OPEB Actuarial Valuation Report as of 6-30-19 for City of EncinitasCity of Encinitas
CONTACT
Suraj Datta, ASA, MAAA, MBA
Suraj.Datta@nyhart.com
ADDRESS
Nyhart
530 B Street, Ste. 900
San Diego, CA 92101
Actuarial Valuation
PHONE Retiree Health Program
(317) 845-3594 As of June 30, 2019
Ms. Teresa S. McBroome
City of Encinitas
505 South Vulcan Avenue
Encinitas, CA 92024
Re:OPEB Actuarial Valuation
Dear Ms. McBroome:
We have enjoyed working on this assignment and are available to answer any questions.
Sincerely,
NYHART
Suraj Datta, ASA, MAAA, MBA
Consulting Actuary
We are presenting our report of the June 30, 2019 actuarial valuation conducted on behalf of City of Encinitas (the “City”)for its retiree health
program.
The purpose of the valuation is to measure the City'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 will also serve as
the basis for complying with GASB 75 for the fiscal year ending June 30, 2020. A separate GASB 75 accounting report will be provided.
The Nyhart Company is an 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.
Table of Contents
Page
Section I.Executive Summary 1
Section II.Financial Results 5
Section III.Projected Cash Flows 9
Section IV.Valuation Data 10
Section V.Benefit Plan Provisions 14
Section VI.Actuarial Assumptions and Methods 17
Section VII.Actuarial Certification 21
Section VIII.Glossary 23
City of Encinitas
OPEB Actuarial Valuation
Retiree Health Program
As of June 30, 2019
City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valution
Section I. Executive Summary
Background
The City of Encinitas (the “City”) selected Nyhart to perform an updated actuarial valuation of its retiree health program. The purpose of the
valuation is to measure the City’s liability for OPEB benefits and to determine an actuarially determined contribution (ADC) for the fiscal periods
ending June 30, 2021 and June 30, 2022. 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, 2021.
To be eligible for retiree health benefits, an employee must retire from the City and commence pension benefits under PERS (typically on or
after age 50 with at least 5 years of PERS eligible service). The City’s financial obligation is to provide the CalPERS minimum required employee
contribution ($136 per month in 2019, $139 per month in 2020, and in future years, indexed to medical CPI increases) except for former
Encinitas Fire Protection District employees hired on or before March 15, 1995 who receive full retiree health benefits for both the employee
and their dependents. The City pays the cost for lifetime retiree and dependent health benefits for Encinitas Fire Protection District employees
hired on or before March 15, 1995. Currently there are 46 retirees (39 firefighters and 7 miscellaneous) receiving an additional stipend which
pays for full coverage of the eligible retiree and their covered dependents up to a monthly maximum based on the average of available plans.
There are also 6 active employees eligible to receive full retiree health benefits. Section IV of the report details the plan provisions and current
premium costs that were included in the valuation.
At June 30, 2019, the City had 86 retired employees receiving or eligible to receive a City contribution for retiree health benefits and 226 active
employees earning service eligibility for retiree health benefits. Section V of the report provides data statistics on the eligible population.
The City 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.
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section I. Executive Summary
Results of the Retiree Health Valuation
Changes from Prior Valuation
June 30, 2017 Valuation @7.0% $12,639,000
Increase due to passage of time 400,000
Net experience gain (1,577,000)
Increase due to liability for new entrants 111,000
Net change due to updated assumptions (26,000)
June 30, 2019 Valuation @7.0% $11,547,000
The amount of the actuarial liability is apportioned into past service,
current service, and future service components.The past service
component (actuarial accrued liability now referred to as Total OPEB
Liability)is $11,547,054 (including $2,052,286 for the implicit rate
subsidy), the current service component (normal cost or current year
accrual)is $219,864 (including $81,060 for the implicit rate subsidy) and
the future service component (not yet accrued liability)is $1,559,237
(including $627,883 for the implicit rate subsidy).
The valuation reflects updated census, plan, and rate information.In addition, there were a couple of assumption changes as noted in Section VI
including increasing updates to the initial healthcare trend rates. A reconciliation of the approximate change in the total (accrued) OPEB liability from
the prior valuation is provided below:
We have determined that the present value of the projected City pay-as-you-go contributions (actuarial liability)for OPEB benefits,as of the valuation
date June 30, 2019 is $13,326,155, (including $2,761,229 for the implicit rate subsidy). This amount is based on a discount rate of 7.00%.The amount
represents the present value of all benefits projected to be paid by the City for current and future retirees.If the City were to have this amount in a
fund earning interest at the rate of 7.00% per year, and all other actuarial assumptions were met, the fund would have enough to pay the City’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.
Actuarial Liability is $13,326,155
$11,547,054
$219,864
$1,559,237
June 30, 2019
Total (Accrued) OPEB Liability
Service Cost
Future Service Accruals
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section I. Executive Summary
Funding
The City’s funding policy is to pre-fund at least the actuarially determined contribution (ADC) through the California Employers’ Retiree Benefit Trust
(CERBT) under investment strategy 1. The market value of assets in the Trust as of June 30, 2019 was $4,765,600. The actuarial value of assets is
equal to the market value of assets. The Net (unfunded) OPEB Liability at June 30, 2019 was $6,781,454. The Plan’s funded ratio (actuarial value of
assets over Total OPEB Liability) is 41%.
The estimated pay-as-you-go cost for retiree health benefits for the 2019/2020 fiscal year is approximately $804,302 (including $219,612 for the
implicit rate subsidy). This amount includes payments for employees expected to retire during the 2019/2020.
Actuarially Determined Contribution (ADC)
The actuarially determined contribution (ADC), assuming the City’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-at June 30, 2020 over 13 years (on a level-percent of pay basis)
equal to $978,878 for the fiscal year ending June 30, 2021. This includes $667,717 for the City’s explicit contribution and $311,161 for the implicit
rate subsidy. The projected contribution for the fiscal year ending June 30, 2022 is $1,005,796.
Actuarial Basis
The actuarial valuation is based on the assumptions and methods outlined in Section VI of the report. If 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 20%. 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 7.00%. A 1% decrease in the discount rate would increase the actuarially determined contribution by 14%.
A 1% increase in the discount rate would decrease the actuarially determined contribution by 12%.
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section I. Executive Summary
The valuation is based on the census, plan, and rate information provided by the City.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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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section II. Financial Results
A.
Full Benefits MRC Benefits Total
Actives $1,039,858 $3,504,483 $4,544,341
Retirees 7,391,737 1,390,077 8,781,814
Total $8,431,595 $4,894,560 $13,326,155
Attributable to Implicit Subsidy $950,581 $1,810,648 $2,761,229
Actives $933,163 $1,832,077 $2,765,240
Retirees 7,391,737 $1,390,077 8,781,814
Total $8,324,900 $3,222,154 $11,547,054
Attributable to Implicit Subsidy $940,993 $1,111,293 $2,052,286
3. Normal Cost $31,941 $187,923 $219,864
Attributable to Implicit Subsidy $3,690 $77,370 $81,060
No. of Active Employees 226
Average Age 45.2
Average Past Service 9.3
No. of Retired Employees 46 40 86
Average Age 67.9 67.1 67.5
Average Retirement Age 55 59.7 57.2
1. Actuarial Liability or Present Value of Benefits
2. Total OPEB Liability (TOL)
Valuation Results
The table below presents the employer liabilities associated with the City’s retiree health benefits. The actuarial liability is the present
value of all City-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.
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section II. Financial Results
B.Reconciliation of Market Value of Plan Assets
6/30/2018 6/30/2019
1. Beginning Market Value of Assets $3,494,061 $4,070,007
2. Contribution 1,102,937 1,117,605
3. Net Investment Income 358,109 308,901
4. Benefit Payments (878,114)(729,813)
5. Administrative Expenses (6,986)(1,100)
6. Ending Market Value of Assets $4,070,007 $4,765,600
7. Estimated Rate of Return 9.9%7.2%
C.Development of Actuarial Value of Assets
D.Development of Net OPEB Liability (NOL)
Explicit Implicit Total
1. Total (Accrued) OPEB Liability $9,494,768 $2,052,286 $11,547,054
2. Actuarial Value of Assets (4,765,600)0 (4,765,600)
3. Net (Unfunded Accrued) OPEB Liability (NOL)$4,729,168 $2,052,286 $6,781,454
4. Funded % Ratio 50%0%41%
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.
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, 2019 is $4,765,600.
The reconciliation of Plan Assets for the last two fiscal years is presented below:Fiscal Year Ending
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section II. Financial Results
E.Amortization of NOL
Explicit Implicit Total
1. NOL $4,729,168 $2,052,286 $6,781,454
2. Amortization Factor 9.0063 9.0063 9.0063
3. Amortization of NOL $525,096 $227,872 $752,968
F.Actuarially Determined Contribution
FY2020/2021 Explicit Implicit Total
1. Normal Cost at End of Fiscal Year $142,621 $83,289 $225,910
2. Amortization of NOL 525,096 227,872 752,968
3. Actuarially Determined Contribution (ADC)$667,717 $311,161 $978,878
4. Estimated Payroll $20,785,363 $20,785,363 $20,785,363
5. ADC as % of Payroll 3%1%5%
FY2021/2022 Explicit Implicit Total
1. Normal Cost at End of Fiscal Year $146,543 $85,579 $232,122
2. Amortization of NOL 539,536 234,138 773,674
3. Actuarially Determined Contribution (ADC)$686,079 $319,717 $1,005,796
4. Estimated Payroll $21,356,960 $21,356,960 $21,356,960
5. ADC as % of Payroll 3%1%5%
The amortization of the NOL component of the actuarially determined contribution (ADC)is being amortized over a period of 13 years
on a level-percentage of pay basis. Under the level-percentage of pay method, the amortization payment is scheduled to remain the
same percentage of pay during the amortization period.
The table below presents the development of the actuarially determined contribution (ADC) for the fiscal year ending June 30, 2021 and
for the fiscal years ending June 30, 2022.
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section II. Financial Results
G.Sensitivity Analysis:
Dollar ($)
Increase/
(Decrease)
Percentage
(%) Increase/
(Decrease)
1% Decrease in Discount Rate
- Actuarial Liability $1,873,044 14%
- TOL $1,324,978 11%
- NOL $1,324,978 20%
- ADC $135,591 14%
1% Increase in Discount Rate
- Actuarial Liability ($1,505,484)-11%
- TOL ($1,105,054)-10%
- NOL ($1,105,054)-16%
- ADC ($116,938)-12%
1% Increase in Future Healthcare Trend Rates
- Actuarial Liability $1,824,073 14%
- TOL $1,393,869 12%
- NOL $1,393,869 21%
- ADC $197,802 20%
1% Decrease in Future Healthcare Trend Rates
- Actuarial Liability ($1,488,998)-11%
- TOL ($1,160,967)-10%
- NOL ($1,160,967)-17%
- ADC ($162,270)-17%
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:
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section III. Projected Cash Flows
FY Explicit Implicit City Total FY Explicit Implicit City Total FY Explicit Implicit City Total
2019/20 $ 584,690 $ 219,612 $ 804,302 2033/34 $ 798,125 $ 207,405 $ 1,005,530 2055/56 $ 746,613 $ 94,155 $ 840,768
2020/21 $ 622,473 $ 234,414 $ 856,887 2034/35 $ 826,344 $ 201,228 $ 1,027,572 2060/61 $ 601,488 $ 4,304 $ 605,792
2021/22 $ 642,453 $ 228,054 $ 870,507 2035/36 $ 857,411 $ 211,612 $ 1,069,023 2065/66 $ 457,634 $ 0 $ 457,634
2022/23 $ 665,999 $ 231,948 $ 897,947 2036/37 $ 874,001 $ 226,366 $ 1,100,367 2070/71 $ 323,905 $ 0 $ 323,905
2023/24 $ 687,079 $ 227,230 $ 914,309 2037/38 $ 882,708 $ 216,157 $ 1,098,865 2075/76 $ 207,907 $ 0 $ 207,907
2024/25 $ 663,340 $ 193,715 $ 857,055 2038/39 $ 900,976 $ 231,656 $ 1,132,632 2080/81 $ 116,833 $ 0 $ 116,833
2025/26 $ 666,980 $ 179,850 $ 846,830 2039/40 $ 916,031 $ 250,663 $ 1,166,694 2085/86 $ 55,087 $ 0 $ 55,087
2026/27 $ 690,720 $ 187,811 $ 878,531 2040/41 $ 924,394 $ 258,790 $ 1,183,184 2090/91 $ 20,503 $ 0 $ 20,503
2027/28 $ 689,651 $ 167,709 $ 857,360 2041/42 $ 933,176 $ 240,948 $ 1,174,124 2095/96 $ 5,389 $ 0 $ 5,389
2028/29 $ 698,404 $ 179,012 $ 877,416 2042/43 $ 938,381 $ 250,939 $ 1,189,320 2100/101 $ 832 $ 0 $ 832
2029/30 $ 719,651 $ 172,016 $ 891,667 2043/44 $ 940,676 $ 228,368 $ 1,169,044 2105/106 $ 45 $ 0 $ 45
2030/31 $ 748,031 $ 189,652 $ 937,683 2044/45 $ 939,342 $ 218,067 $ 1,157,409 2110/111 $ 0 $ 0 $ 0
2031/32 $ 769,915 $ 208,112 $ 978,027 2045/46 $ 934,981 $ 191,682 $ 1,126,663 2115/116 $ 0 $ 0 $ 0
2032/33 $ 794,210 $ 222,531 $ 1,016,741 2050/51 $ 869,904 $ 83,866 $ 953,770 All Years $ 40,199,946 $ 6,972,804 $ 47,172,750
The valuation process includes the projection of the expected benefits (including the explicit City contribution and the implicit rate subsidy) to be paid by the
City under its retiree health benefits program. This expected cash flow takes into account the likelihood of each employee reaching retirement eligibility and
receiving health benefits. The projection is performed by applying the turnover assumption to each 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
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 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:
$0.0
$1.0
$2.0
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048Millions
Implicit Explicit
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Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section IV. Valuation Data
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The valuation was based on the census furnished to us by the City. The following tables display the age distribution for retirees and the age/service distribution
for active employees as of the Valuation Date.
Age Distribution of Eligible Retired Participants & Beneficiaries
Miscellaneous Safety
Age Full MRC Total Full MRC Total Full MRC Total
<50 0 0 0 0 0 0 0 0 0
50-54 0 0 0 1 0 1 1 0 1
55-59 1 4 5 5 2 7 6 6 12
60-64 2 12 14 10 0 10 12 12 24
65-69 1 7 8 8 0 8 9 7 16
70-74 1 8 9 9 1 10 10 9 19
75-79 0 4 4 6 0 6 6 4 10
80+ 2 2 4 0 0 0 2 2 4
Total:7 37 44 39 3 42 46 40 86
Average Age: 70.5 67.5 68.0 67.5 62.0 67.1 67.9 67.1 67.5
Average Retirement Age: 55.0 59.7 57.2 55.0 59.7 57.2 55.0 59.7 57.2
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section IV. Valuation Data
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Age/Service Distribution of All Active Benefit Eligible Employees
Service Full PEMCHA
Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 Total Benefit MRC
20-24 2 2 0 2
25-29 14 1 15 0 15
30-34 11 8 19 0 19
35-39 20 7 7 4 38 0 38
40-44 14 9 9 10 42 0 42
45-49 9 4 7 4 7 1 32 1 31
50-54 9 3 7 6 4 1 1 31 1 30
55-59 10 4 5 3 0 2 4 28 2 26
60-64 2 0 2 4 2 1 4 15 2 13
65-69 1 0 0 0 1 0 0 2 0 2
70+0 0 0 1 0 1 0 2 0 2
Total:92 36 37 32 14 5 10 226 6 220
Average Age: 45.5 56.4 45.2
Average Service: 9.93 32.0 9.33
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section IV. Valuation Data
12 | Page
Age/Service Distribution of Benefit Eligible Safety Employees
Service
Full PEMCHA
Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 Total Benefit MRC
20-24 1 1 0 1
25-29 2 2 0 2
30-34 4 2 6 0 6
35-39 7 3 2 4 16 0 16
40-44 2 5 5 4 16 0 16
45-49 0 3 2 2 3 10 0 10
50-54 0 1 1 2 2 1 7 0 7
55-59 0 1 0 0 0 1 1 3 2 1
60-64 0 0 1 0 1 0 2 4 2 2
65-69 0 0 0 0 0 0 0 0 0 0
70+ 0 0 0 0 0 0 0 0 0 0
Total: 16 15 11 12 6 2 3 65 4 61
Average Age: 43.5 59.2 42.5
Average Service: 12.4 31.8 11.2
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section IV. Valuation Data
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Age/Service Distribution of Benefit Eligible Miscellaneous Employees
Service
Full PEMCHA
Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 Total Benefit MRC
20-24 1 1 0 1
25-29 12 1 13 0 13
30-34 7 6 13 0 13
35-39 13 4 5 22 0 22
40-44 12 4 4 6 26 0 26
45-49 9 1 5 2 4 1 22 1 21
50-54 9 2 6 4 2 1 24 1 23
55-59 10 3 5 3 0 1 3 25 0 25
60-64 2 0 1 4 1 1 2 11 0 11
65-69 1 0 0 0 1 0 0 2 0 2
70+0 0 0 1 0 1 0 2 0 2
Total:76 21 26 20 8 3 7 161 2 159
Average Age: 46.3 50.7 46.2
Average Service: 8.9 32.2 8.6
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section V. Benefit Plan Provisions
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This study analyzes the postretirement health benefit plan provided by the City. The City contributes to the retiree health c overage of eligible retirees and
eligible surviving spouses. The City’s financial obligation is as follows:
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. An employee is eligible for
this employer contribution provided they are vested in their PERS pension benefit and commence payment of their pension benef it when retiring from the
City. 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
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+ Adjusted Annually to reflect Medical Portion of CPI
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:
Retiree Only
Retiree Plus
Spouse
Retiree Plus
Family
Non- Medicare (Basic)
2019-2020 $699.62 $1,399.24 $1,819.01
Medicare
2019-2020 $350.55 $ 701.10 $1,036.37
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section V. Benefit Plan Provisions
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Premium Rates
The City participates in the CalPERS Health Program, a community-rated program, for medical coverage. The tables below summarize the calendar 2019 and
2020 monthly medical premiums for the primary medical plans in which the retirees are enrolled.
2019 Other
So. Cal. Region Kaiser
BS
HMO
PERS
Care
PERS
Choice
PERS Select
Retiree Only $ 628.63 $ 760.04 $ 907.29 $ 721.11 $ 462.71
Retiree Plus Spouse $1,257.26 $1,520.08 $1,814.58 $1,442.22 $ 925.42
Retiree Plus Family $1,634.44 $1,976.10 $2,358.95 $1,874.89 $1,203.05
Retiree Only- Medicare $ 323.74 N/A $ 394.83 $ 360.41 $ 360.41
Retiree Plus Spouse – Medicare $ 647.48 N/A $ 789.66 $ 720.82 $ 720.82
2019 Other So. Cal. Region
(Continued)
Sharp
HMO
UHC
HMO
Anthem
HMO
Select
Anthem
HMO
Traditional
Health Net
Salud
Health Net
Smart
Care
Retiree Only $ 593.66 $ 646.65 $ 625.07 $ 830.89 $ 427.81 $ 642.71
Retiree Plus Spouse $1,187.32 $1,293.30 $1,250.14 $1,661.78 $ 855.62 $1,285.42
Retiree Plus Family $1,543.52 $1,681.29 $1,625.18 $2,160.31 $1,112.31 $1,671.05
Retiree Only- Medicare N/A $ 299.37 N/A $ 357.44 N/A N/A
Retiree Plus Spouse – Medicare N/A $ 598.74 N/A $ 714.88 N/A N/A
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section V. Benefit Plan Provisions
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2020 Region 2 Kaiser
BS
HMO
PERS
Care
PERS
Choice
PERS Select
Retiree Only $ 645.24 $ 909.87 $ 986.66 $ 736.28 $ 451.54
Retiree Plus Spouse $1,290.48 $1,819.74 $1,973.32 $1,472.56 $ 903.08
Retiree Plus Family $1,677.62 $2,365.66 $2,565.32 $1,914.33 $1,174.00
Retiree Only- Medicare $ 339.43 N/A $ 384.78 $ 351.39 $ 351.39
Retiree Plus Spouse – Medicare $ 678.86 N/A $ 769.56 $ 702.78 $ 702.78
2020 Region 2 (Continued) Sharp
UHC
HMO
Anthem
HMO
Select
Anthem
HMO
Traditional
Health Net
Smart Care
Health
Net
Salud
Retiree Only $ 606.02 $ 671.60 $ 654.04 $ 934.95 $ 719.26 $ 435.14
Retiree Plus Spouse $1,212.04 $1,343.20 $1,308.08 $1,869.90 $1,438.52 $ 870.28
Retiree Plus Family $1,575.65 $1,746.16 $1,700.50 $2,430.87 $1,870.08 $1,131.36
Retiree Only- Medicare N/A $ 327.03 $ 388.15 $ 388.15 N/A N/A
Retiree Plus Spouse – Medicare N/A $ 654.06 $ 766.30 $ 766.30 N/A N/A
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section VI. Actuarial Assumptions and Methods
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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, 2019
Funding Policy: The actuarially determined contribution (ADC) assuming the City’s funding strategy is to fund the normal cost (current accrua l
for benefits being earned) plus an amortization of the net (unfunded accrued) OPEB liability.
Expected Rate of Return: 7.0% per annum. The rate reflects the CERBT published median interest rate for strategy 1 of 7.28% with an additional margin
for adverse deviation.
Discount Rate: 7.0% per annum. This discount rate assumes the City continues to fully fund for its retiree health benefits through the California
Employers’ Retiree Benefit Trust (CERBT) under its investment allocation strategy 1.
Inflation: 2.50% per annum
Merit Increases: Merit increases from the most recent CalPERS pension plan valuation. The benefits are not payroll related but each individual’s
projected cost is allocated over their lifetime as a level-percentage of pay.
Wage Inflation: 2.75% per annum, plus merit scale.
[The prior valuation used a rate of 3.0% and has been updated to reflect the 2017 experience study for the CalPERS pension
plan.]
Pre-retirement Turnover: According to the termination rates under the 2017 experience study for the CalPERS pension plan.
[Rates have been updated to the CalPERS 2017 experience study from the 2014 experience study for the pension plan.]
Mortality: According to the mortality rates under the 2017 experience study for the CalPERS pension plan.
[Rates have been updated to the CalPERS 2017 experience study from the 2014 experience study for the pension plan.]
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section VI. Actuarial Assumptions and Methods
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Disability Rates: According to the disability rates under the most recent CalPERS pension plan valuation.
[Rates have been updated to the CalPERS 2017 experience study from the 2014 experience study for the pension plan.]
Retirement Age: According to the retirement rates under the 2017 experience study for the CalPERS pension plan. According to the
following retirement tables:
Miscellaneous Tier 1: 2.7% @ 55
Miscellaneous Tier 2: 2.0% @ 60
Miscellaneous Tier 3: 2.0% @ 62
Safety Tier 1: 3.0% @ 55
Safety Tier 2: 2.7% @ 57
Firefighter Tier 1: 3.0% @ 55
Firefighter Tier 2: 2.7% @ 57
[Rates have been updated to the CalPERS 2017 experience study from the 2014 experience study for the pension plan.]
Participation Rates: 100% of future retirees who are eligible to receive full benefits are assumed to elect coverage at retirement.
50% of future retirees who are eligible for the PEMCHA MRC are assumed to elect coverage at retirement. 20% of retirees
waiving coverage are assumed to elect coverage at age 65. Retirees currently waiving coverage are assumed to continue to
waive coverage in the future.
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: 80% of future retirees are assumed to elect coverage for their spouse. Actual spousal coverage is used for current retirees. This
percentage is reduced by 50% for employees only eligible for the MRC at retirement. Male spouses are assumed to be 3 years
older than female spouses. Actual spouse age is used for current retirees.
Dependent Coverage: 25% of future retirees with full benefits are assumed to elect family coverage to age 65; dependent coverage is assumed to
end at the retiree’s attainment of age 65.
Claim Cost Development: The valuation claim costs are based on the premiums paid for medical insurance coverage. The City 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.
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section VI. Actuarial Assumptions and Methods
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Per Capita Costs: Annual per capita costs were calculated based on the City's monthly premium rates effective on July 1, 2019 actuarially
increased using health index factors and current enrollment. The costs are assumed to increase with health care trend rates.
An example of annual per capita costs for someone electing Kaiser medical coverage are as shown below:
Age PC Cost
45 – 49 $ 10,019
50 – 54 $ 11,139
55 – 59 $ 13,478
60 – 64 $ 16,546
Medical Trend Rates: Medical costs are adjusted in future years by the following trends:
Year
2020 6.5%
2021 6.0%
2022 5.5%
2023+ 5.0%
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 ret irement.
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. As required by GASB 75, the normal cost is calculated to remain
level as a 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.
Retiree Health Plan
Actuarial valuation as of June 30, 2019
Section VI. Actuarial Assumptions and Methods
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Actuarial Value of Assets:
Amortization of NOL:
All employees eligible as of the measurement date in accordance with the provisions of the Plan listed in the data provided by
the City were included in the valuation.
Any assets of the plan will be valued on a market value basis.
The unfunded actuarial accrued or net OPEB liability (NOL) is being amortized over 13 years using a level-percentage of
pay method.
City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section VII. Actuarial Certification
end of an amortization period); and
While some sensitivity was provided in the report,we did not perform an analysis of the potential ranges of future measurements due to the
limited scope of our engagement.
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
Changes in plan provisions or applicable law.
This report summarizes the actuarial valuation for the City of Encinitas (the “City”)as of June 30, 2019.The purpose of the valuation is to measure
the City’s liability for OPEB benefits and to determine an actuarially determined contribution (ADC)for the fiscal periods ending June 30, 2020 and
June 30, 2021.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, 2020.
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;
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City of Encinitas Retiree Health Plan
June 30, 2019 Actuarial Valuation
Section VII. Actuarial Certification
Date:Suraj Datta, ASA, MAAA, MBA
Consulting Actuary
Certified by:
March 26, 2020
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.
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Retiree Health Benefits
Actuarial Valuation as of June 30, 2019
Section VIII. Glossary
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GASB 75 defines several unique terms not commonly employed in the funding of pension and retiree health plans. The definitions of the terms used in the
GASB actuarial valuations are noted below.
1. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting health care costs, such as: mortality, withdrawal, 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 A ctuarial Cost Methods; and
other relevant items.
2. 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.
3. 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.
4. 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. For purposes of this standard, each such amount or series of amount s is:
a. adjusted for the probable financial effect of certain intervening events (such as changes in compensation levels, Social Security, 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.
5. 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)
6. Explicit Subsidy – The difference between (a) the amounts required to be contributed by the retirees based on the premium rates and (b) actual c ash
contribution made by the employer.
7. Funded Ratio – The actuarial value of assets expressed as a percentage of the Total OPEB Liability.
Retiree Health Benefits
Actuarial Valuation as of June 30, 2019
Section VIII. Glossary
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8. 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.
9. Implicit 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 t o be contributed by the
retirees.
10. 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.
11. OPEB Expense – Changes in the Net OPEB Liability in the current reporting period, which includes Service Cost, interest cost, changes of ben efit terms,
expected earnings on OPEB Plan investments, reduction of active employees’ contributions, OPEB plan administrative expenses, and current period
recognition of Deferred Outflows / (Inflows) of Resources.
12. 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.
13. 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.
14. 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 throug h 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.
15. Real Rate of Return – the rate of return on an investment after adjustment to eliminate inflation.
Retiree Health Benefits
Actuarial Valuation as of June 30, 2019
Section VIII. Glossary
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16.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 investment return 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 investment return of 8% for year 20W0, then 7.5% for 20W1, an d 7% for 20W2 and
thereafter, then 8% and 7.5% are the select rates, and 7% is the ultimate rate.
17.Service Cost – The portion of the Actuarial Present Value of projected benefit payments that is attributed to a valuation year by the Actuarial Cost Method.
18.Substantive Plan – The terms of an OPEB plan as understood by the employer(s) and plan members.
19.Total OPEB 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).