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 G. Choice of Actuarial Funding Method and Assumptions The ultimate real cost of an employee benefit plan is the value of all benefits and other expenses of the plan over its lifetime. These expenditures are dependent only on the terms of the plan and the administrative arrangements adopted, and as such are not affected by the actuarial funding method. The actuarial funding method attempts to spread recognition of these expected costs on a level basis over the life of the plan, and as such sets the "Incidence of cost". Methods that produce higher initial annual (prefunding) costs will produce lower annual costs later. Conversely, methods that produce lower initial costs will produce higher annual costs later relative to the other methods. GASB 45;4I1ows the use of any of six actuarial funding methods; a brief description of each is in the glp' iary. Factors Impacting the Selection of Funding Method While the goal of GASB 45 is to match recognition of retiree medica ;expense with the periods during which the benefit is earned, the funding methods differ becadse';.they focus on different financial measures in attempting to level the incidence.of cost. Appropriate 4election of a funding method contributes to creating Intergpneratiorial,_equity betweenr;8enerations of taxpayers. The impact of potential new employees entering the, plan may also `affect selection of a funding method, though this is not a factor in this plan. We believe it is most appropriate faX•;ahe plan'sponsor to adopt4`6 eory of funding and consistently apply the funding method representing that theory. This valuation was prepared using the entry ago normal cost method with normaf,cost determined on a level percent of pay basis. The entry age ,normal cost method often produces initial contributions between those of the other more common methods and is generally regarded by pension actuaries as the most stable of the funding methods and one of the most commonly used methods for GASB 45 compliance. Factors Affecting the;Selection of /assumptions Special considerations, applyto the selb¢tion of actuarial funding methods and assumptions for the City;;The actuarial assumptions used in this report were chosen, for the most part, to be the same as the actuarial; assumptiions used for the most recent actuarial valuations of the retirement plans covering: City employees. CaIPERS has previously issued a set of standardized actuarial methods and assumptions to be used by entities participating in CERBT an&many asspmpfions used in this report for GASB 45 analysis are also consistent with that assumption model. Other assumptions, such as age related healthcare claims, retiree participation rates and spouse coverage, were selected based on demonstrated plan experience and/or our.best estimate of expected future experience. We will continue to gather Information and monitor these assumptions for future valuations, as more experience develops. In selecting an appropriate discount rate, GASB states that the discount rate should be based on the expected long-term yield of investments used to finance the benefits. CERBT provides participating employers with three possible asset allocation strategies; a maximum discount rate is assigned to each of these strategies, which may be rounded or reduced to include a margin for adverse deviation. As requested by the City and permitted by CERBT where its asset allocation Strategy #1 is employed, the discount rate used in this valuation is 7.28%. Bickmore tA?o