERS pension
plan updated to reflect the most recent experience study. Sample deaths
per 1,000 employees applicable to Miscellaneous employees are as
follows:
A .- Males Females
25 0.5 0.3
30 0.5 0.4
35 0.7 0.5
40 0.9 0.7
45 1.2 0.9
50 1.8 1.3
55 2.6 1.8
60 4.0 2.7
Post-retirement Mortality: According to the post-retirement mortality rates under the CalPERS
pension plan updated to reflect the most recent experience study. Sample
deaths per 1,000 employees applicable to Miscellaneous, Fire and Police
retirees are as follows:
A .- Males Females
55 4.7 2.4
60 7.2 4.3
65 10.7 7.8
70 16.8 12.4
75 30.8 20.7
80 52.7 37.5
85 97.8 70.1
90 167.5 124.0
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Retirement Age: According to the retirement rates under the CalPERS Pension Plan. The
percentage refers to the probability that an active employee who has
reached the stated age will retire within the following year.
Sample rates for Miscellaneous members are as follows:
Service at Retirement
Age 0 25 30
50 4.3% 5.0% 5.8% 6.5% 7.3%
51-52 3.4% 4.0% 4.6% 5.2% 5.8%
53 4.3% 5.0% 5.8% 6.5% 7.3%
54 6.8% 8.0% 9.2% 10.4% 11.6%
55 14.0% 16.5% 19.0% 21.5% 23.9%
56 9.4% 11.0% 12.7% 14.3% 16.0%
57 9.8% 11.5% 13.2% 15.0% 16.7%
58 11.5% 13.5% 15.5% 17.6% 19.6%
59 12.8% 15.0% 17.3% 19.5% 21.8%
60 13.6% 16.0% 18.4% 20.8% 23.2%
61 13.2% 15.5% 17.8% 20.2% 22.5%
62 19.1% 22.5% 25.9% 29.3% 32.6%
63-64 16.6% 19.5% 22.4% 25.4% 28.3%
65 22.5% 26.5% 30.5% 34.5% 38.4%
66-69 16.6% 19.5% 22.4% 25.4% 28.3%
70-74 19.9% 23.4% 26.9% 30.4% 33.9%
75 100.0% 100.0% 100.0% 100.0% 100.0%
Participation Rates: 50% of future retirees under age 65 at retirement are assumed to elect
coverage at retirement. The percentage increases to 60% at age 65.
Actual medical plan coverage is used for current retirees and for current
active employees not waiving coverage. For active employees waiving
coverage, a weighted average premium is assumed.
Spouse Coverage: 50% of future retirees are assumed to elect coverage for their spouse.
Actual spousal coverage is used for current retirees. Male spouses are
assumed to be 3 years older than female spouses. Actual spouse age is
used for current retirees.
[The prior valuation assumed 80% elect spouse coverage for employees
only eligible for the MRC]
Dependent Coverage: Not explicitly valued.
Claim Cost Development: The valuation claim costs are based on the premiums paid for medical
insurance coverage. The District participates in the CalPERS Health Plan,
a community rated plan. The valuation assumes the District is exempt from
the valuation of any medical plan rate subsidy.
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Medical Trend Rates: Medical costs are adjusted in future years by the following trends:
Year PP• HMO
2015 7.5% 7.0%
2016 7.0% 6.5%
2017 6.5% 6.0%
2018 6.0% 5.5%
2019 5.5% 5.0%
2020+ 5.0% 5.0%
[The prior valuation assumed I% lower initial trend rates]
Medicare Participation: 100%
Minimum Contribution: The CalPERS minimum required contribution is assumed to increase 4%
per year.
CalPERS Service: Actual CalPERS Service as reported by CERBT was included for purposes
of applying the CalPERS demographic tables and determining eligibility for
benefits.
Actuarial Cost Method: The actuarial cost method used to determine the allocation of the retiree
health actuarial liability to the past (accrued), current and future periods is
the Entry Age Normal (EAN) cost method. The EAN cost method is a
projected benefit cost method which means the "cost" is based on the
projected benefit expected to be paid at retirement.
The EAN normal cost equals the level annual amount of contribution from
the employee's date of hire (entry date) to their retirement date that is
sufficient to fund the projected benefit. For plans unrelated to pay, the
normal cost is calculated to remain level in dollars; for pay-related plans
the normal cost is calculated to remain level as a percentage of pay. The
District has elected to determine the EAN normal cost as a level percentage
of pay. The EAN actuarial accrued liability equals the present value of all
future benefits for retired and current employees and their beneficiaries
less the portion expected to be funded by future normal costs.
All employees eligible as of the measurement date in accordance with the
provisions of the Plan listed in the data provided by the District were
included in the valuation.
Actuarial Value of Assets: Asset gains and losses are recognized over 5 years subject to an 80% and
120% of market value corridor.
Amortization of UAAL: The unfunded actuarial accrued liability is being amortized over 26 years
on a level-dollar method on a closed-basis.
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SECTION Vii. ACTUARIAL CERTIFICATION
The results set forth in this report are based on the actuarial valuation of the retiree health benefit plans
of the San Dieguito Water District (the "District") as of June 30, 2013.
The valuation was performed in accordance with generally accepted actuarial principles and practices
and in accordance with GASB Statements No. 43 & 45. We relied on census data for active employees
and retirees provided to us by the District. We also made use of plan information, premium information,
and enrollment information provided to us by the District.
The assumptions used in performing the valuation, as summarized in this report, and the results based
thereupon, represent our best estimate of anticipated experience and actuarial cost of the retiree health
benefits program.
I am a member of the American Academy of Actuaries and believe I meet the Qualification Standards of
the American Academy of Actuaries to render the actuarial opinion contained herein.
Certified by:
,Var II n I>-Jones, ASA, EA, MAAA, FCA Date: 4/29/2014
Consulting Actuary
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SECTION Viii. DEFINITIONS
The definitions of the terms used in GASB actuarial valuations are noted below.
Actuarial Liability (also referred to as Present Value of Future Benefits) — Total projected benefits
include all benefits estimated to be payable to plan members (retirees and beneficiaries, terminated
employees entitled to benefits but not yet receiving them, and current active members) as a result of their
service through the valuation date and their expected future service. The actuarial present value of total
projected benefits as of the valuation date is the present value of the cost to finance benefits payable in
the future, discounted to reflect the expected effects of the time value (present value) of money and the
probabilities of payment. Expressed another way, it is the amount that would have to be invested on the
valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay
total projected benefits when due.
Actuarial Accrued Liability—That portion, as determined by a particular Actuarial Cost Method, of the
Actuarial Present Value of plan benefits and expenses which is not provided for by the future Normal
Costs.
Actuarial Assumptions—Assumptions as to the occurrence of future events affecting health care costs,
such as: mortality, turnover, disablement and retirement; changes in compensation and Government
provided health care benefits; rates of investment earnings and asset appreciation or depreciation;
procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open
Group Actuarial Cost Methods; and other relevant items.
Actuarial Cost Method —A procedure for determining the Actuarial Present Value of future benefits and
expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in
the form of a Normal Cost and an Actuarial Accrued Liability.
Actuarial Present Value—The value of an amount or series of amounts payable or receivable at various
times, determined as of a given date by the application of a particular set of Actuarial Assumptions.
Annual OPEB Cost —An accrual-basis measure of the periodic cost of an employer's participation in a
defined benefit OPEB plan.
Annual Required Contribution (ARC) — The employer's periodic required contributions to a defined
benefit OPEB plan, calculated in accordance with the parameters.
Explicit Subsidy — The difference between (a) the amounts required to be contributed by the retirees
based on the premium rates and (b) actual cash contribution made by the employer.
Funded Ratio—The actuarial value of assets expressed as a percentage of the actuarial accrued liability.
Healthcare Cost Trend Rate —The rate of change in the per capita health claims costs over time as a
result of factors such as medical inflation, utilization of healthcare services, plan design, and technological
developments.
Implicit Rate Subsidy— In an experience-rated healthcare plan that includes both active employees and
retirees with blended premium rates for all plan members, the difference between (a) the age-adjusted
premiums approximating claim costs for retirees in the group (which, because of the effect of age on
claim costs, generally will be higher than the blended premium rates for all group members) and (b) the
amounts required to be contributed by the retirees.
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Net OPEB Obligation — The cumulative difference since the effective date of this Statement between
annual OPEB cost and the employer's contributions to the plan, including the OPEB liability (asset) at
transition, if any, and excluding (a) short-term differences and (b) unpaid contributions that have been
converted to OPEB-related debt.
Normal Cost — The portion of the Actuarial Present Value of plan benefits and expenses which is
allocated to a valuation year by the Actuarial Cost Method.
Pay-as-you-go — A method of financing a benefit plan under which the contributions to the plan are
generally made at about the same time and in about the same amount as benefit payments and expenses
becoming due.
Per Capita Costs—The current cost of providing postretirement health care benefits for one year at each
age from the youngest age to the oldest age at which plan participants are expected to receive benefits
under the plan.
Select and Ultimate Rates — Actuarial assumptions that contemplate different rates for successive
years. Instead of a single assumed rate with respect to, for example, the healthcare trend rate
assumption, the actuary may apply different rates for the early years of a projection and a single rate for
all subsequent years. For example, if an actuary applies an assumed healthcare trend rate of 6.5% for
year 20W0, 6.0% for 20W1, 5.5% for 20W2, then 5.0% for 20W3 and thereafter, then 6.5%, 6% and 5.5%
are select rates, and 5% is the ultimate rate.
Substantive Plan —The terms of an OPEB plan as understood by the employer(s) and plan participant.
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