BICKMORE & ASSOCIATES, INC. 2-2016

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Other Post -Employment Benefit Programs of the City of "" Actuarial Valuation as of July 1, 2015 F. Funding Policy The specific calculation of the ARC and annual OPEB expense for an employer depends on how the employer elects to fund these benefits, The funding levels can generally be categorized as follows: 1. Prefunding - contributing an amount greater than or equal to the ARC each year. Prefunding generally allows the employer to have the liability calculated using a higher discount rate, which in turn lowers the liability. In addition, following a prefunding policy does not build up a net OPEB obligation (or gradually reduces it to $0). Prefunding results in this report were developed using a discount rate;0,9.28%, 2. Pay -As -You -Go funding — contributing only the amounts needed to pay retiree benefits in the current year; generally requires a lower discounf=rate. 3. Partial prefunding — contributing more than the current years retiree payments but less than 100% of the ARC; requires that flabiirit es be developed using a discount rate that "blends" the relative portions of benefits that are prefunded and those.hot. Determination of the ARC The Annual Required Contribution (ARC) consists of iwo;;basic components, which have been adjusted with interest to the City's fiscal year on • The amounts attributed to semibe' performed in the current fiscal year (the normal cost) and • Amortization of the unfunded actuarial accrued liability (UAAL). The ARCS for the fiscal years ending June 30,2016 and June 30, 2017 are developed in Tables 1 A and 1 C. Decisions Affecting the Amortization Payment The period and method for amortizing the AAL can significantly affect the ARC. GASB 45: • Prescribes a maximum amortization period of 30 years and requires no minimum amortization period (except 10 pears for certain actuarial gains). Immediate full funding of the liability is also permitted. • Allows amortisation payments to be determined (a) as a level percentage of payroll, designed to increase over time as payroll increases, or (b) as a level dollar amount much like a conventional mortgage, so that this component of the ARC does not increase over time: Where a plan is closed and has no ongoing payroll base, a level percent of payroll basis is not permitted. • Allows the amortization period to decrease annually by one year (closed basis) or to be maintained at the same number of years (open basis). Funding Policy Illustrated In This Report It is our understanding that the City's prefunding policy includes amortization of the unfunded AAL over a closed 30 -year period initially effective July 1, 2007; the remaining period applicable in determining the ARC for the fiscal year ending June 30, 2016 is 22 years. Amortization payments are determined on a level percent of pay basis. Bickmore ,g,,>