OPEB Actuarial Valuation Report as of 6-30-21 for City of EncinitasGASB 74/75 INTERIM ACTUARIAL VALUATION
Fiscal Year Ending June 30, 2021
CITY OF ENCINITAS
CONTACT
Suraj M. Datta, ASA, MAAA
suraj.datta@nyhart.com
ADDRESS
Nyhart
530 B Street Suite 900
San Diego, CA 92101
PHONE
General (619) 239-0831
Toll-Free (800) 428-7106
Fax (317) 845-3654
Table of Contents
Page
Certification 1
Executive Summary 3
GASB Disclosures
Schedule of Changes in Net OPEB Liability and Related Ratios 4
OPEB Expense 5
Deferred Outflows / (Inflows) of Resources 6
Sensitivity Results 8
Asset Information 9
Discussion of Discount Rates 11
Summary of Key Actuarial Assumptions 12
Actuary's Notes 13
Valuation Results Summary 15
March 19, 2021
Ms. Stella Huang
City of Encinitas505 South Vulcan Avenue
Encinitas, CA 92024
This report summarizes the interim GASB actuarial valuation for the City of Encinitas 2020/21 fiscal year. To the best of our knowledge, the report presents
a fair position of the funded status of the plan in accordance with GASB Statement No. 74 (Financial Reporting for Post-Employment Benefit Plans Other
Than Pension Plans) and GASB Statement No. 75 (Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions).
The information presented herein is based on the actuarial assumptions and substantive plan provisions summarized in this report and participant
information furnished to us by the Plan Sponsor. We have reviewed the employee census provided by the Plan Sponsor for reasonableness when
compared to the prior information provided but have not audited the information at the source, and therefore do not accept responsibility for the
accuracy or the completeness of the data on which the information is based. When relevant data may be missing, we may have made assumptions we feel
are neutral or conservative to the purpose of the measurement. We are not aware of any significant issues with and have relied on the data provided.
The discount rate, other economic assumptions, and demographic assumptions have been selected by the Plan Sponsor with the concurrence of Nyhart .
In our opinion, the actuarial assumptions are individually reasonable and in combination represent our estimate of anticipated experience of the Plan . All
calculations have been made in accordance with generally accepted actuarial principles and practice.
Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following :
·plan experience differing from that anticipated by the economic or demographic assumptions;
· changes in economic or demographic assumptions;
· increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an
amortization period); and
· changes in plan provisions or applicable law.
We did not perform an analysis of the potential range of future measurements due to the limited scope of our engagement .
To our knowledge, there have been no significant events prior to the current year's measurement date or as of the date of this report that could materially
affect the results contained herein.
Page 1
Neither Nyhart nor any of its employees has any relationship with the plan or its sponsor that could impair or appear to impair the objectivity of this
report. Our professional work is in full compliance with the American Academy of Actuaries “Code of Professional Conduct” Precept 7 regarding conflict of
interest. The undersigned meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein .
Should you have any questions please do not hesitate to contact us.
David Murciano, ASA, MAAA, EA
Valuation Actuary
Suraj M. Datta, ASA, MAAA
Consulting Actuary
Page 2
Executive Summary
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Summary of Results
Presented below is the summary of GASB 75 results for the fiscal year ending June 30, 2021 compared to the prior fiscal year as shown in the City's Notes
to Financial Statement.
FYE June 30, 2020 FYE June 30, 2021
Total OPEB Liability 11,547,054 11,328,327 $$
Actuarial Value of Assets (5,401,463)(4,765,600)$$
Net OPEB Liability 6,781,454 5,926,864 $$
Funded Ratio 47.7% 41.3%
FY 2019/20 FY 2020/21
OPEB Expense 533,778 411,207 $$
Annual Employer Contributions 1,270,357 1,370,746 $$
As of June 30, 2020 As of June 30, 2021
7.00%Discount Rate 7.00%
7.00%Expected Return on Assets 7.00%
Page 3
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Schedule of Changes in Net OPEB Liability and Related Ratios
OPEB Liability FY 2020/21 FY 2019/20 FY 2018/19 FY 2017/18
Total OPEB Liability
Total OPEB Liability - beginning of year 11,547,054 12,818,900 12,639,192 12,497,648 $$$$
Service cost 218,453 196,193 190,479 178,018
Interest 791,330 880,167 867,343 856,058
Change of benefit terms 0 0 0 0
Changes in assumptions 0 (26,216) 0 0
Differences between expected and actual experience (291,076)(1,439,425) 0 0
(937,434)Benefit payments (882,565)(878,114)(892,532)
Net change in total OPEB liability (218,727)(1,271,846) 179,708 141,544 $$$$
Total OPEB Liability - end of year 11,328,327 11,547,054 12,818,900 12,639,192 $$$$
Plan Fiduciary Net Position
Plan fiduciary net position - beginning of year 4,765,600 4,070,007 3,494,061 2,892,682 $$$$
Contributions - employer 1,370,746 1,270,357 1,102,937 1,092,690
Contributions - active employees 0 0 0 0
Net investment income 205,412 308,901 358,109 403,267
Benefit payments (937,434)(882,565)(878,114)(892,532)
Trust administrative expenses (2,861)(1,100)(6,986)(2,046)
Net change in plan fiduciary net position 635,863 695,593 575,946 601,379 $$$$
Plan fiduciary net position - end of year 5,401,463 4,765,600 4,070,007 3,494,061 $$$$
Net OPEB Liability - end of year 5,926,864 6,781,454 8,748,893 9,145,131 $$$$
Plan fiduciary net position as % of total OPEB liability 47.7% 41.3% 31.8% 27.6%
Covered employee payroll 23,224,242 20,785,363 17,816,557 17,816,557 $$$$
Net OPEB liability as % of covered payroll 25.5% 32.6% 49.1% 51.3%
* Employer Contributions are determined from the June 30, 2020 CERBT Statement of Fiduciary Net Position and includes contributions outside the Trust .
Page 4
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
OPEB Expense
OPEB Expense FY 2020/21 FY 2019/20
Discount Rate
Beginning of year 7.00% 7.00%
End of year 7.00% 7.00%
Service cost 218,453 196,193 $$
Interest 791,330 880,167
Change of benefit terms 0 0
Projected earnings on OPEB plan investments (348,403)(298,435)
Reduction for contributions from active employees 0 0
OPEB plan administrative expenses 2,861 1,100
Current period recognition of deferred outflows / (inflows) of resources
Differences between expected and actual experience (216,313)(179,928)$$
Changes in assumptions (3,277)(3,277)
Net difference between projected and actual earnings on OPEB plan investments (33,444)(62,042)
Total current period recognition (245,247)(253,034)$$
Total OPEB expense 533,778 411,207 $$
Page 5
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Deferred Outflows / (Inflows) of Resources
Deferred Outflows / (Inflows ) of Resources represents the following items that have not been recognized in the OPEB Expense :
1.Differences between expected and actual experience of the OPEB plan
2.Changes of assumptions
3.Differences between projected and actual earnings in OPEB plan investments (for funded plans only)
The initial amortization period for the first two items noted above is based on expected future service lives while the difference between the projected and
actual earnings in OPEB plan investment is amortized over five years . All balances are amortized linearly on a principal only basis and new bases will be
created annually for each of the items above .
Differences between expected and actual experience for FYE Initial Balance Initial Amortization
Period
Annual
Recognition
Unamortized Balance as
of June 30, 2021
June 30, 2018 0 0 0 N/A$$$
June 30, 2019 0 0 0 N/A$$$
June 30, 2020 (1,439,425) 8 (179,928)(1,079,569)$$$
June 30, 2021 (291,076) 8 (36,385)(254,691)$$$
Changes in assumptions for FYE Initial Balance Initial Amortization
Period
Annual
Recognition
Unamortized Balance as
of June 30, 2021
June 30, 2018 0 0 0 N/A$$$
June 30, 2019 0 0 0 N/A$$$
June 30, 2020 (26,216) 8 (3,277)(19,662)$$$
June 30, 2021 0 0 0 N/A$$$
Page 6
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Deferred Outflows / (Inflows) of Resources (Continued)
Unamortized Balance as
of June 30, 2021
Annual
Recognition
Initial Amortization
PeriodInitial BalanceNet Difference between projected and actual earnings in
OPEB plan investments for FYE
June 30, 2018 (193,845) 5 (38,769)(38,769)$$$
June 30, 2019 (105,900) 5 (21,180)(42,360)$$$
June 30, 2020 (10,466) 5 (2,093)(6,280)$$$
June 30, 2021 142,991 5 28,598 114,393 $$$
Deferred Outflows Deferred InflowsAs of fiscal year ending June 30, 2021
Differences between expected and actual experience 0 (1,334,260)$$
Changes in assumptions 0 (19,662)
Net difference between projected and actual earnings in OPEB plan investments 26,984 0
N/A 847,002 Contributions subsequent to the measurement date
873,986 (1,353,922)Total $$
Annual Amortization of Deferred Outflows / (Inflows)
The balances as of June 30 , 2021 of the deferred outflows / (inflows ) of resources will be recognized in OPEB expense in the future fiscal years as noted
below. Balances shown below do not include the recognition of any deferred outflows for contributions subsequent to the measurement date .
FYE Balance
(253,034)$ 2022
(214,265)$ 2023
(193,086)$ 2024
(190,991)$ 2025
(219,590)$ 2026
(255,972)Thereafter $
Page 7
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Sensitivity Results
The following presents the Net OPEB Liability as of June 30 , 2021,
calculated using the discount rate assumed and what it would be
using a 1% higher and 1% lower discount rate .
·The current discount rate is 7.00%.
·The 1% decrease in discount rate would be 6.00%.
·The 1% increase in discount rate would be 8.00%.
The following presents the Net OPEB Liability as of June 30 , 2021, using the
health care trend rates assumed and what it would be using 1% higher and 1%
lower health care trend rates .
·The current health care trend rate starts at an initial rate of 6.00%,
decreasing to an ultimate rate of 5.00%.
·The 1% decrease in health care trend rates would assume an initial rate
of 5.00%, decreasing to an ultimate rate of 4.00%.
·The 1% increase in health care trend rates would assume an initial rate
of 7.00%, decreasing to an ultimate rate of 6.00%.As of June 30, 2021 Net OPEB Liability
1% Decrease
Current Discount Rate
1% Increase As of June 30, 2021 Net OPEB Liability
1% Increase
1% Decrease
Current Trend Rates
5,926,864
4,855,595
7,209,086
4,698,465
5,926,864
7,404,833
$
$
$$
$
$
Page 8
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Asset Information
Asset Breakdown FY 2020/21 FY 2019/20
Assets
0 0 $$Cash and deposits
0 0 Securities lending cash collateral
Total cash 0 0 $$
Receivables
0 0 $$Contributions
0 0 Accrued interest
0 0 $$Total receivables
Investments
1,350,366 1,191,400 $$Fixed income
4,051,097 3,574,200 Equities
0 0 Mutual Funds
Total investments 5,401,463 4,765,600 $$
Total Assets 5,401,463 4,765,600 $$
Liabilities
Payables
0 0 $$Investment management fees
0 0 Securities lending expense
Total liabilities 0 0 $$
Net Position Restricted to OPEB 5,401,463 4,765,600 $$
Page 9
GASB Disclosures
City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021
Asset Information (Continued)
Asset Reconciliation FY 2020/21 FY 2019/20
Additions
Contributions Received
1,370,746 1,270,357 $$Employer
0 0 Active employees
Total contributions 1,370,746 1,270,357 $$
Investment Income
205,412 308,901 $$Net increase in fair value of investments
0 0 Interest and dividends
0 0 Investment expense, other than from securities lending
0 0 Securities lending income
Securities lending expense 0 0
Net investment income 308,901 $$ 205,412
Total additions 1,576,158 1,579,258 $$
Deductions
882,565 $$ 937,434 Benefit payments
2,861 1,100 Administrative expenses
0 0 Other
Total deductions 940,295 883,665 $$
Net increase in net position 635,863 695,593 $$
Net position restricted to OPEB
Beginning of year 4,765,600 4,070,007 $$
End of year 5,401,463 4,765,600 $$
Page 10
Page 11 Discussion of Discount Rates City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021 Under GASB 74, the discount rate used in valuing OPEB liabilities for funded plans as of the Measurement Date must be based on the long-term expected rate of return on OPEB plan investments that are expected to be used to finance future benefit payments to the extent that (a) they are sufficient to pay for the projected benefit payments and (b) the OPEB plan assets are invested using a strategy that will achieve that return. When the OPEB plan investments are insufficient to cover future benefit payments, a yield for 20-year tax-exempt general obligation municipal bonds with an average rating of AA /Aa or higher (or equivalent quality on another rating scale) must be used. For the current valuation: 1. The long-term expected rate of return on OPEB plan investment is assumed to be 7.00%. This was determined using a building block method in which expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These expected future real rates of return are then combined to produce the long-term expected rate of return by weighting them based on the target asset allocation percentage and adding in expected inflation (2.75%). The best estimates of arithmetic real rates of return for each major asset class included in the OPEB Plan’s target asset allocation as of June 30, 2020 are summarized in the following table. Asset Class Target Allocation L/T Expected Real ROR Global Equity 59.0% 5.50% Global Debt Securities 25.0% 2.35% Inflation Assets 5.0% 1.50% Commodities 3.0% 1.75% REITs 8.0% 3.65% Total 100.00% 4.25% 2. The discount rate used when the OPEB plan investments are insufficient to pay for future benefit payments are selected from the range of indices as shown in the table below, where the range is given as the spread between the lowest and highest rate shown. Yield as of July 1, 2019 June 30, 2020 Bond Buyer Go 20-Bond Municipal Bond Index 3.51% 2.21% S&P Municipal Bond 20-Year High Grade Rate Index 2.79% 2.66% Fidelity 20-Year Go Municipal Bond Index 3.13% 2.45% Bond Index Range 2.79% - 3.51% 2.21% - 2.66% 3. The City’s funding policy is to fund the recommended actuarially determined contribution (ADC) to fully fund the benefits over a reasonable period of time. The final equivalent single discount rate used for this year’s valuation is 7.00% with the assumption that the City will eventually pay the pay-go costs out of the OPEB trust when the Trust is expected to be able to pay all future projected benefit payments.
Page 12 Actuarial Methods and Assumptions City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021 For a complete summary of actuarial methods and assumptions, refer to the GASB 75 actuarial valuation report for the fiscal year ending June 30, 2020. Measurement Date For fiscal year ending June 30, 2021, a June 30, 2020 measurement date was used. Actuarial Valuation Date July 1, 2019 with results actuarially projected on a “no gain / no loss” basis to get to the June 30, 2020 measurement date. Liabilities as of July 1, 2019 are based on an actuarial valuation date of July 1, 2019 with no adjustments. Benefit Payments OPEB plan benefit payments made subsequent the measurement date of June 30, 2020 are recognized as a deferred outflow of resources in the fiscal year ending June 30, 2019 financial reporting period. An offsetting cash credit adjustment for benefits paid during the fiscal year is made in the Plan Sponsor’s journal entries. This adjustment is not explicitly shown in the GASB 75 report. The OPEB benefit payments subsequent the measurement date of June 30, 2020 will be reflected in the Plan Sponsor’s Schedule of Changes in Net OPEB Liability disclosure in the FY 2021/22 reporting period. Discount Rate 7.00% as of June 30, 2020 and 7.00% as of July 1, 2019 for accounting disclosure purposes. Refer to the Discussion of Discount Rates section for more information on selection of the discount rate. Payroll Growth 2.75% per year, plus merit increases based on Miscellaneous rates from the CalPERS 2017 Pension Plan Experience Study Inflation Rate 2.50% per year Cost Method Allocation of Actuarial Present Value of Future Benefits for services prior and after the Measurement Date was determined using Entry Age Normal Level % of Salary method where: Service Cost for each individual participant, payable from date of employment to date of retirement, is sufficient to pay for the participant’s benefit at retirement; and Annual Service Cost is a constant percentage of the participant’s salary that is assumed to increase according to the Payroll Growth. Medical Trend Rates FYE Medical/Rx 2021 Actual 2022 6.00% 2023 5.50% 2024+ 5.00%
Page 13 Actuary’s Notes City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021 Interim year valuation results have been projected from the prior year’s valuation with adjustments for actual premium increases from 2019/20 to 2020/21. Making this change resulted in a decrease in liabilities. Medical Benefits Except for former Encinitas Fire Protection District employees hired on or before March 15, 1995, the City provides the minimum required employer contribution under the CalPERS Health Plan for eligible retirees and surviving spouses in receipt of a pension benefit from PERS. 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: The City provides former Encinitas Fire Protection District employees with a contribution equal to the lesser of the actual premium cost for coverage or 100% of the PEMCHA Southern California average premium as follows: Calendar Year Minimum Required Contribution 2011 $ 108.00 2012 $ 112.00 2013 $ 115.00 2014 $ 119.00 2015 $ 122.00 2016 $ 125.00 2017 $ 128.00 2018 $ 133.00 2019 $ 136.00 2020 $ 139.00 2021 $ 143.00 2022+ Adjusted Annually to reflect Medical Portion of CPI 2020 2021 Plan EE EE/Spouse EE EE/Spouse Non-Medicare $ 699.62 $ 1,399.24 $ 745.64 $ 1,491.28 Medicare $ 350.55 $ 701.10 $ 354.06 $ 708.12
Page 14 Actuary’s Notes City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021 Premium Rates The City participates in the CalPERS Health Program, a community-rated program, for its medical coverage. The tables below summarize the 2020/2021 monthly medical premiums for the CalPERS medical plans. All premiums are effective for the calendar year. 2020 CalPERS Premiums – Region 2 PERS Choice PERS Select PERS Care Anthem HMO Select Anthem HMO Traditional Blue Shield Access+ Retiree Only $ 736.28 $ 451.54 $ 986.66 $ 654.04 $ 934.95 $ 909.87 Retiree plus Spouse $ 1,472.56 $ 903.08 $ 1,973.32 $ 1,308.08 $ 1,869.90 $ 1,819.74 Retiree plus Family $ 1,914.33 $ 1,174.00 $ 2,565.32 $ 1,700.50 $ 2,430.87 $ 2,365.66 2020 CalPERS Premiums -Region 2 Blue Shield NetValue Kaiser CA United Healthcare Health Net Salud y Mas Health Net Smartcare Sharp Retiree Only $ 909.87 $ 645.24 $ 671.60 $ 435.14 $ 719.26 $ 606.02 Retiree plus Spouse $ 1,819.74 $ 1,290.48 $ 1,343.20 $ 870.28 $ 1,438.52 $ 1,212.04 Retiree plus Family $ 2,365.66 $ 1,677.62 $ 1,746.16 $ 1,131.36 $ 1,870.08 $ 1,575.65 2021 CalPERS Premiums - Region 2 PERS Choice PERS Select PERS Care Anthem HMO Select Anthem HMO Traditional Blue Shield Access+ Retiree Only $ 783.19 $ 476.92 $ 1,115.68 $ 674.69 $ 1,046.04 $ 938.96 Retiree plus Spouse $ 1,566.38 $ 953.84 $ 2,231.36 $ 1,349.38 $ 2,092.08 $ 1,877.92 Retiree plus Family $ 2,036.29 $ 1,239.99 $ 2,900.77 $ 1,754.19 $ 2,719.70 $ 2,441.30 2021 CalPERS Premiums - Region 2 Blue Shield NetValue Kaiser CA United Healthcare Health Net Salud y Mas Health Net Smartcare Sharp Retiree Only $ 938.96 $ 669.77 $ 723.84 $ 458.66 $ 769.11 $ 632.27 Retiree plus Spouse $ 1,877.92 $ 1,339.54 $ 1,447.68 $ 917.32 $ 1,538.22 $ 1,447.68 Retiree plus Family $ 2,441.30 $ 1,741.40 $ 1,881.98 $ 1,192.52 $ 1,999.69 $ 1,881.98
Page 15 Appendix City of Encinitas Interim GASB 74/75 Valuation for Fiscal Year Ending June 30, 2021 Valuation Results Summary Below is the summary of the GASB results as of the June 30, 2019 valuation date based on the Entry Age Normal Level % of Pay cost method with a discount rate of 7.00%. Present Value of Employer Contributions Explicit Implicit Total Active $ 2,947,589 $ 1,596,753 $ 4,544,342 Retirees $ 7,617,338 $ 1,164,476 $ 8,781,814 Total $ 10,564,927 $ 2,761,229 $ 13,326,156 Total (Accrued) OPEB Liability Explicit Implicit Total Active $ 1,877,430 $ 887,810 $ 2,765,240 Retirees $ 7,617,338 $ 1,164,476 $ 8,781,814 Total $ 9,494,768 $ 2,052,286 $ 11,547,054 Projected Employer Contributions Fiscal Period Ending June 30, Explicit Implicit Total 2020 $ 584,690 $ 219,612 $ 804,302 2021 $ 622,473 $ 234,414 $ 856,887 2022 $ 642,453 $ 228,054 $ 870,507 2023 $ 665,999 $ 231,948 $ 897,947 2024 $ 687,079 $ 227,230 $ 914,309 2025 $ 663,340 $ 193,715 $ 857,055 2026 $ 666,980 $ 179,850 $ 846,830 2027 $ 690,720 $ 187,811 $ 878,531 2028 $ 689,651 $ 167,709 $ 857,360