OPEB Actuarial Valuation Report as of 6-30-17 for District
November 13, 2017
PRIVATE
Mr. James Riley
Interim Finance Director
City of Encinitas
505 S. Vulcan Avenue
Encinitas, CA 92024
Re: OPEB Actuarial Valuation
Dear Mr. Riley:
We are presenting our report of the June 30, 2017 actuarial valuation conducted on behalf
of San Dieguito Water District (the “District”) for its retiree health program.
The purpose of the valuation is to measure the District’s liability for other postemployment
benefits (OPEB) and to determine an actuarially determined contribution (ADC). The ADC is
a target or recommended contribution to a defined benefit OPEB plan for the reporting
period, determined in accordance with the parameters and in conformity with Actuarial
Standards of Practice. The valuation results may also serve as the basis for complying with
GASB 75 for the fiscal year ending June 30, 2018.
The Nyhart Company is 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 study in this report.
We have enjoyed working on this assignment and are available to answer any questions.
Sincerely,
NYHART
Marilyn K Jones, ASA, MAAA, EA, FCA
Consulting Actuary
MKJ:rl
Enclosure
San Dieguito Water District
OPEB Actuarial Valuation
Retiree Health Program
As of June 30, 2017
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San Dieguito Water District
OPEB Actuarial Valuation
Retiree Health Program
As of June 30, 2017
Table of Contents
Page
Section I. Executive Summary ..................................................................................................................... 1
Section II. Financial Results ........................................................................................................................... 4
Section III. Projected Cash Flows ................................................................................................................... 7
Section IV. Benefit Plan Provisions ................................................................................................................ 9
Section V. Valuation Data .............................................................................................................................. 11
Section VI. Actuarial Assumptions and Methods ........................................................................................ 12
Section VII. Actuarial Certification .................................................................................................................. 15
Section VIII. Definitions ..................................................................................................................................... 17
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SECTION I. EXECUTIVE SUMMARY
Background
The San Dieguito Water District (the “District”) selected Nyhart to perform an updated actuarial valuation of its
retiree health program. The purpose of the valuation is to measure the District’s liability for OPEB benefits
and to determine an actuarially determined contribution (ADC) for the fiscal periods ending June 30, 2019 and
June 30, 2020. The ADC is a target or recommended contribution to a defined benefit OPEB plan for the
applicable period, determined in accordance with the parameters and in conformity with Actuarial Standards
of Practice. The valuation results may also serve as the basis for complying with GASB 75 applicable for the
fiscal year ending June 30, 2018.
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 CalPERS minimum required employee contribution ($1 28 per month in
2017, $133 per month in 2018, and in future years, indexed to medical CPI increases). The District currently
has 22 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 13 retirees.
The District participates in the CalPERS Health Program for its retiree medical coverage. In general, the
premium rates charged to participating employers are the same for each medical plan within each region (or
“community”) and are the same for both active and retired employees covered under the same medical plan.
An implied rate subsidy can exist when the non-Medicare rates for retirees are the same as for active
employees. Since non-Medicare eligible retirees are typically much older than active employees, their actual
medical costs are typically higher than for active employees. Both GASB accounting standards and actuarial
standards of practices (ASOPs) require that implied rate subsidies be considered in the valuation of medical
costs. This valuation includes an estimate of the liability for the implicit rate subsidy.
Results of the Retiree Health Valuation
We have determined that the amount of the present value of the projected District contributions (actuarial
liability) for OPEB benefits, as of June 30, 2017, the valuation date, is $604,589 (including $131,034 for the
implicit rate subsidy). This amount is based on a discount rate of 7.0%. The amount represents the present
value of all benefits projected to be paid by the District for current and future retirees. If the District were to
have this amount in a fund earning interest at the rate of 7.0% per year, and all other actuarial assumptions
were met, the fund would have enough to pay the District’s required contribution for retiree health benefits.
This includes 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 ser vice and future service
components; the past service component (actuarial accrued liability now referred to as Total OPEB Liability) is
$493,240 (including $90,175 for the implicit rate subsidy), the current service component (normal cost or
current year accrual) is $14,241 (including $5,011 for the implicit rate subsidy) and the future service
component (not yet accrued liability) is $97,108 (including $35,848 for the implicit rate subsidy).
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Changes from Prior Valuation
The valuation reflects updated census, plan and rate information. The valuation includes assumption and
method changes as noted in Section VI including a lowering of the discount rate to 7.0% for the CERBT
investment strategy 1. A reconciliation of the approximate change in the total OPEB (accrued) liability from
the prior valuation is provided below:
June 30, 2015 Valuation @7.28% $484,000
Increase due to passage of time 37,000
Net experience gain ( 43,000)
Net increase due to updated assumption and method changes 1,000
Increase due to lowering the discount rate to 7.0% 14,000
June 30, 2017 Valuation @7.0% $493,000
Funding
The District’s funding policy is to pre-fund the actuarially determined contribution (ADC) through the
California Employers’ Retiree Benefit Trust (CERBT) under investment strategy 1. The market value of assets in
the CERBT as of June 30, 2017 is $177,437. The actuarial value of assets is equal to the market value of assets.
The Net (unfunded) OPEB Liability at June 30, 2017 is $315,803. The Plan’s funded ratio (actuarial value of
assets over Total OPEB Liability) is 36%.
The estimated District contribution amount for retiree health benefits for the 2017/2018 fiscal year is
approximately $26,924 (including $5,914 for the implicit rate subsidy). This amount includes payments for
employees expected to retire during the 2017/2018 fiscal year.
Actuarially Determined Contribution (ADC)
The actuarially determined contribution (ADC) assuming the District’s funding strategy is to fund the normal
cost (current accrual for benefits being earned) plus an amortization of the unfunded accrued liability or net
OPEB liability over 20 years (on a level dollar basis) is equal to $48,200 for the fiscal year ending June 30, 2019.
This includes $33,355 for the District’s explicit contribution and $14,845 for the implicit rate subsidy. The
projected contribution for the fiscal year ending June 30, 2020 is $48,689.
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 actuarially determined contribution by 21%. A 1% decrease in the
healthcare trend rate for each future year would decrease the actuarially determined contribution by 17%.
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 7.0%. A 1% decrease in the discount
rate would increase the actuarially determined contribution by 13%. A 1% increase in the discount rate would
decrease the actuarially determined contribution by 11%.
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Scheduled to take effect in 2020, the "Cadillac Tax" is a 40% non-deductible excise tax on employer-sponsored
health coverage that provides high-cost benefits. For insured plans, the insurance company is responsible for
payment of the excise tax. For self-funded plans, the employer is responsible for payment of the excise tax.
The valuation does not include any additional liability for the Cadillac Tax. Based on current rates the amount
would be de minimis.
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 I I. FINANCIAL RESULTS
A. Valuation Results
The table below presents the employer liabilities associated with the District’s retiree health benefits. The
actuarial liability is the present value of all District-paid benefits projected to be paid under the program.
The total OPEB liability (TOL) previously referred to as the actuarially 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.
Explicit Implicit Total
1. Actuarial Liability or Present Value of Benefits
Actives $172,015 $100,315 $272,330
Retirees 301,540 30,719 332,259
Total $473,555 $131,034 $604,589
2. Total OPEB Liability (TOL)
Actives $101,525 $ 59,456 $160,981
Retirees 301,540 30,719 332,259
Total $403,065 $ 90,175 $493,240
3. Normal Cost $ 9,230 $ 5,011 $ 14,241
No. of Active Employees 22
Average Age 44.0
Average Past Service 9.8
No. of Retired Employees 13
Average Age 70.1
Average Retirement Age 58.8
B. Reconciliation of Market Value of Plan Assets
The reconciliation of Plan Assets for the last two fiscal years is presented below:
Fiscal Year Ending
6/30/2016 6/30/2017
1. Beginning Market Value of Assets $113,485 $124,701
2. Contribution 28,794 52,780
3. Fund Earnings (gross) 1,807 18,830
4. Benefit Payments ( 19,266) ( 18,716)
5. Administrative Expenses ( 69) ( 91)
6. Investment Expenses ( 50) ( 67)
7. Ending Market Value of Assets $124,701 $177,437
8. Estimated Return 1% 13%
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C. Development of Actuarial Value of Assets
The actuarial value of assets is based on the market value of assets plus any contribution receivable or
benefits payable. The actuarial value of assets at June 30, 2017 is $177,437.
D. Development of Net OPEB Liability (NOL)
The table below presents the development of the net OPEB liability previously referred to as the
unfunded actuarial accrued liability. The net OPEB liability is the excess of the TOL over the actuarial value
of plan assets.
Explicit Implicit Total
1. Total (Accrued) OPEB Liability $ 403,065 $ 90,175 $ 493,240
2. Actuarial Value of Assets ( 177,437) 0 ( 177,437)
3. Net (Unfunded Accrued) OPEB Liability (NOL) $ 225,628 $ 90,175 $ 315,803
E. Amortization of NOL
The amortization of the NOL component of the actuarially determined contribution (ADC) is being
amortized over a period of 20 years on a level-dollar basis. Under the level-dollar method, the
amortization payment is scheduled to remain constant in future years.
1. NOL $ 225,628 $ 90,175 $ 315,803
2. Amortization Factor 9.90091 9.90091 9.90091
3. Amortization of NOL $ 22,788 $ 9,108 $ 31,896
F. Actuarially Determined Contribution
The table below presents the development of the actuarially determined contribution (ADC) for the fiscal
year ending June 30, 2019 and for the fiscal years ending June 30, 2020.
FY2018/2019
1. Normal Cost at End of Fiscal Year $ 10,567 $ 5,737 $ 16,304
2. Amortization of NOL 22,788 9,108 31,896
3. Actuarially Determined Contribution (ADC) $ 33,355 $ 14,845 $ 48,200
FY2019/2020
1. Normal Cost at End of Fiscal Year $ 10,884 $ 5,909 $ 16,793
2. Amortization of NOL 22,788 9,108 31,896
3. Actuarially Determined Contribution (ADC) $ 33,672 $ 15,017 $ 48,689
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G. Sensitivity Analysis:
The impact of a 1% decrease and increase in the discount (interest) rate and the impact of a 1% increase
and decrease in future healthcare trend rates on the District’s actuarial liability, TOL, NOL and the ADC is
provided below:
1% Decrease in Discount Rate
Dollar
($) Increase/
(Decrease)
Percentage
(%) Increase/
(Decrease)
- Actuarial Liability $95,314 16%
- TOL $59,648 12%
- NOL $59,648 19%
- ADC $ 6,030 13%
1% Increase in Discount Rate
- Actuarial Liability ($75,499) (12%)
- TOL ($49,753) (10%)
- NOL ($49,753) (16%)
- ADC ($ 5,182) (11%)
1% Increase in Future Healthcare Trend Rates
- Actuarial Liability $93,863 16%
- TOL $65,066 13%
- NOL $65,066 21%
- ADC $10,091 21%
1% Decrease in Future Healthcare Trend Rates
- Actuarial Liability ($75,454) (12%)
- TOL ($53,779) (11%)
- NOL ($53,779) (17%)
- ADC ($ 8,129) (17%)
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SECTION III. PROJECT ED CASH FLOWS
The valuation process includes the projection of the expected benefits (including the explicit District
contribution and the implicit rate subsidy) to be paid by the District under its retiree health benefits program.
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 ea ch active
employee for the period between the valuation date and the expected 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 pe r 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 or reaching a limit age 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 Total Cash Flows – Representative Years
Fiscal Year Explicit Implicit District Total
2017/18 $ 21,010 $ 5,914 $ 26,924
2018/19 $ 22,405 $ 6,868 $ 29,273
2019/20 $ 23,784 $ 5,901 $ 29,685
2020/21 $ 25,108 $ 7,875 $ 32,983
2021/22 $ 26,422 $ 11,211 $ 37,633
2022/23 $ 27,721 $ 12,818 $ 40,539
2023/24 $ 28,995 $ 15,328 $ 44,323
2024/25 $ 30,181 $ 16,114 $ 46,295
2025/26 $ 31,283 $ 13,268 $ 44,551
2026/27 $ 32,576 $ 6,113 $ 38,689
2027/28 $ 33,494 $ 6,697 $ 40,191
2028/29 $ 34,441 $ 5,304 $ 39,745
2029/30 $ 35,457 $ 3,470 $ 38,927
2030/31 $ 36,377 $ 4,190 $ 40,567
2031/32 $ 37,279 $ 5,537 $ 42,816
2032/33 $ 38,222 $ 6,497 $ 44,719
2033/34 $ 39,264 $ 4,833 $ 44,097
2034/35 $ 40,242 $ 7,443 $ 47,685
2035/36 $ 41,165 $ 9,103 $ 50,268
2036/37 $ 42,120 $ 11,616 $ 53,736
2037/38 $ 43,211 $ 15,238 $ 58,449
2038/39 $ 44,132 $ 19,943 $ 64,075
2039/40 $ 44,784 $ 16,277 $ 61,061
2040/41 $ 45,259 $ 19,331 $ 64,590
2041/42 $ 45,581 $ 17,703 $ 63,284
2042/43 $ 45,689 $ 22,976 $ 68,665
2043/44 $ 45,628 $ 21,273 $ 66,901
2044/45 $ 45,440 $ 21,248 $ 66,688
2045/46 $ 45,053 $ 19,496 $ 64,549
2050/51 $ 41,658 $ 1,930 $ 43,588
2055/56 $ 37,583 $ - $ 37,583
2060/61 $ 33,384 $ - $ 33,384
2065/66 $ 29,335 $ - $ 29,335
2070/71 $ 23,923 $ - $ 23,923
2075/76 $ 15,672 $ - $ 15,672
2080/81 $ 6,863 $ - $ 6,863
2085/86 $ 1,641 $ - $ 1,641
2090/91 $ 127 $ - $ 127
2095/96 $ - $ - $ -
2100/01 $ - $ - $ -
All Years $2,092,469 $375,218 $2,467,687
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SECTION I V. BENEFIT PLAN PROV ISIONS
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 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. An employee is eligible for this
employer contribution provided they are vested in their PERS pension benefit and commence payment of
their pension benefit when retiring from the District. The surviving spouse of an eligible retiree who elected
spouse coverage under CalPERS is eligible for the employer contribution upon the death of the retiree.
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
2008 $97.00
2009 $101.00
2010 $105.00
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+ 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 2017 and 2018 monthly premiums for the primary medical plans in which
the retirees are enrolled.
2017 Other So. Cal. Region Kaiser BS HMO PERSCare PERSChoice PERSSelect
Retiree Only $ 599.54 $ 778.45 $ 802.24 $ 714.43 $ 633.46
Retiree Plus Spouse $1,199.08 $1,556.90 $1,604.48 $1,428.86 $1,266.92
Retiree Plus Family $1,558.80 $2,023.97 $2,085.82 $1,857.52 $1,647.00
Retiree Only- Medicare $ 300.48 N/A $ 389.76 $ 353.63 $ 353.63
Retiree Plus Spouse –
Medicare
$ 600.96 N/A $ 779.52 $ 707.26 $ 707.26
2017 Other So. Cal.
Region (Continued)
Sharp
HMO
UHC
HMO
Anthem
HMO
Select
Anthem
HMO
Traditional
Health
Net
Salud
Health Net
Smart
Care
Retiree Only $ 614.46 $ 549.76 $ 659.03 $ 799.15 $ 473.46 $ 537.20
Retiree Plus Spouse $1,228.92 $1,099.52 $1,318.06 $1,598.30 $ 946.92 $1,074.40
Retiree Plus Family $1,597.60 $1,429.38 $1,713.48 $2,077.79 $1,231.00 $1,396.72
Retiree Only- Medicare N/A $ 324.21 N/A N/A N/A N/A
Retiree Plus Spouse –
Medicare
N/A $ 648.42 N/A N/A N/A N/A
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2018 Other So. Cal. Region Kaiser BS HMO PERSCare PERSChoice PERSSelect
Retiree Only $ 666.80 $ 695.97 $ 733.50 $ 698.96 $ 654.74
Retiree Plus Spouse $1,333.60 $1,391.94 $1,467.00 $1,397.92 $1,309.48
Retiree Plus Family $1,733.68 $1,809.52 $1,907.10 $1,817.30 $1,702.32
Retiree Only- Medicare $ 316.34 N/A $ 382.30 $ 345.97 $ 345.97
Retiree Plus Spouse –
Medicare
$ 632.68 N/A $ 764.60 $ 691.94 $ 691.94
2018 Other So. Cal.
Region (Continued)
Sharp
HMO
UHC
HMO
Anthem
HMO
Select
Anthem
HMO
Traditional
Health
Net
Salud
Health Net
Smart
Care
Retiree Only $ 618.14 $ 616.66 $ 659.69 $ 735.08 $ 461.56 $ 607.68
Retiree Plus Spouse $1,236.28 $1,233.32 $1,319.38 $1,470.16 $ 923.12 $1,215.36
Retiree Plus Family $1,607.16 $1,603.32 $1,715.19 $1,911.21 $1,200.06 $1,579.97
Retiree Only- Medicare N/A $ 330.76 N/A N/A N/A N/A
Retiree Plus Spouse –
Medicare
N/A $ 661.52 N/A N/A N/A N/A
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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.
Age Distribution of Eligible Retired Participants & Beneficiaries
Age Covered Waived Total
<50 0 0 0
50-54 0 0 0
55-59 1 1 2
60-64 2 3 5
65-69 4 1 5
70-74 2 2 4
75-79 3 0 3
80+ 1 1 2
Total: 13 8 21
Average Age: 70.1 69.9 70.0
Average Retirement Age: 58.8 59.3 59.0
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 0 0
30-34 2 3 5
35-39 4 2 6
40-44 0 1 2 3
45-49 0 0 0 1 1
50-54 0 0 0 0 1 0 1 2
55-59 1 0 2 0 0 0 0 1 4
60-64 0 0 0 0 0 0 0 0 0
65-69 1 0 0 0 0 0 0 0 0 1
70+ 0 0 0 0 0 0 0 0 0 0
Total: 8 6 4 1 1 0 1 1 0 22
Average Age: 44.0
Average Service: 9.8
Average Pay: $81,911
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SECTION V I . ACTUARIAL ASSUMPTI ONS 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 30th
Valuation Date: June 30, 2017
Funding Periods Covered: FY2018/19 and FY2019/20
Asset Return: 7.0% per year; assumes the District invests in the CERBT asset allocation
Strategy 1 with a margin for adverse deviation of 28 bps.
[The prior valuation assumed 7.28%]
Discount Rate: 7.0% 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 prior valuation assumed a discount rate equal to 7.28%]
Sensitivity analysis showing a 1% increase or decrease in the discount rate is
also provided.
Inflation: 2.75% per annum
Payroll Increases: 3.0% per annum, in aggregate
Salary Increases: Merit increases from the most recent CalPERS pension plan study. 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. 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:
Age Males Females
25 0.4 0.2
30 0.5 0.3
35 0.6 0.4
40 0.8 0.5
45 1.1 0.7
50 1.6 1.0
55 2.3 1.4
60 3.1 1.8
Post-retirement Mortality: According to the post-retirement mortality rates under the CalPERS pension
plan updated to reflect the most recent published experience study. Sample
deaths per 1,000 employees applicable to Miscellaneous employees are as
follows:
Age Males Females
55 6.0 4.2
60 7.1 4.4
65 8.3 5.9
70 13.1 9.9
75 22.1 17.2
80 39.0 29.0
85 69.7 52.4
90 129.7 98.9
Retirement Age: According to the retirement rates under the most recent CalPERS pension plan
experience study. According to the following retirement tables:
Miscellaneous Tier 1: 2.7% @ 55
Miscellaneous Tier 2: 2.0% @ 60
Miscellaneous Tier 3: 2.0% @ 62
Participation Rates: 50% of future retirees under age 65 at retirement are assumed to elect
coverage at retirement.
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.
Dependent Coverage: Not explicitly valued.
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Claim Cost Development: The valuation claim costs are based on the premiums paid for medical
insurance coverage. The District participates in CalPERS, a community rated
plan. An implicit rate subsidy can exist when the non -Medicare rates for
retirees are the same as for active employees. Since non -Medicare eligible
retirees are typically much older than active employees, their actual medical
costs are typically higher than for active employees. The current valuation
contains an estimate of the implicit rate subsidy.
Medical Trend Rates: Medical costs are adjusted in future years by the following trends:
Year PPO HMO
2018 Actual Actual
2019 6.5% 6.0%
2020 6.0% 5.5%
2021 5.5% 5.0%
2022+ 5.0% 5.0%
[The prior valuation assumed 0.5% lower initial trend rates]
Minimum Contribution: The CalPERS minimum required employer contribution is assumed to increase
4% per year.
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. While both are acceptable methods, typically for
plans unrelated to pay the normal cost is calculated to remain level in dollars
and for pay-related plans the normal cost is calculated to remain level as a
percentage of pay. The District has elected to use level percentage of pay. The
EAN actuarial accrued liability or total OPEB 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 eligible employees and participating retirees and spouses as of the
measurement date listed in the data provided by the District were included in
the valuation in accordance with the provisions of the Plan.
Actuarial Value of Assets: Any assets of the plan will be valued on a market value basis.
[The prior valuation used a 5 year asset smoothing method]
Amortization of NOL: The unfunded actuarial accrued or net OPEB liability (NOL) is being amortized
over 20 years using a level dollar amortization method. Future bases will be
separately amortized.
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SECTION VII. ACTUARIAL CERTI FICATION
This report summarizes the actuarial valuation for the San Dieguito Water District (the “District”) as of June 30,
2017. The purpose of the valuation is to measure the District’s liability for OPEB benefits and to determine an
actuarially determined contribution (ADC) for the fiscal periods ending June 30, 201 9 and June 30, 2020. The
ADC is a target or recommended contribution to a defined benefit OPEB plan for the applicable period,
determined in accordance with the parameters and in conformity with Actuarial Standards of Practice. The
valuation results will also serve as the basis for complying with GASB 75 applicable for the fiscal year ending
June 30, 2018 and, if necessary, for GASB 74.
To the best of our knowledge, the report presents a fair position of the funded status of the plan. The
valuation is based upon our understanding of the plan provisions as summarized within the report. The
information presented herein is based on the actuarial assumptions and substantive plan provisions
summarized in this report and participant information and asset 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 and other economic assumptions have been selected by the Plan Sponsor. 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.
While some sensitivity analysis was provided in the report, 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.
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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 me.
Certified by:
Marilyn K. Jones, ASA, EA, MAAA, FCA Date: November 13, 2017
Consulting Actuary
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SECTION VIII. DEFINITIONS
The definitions of the terms used in the actuarial valuations are noted below.
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 Service Cost and a Total OPEB Liability or Normal Cost and an Actuarial Accrued Liability.
Actuarially Determined Contribution - A target or recommended contribution to a defined benefit OPEB
plan for the reporting period, determined in accordance with the parameters and in conformity with Actuarial
Standards of Practice.
Annual OPEB Cost – An accrual-basis measure of the periodic cost of an employer’s participation in a defined
benefit OPEB plan.
Actuarial Present Value (also referred to as Actuarial Liability) – 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. For purposes of this standard, each such amount or series of
amounts is:
a. adjusted for the probable financial effect of certain intervening events (such as changes in
coverage levels, marital status, etc.);
b. multiplied by the probability of the occurrence of an event (such as survival, death, disability,
termination of employment, etc.) on which the payment is conditioned; and
c. discounted according to an assumed rate (or rates) of return to reflect the time value of money.
Deferred Outflow / (Inflow) of Resources – represents the following items that have not been recognized in
the OPEB Expense:
a. Differences between expected and actual experience of the OPEB plan
b. Changes in assumptions
c. Differences between projected and actual earnings in OPEB plan investments (for funded plans
only)
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.
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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, bec ause 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.
Normal Cost – The portion of the Actuarial Present Value of plan bene fits and expenses which is allocated to
a valuation year by the Actuarial Cost Method.
OPEB – Benefits (such as death benefits, life insurance, disability, and long-term care) that are paid in the
period after employment and that are provided separately from a pension plan, as well as healthcare benefits
paid in the period after employment, regardless of the manner in which they are provided. OPEB does not
include termination benefits or termination payments for sick leave.
OPEB Expense – Changes in the Net OPEB Liability in the current reporting period, which includes Service
Cost, interest cost, changes of benefit terms, expected earnings on OPEB Plan investments, reduction of
active employees’ contributions, OPEB plan administrative expenses, and curre nt period recognition of
Deferred Outflows / (Inflows) of Resources.
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.
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 res ult 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 re flect 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.
Real Rate of Return – the rate of return on an investment after adjustment to eliminate inflation.
Select and Ultimate Rates – Actuarial assumptions that contemplate different rates for s uccessive 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.
Service Cost (also referred to as Normal Cost) – The portion of the Actuarial Present Value of projected
benefit payments that are attributed to a valuation year by the Actuarial Cost Method.
Substantive Plan – The terms of an OPEB plan as understood by the employer(s) and plan participant.
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Total OPEB Liability (also referred to as Actuarial Accrued Liability) – That portion, as determined by a
particular Actuarial Cost Method, of the Actuarial Present Value of Future Benefits which is attributed to past
periods of employee service (or not provided for by the future Service Costs).