HomeMy WebLinkAboutCalifornia Public Employees Retirement System - CalPERS - PERS - 2008-02-19Council/Agency Meeting Held: 9 "zoor
Deferred/Continued to:
Approve ❑ Conditionally Approved ❑ Denied City rk' Signat r
Council Meeting Date: 2/19/2008 Department ID Number: CT08-07
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS
SUBMITTED BY: PAUL EMERY, INTERIM CITY ADMINISTRATOR
PREPARED BY: SHARI L. FREIDENRICH, CPA, CITY TREASUR
MICHELLE CARR, DIRECTOR OF HUMAN RES
DAN T. VILLELLA, CPA, FINANCE DIRECT
SUBJECT: TRUST AGREEMENT WITH CALIFORNIA PUBLIC RETIREMENT
SYSTEM (CalPERS) TO PROVIDE INVESTMENT SERVICES AND
PREFUND RETIREE MEDICAL BENEFITS
FS of Issue, Funding Source, Recommended Action, Alternative Action(s), Analysis, Environmental Status, Attachment(s)
Statement of Issue: The City will be contracting with CalPERS to provide investment
services and prefund retiree medical benefits. This action will allow the City to pre -fund
these obligations through the California Public Employees Retirement System's Retirement
Benefit Trust Fund (CERBT), an IRS approved 115 irrevocable trust. In addition, the City of
Huntington Beach is required to adopt Government Accounting Standards Board (GASB)
Statement Number 45 during the 2007-2008 fiscal year. This statement requires the City to
disclose financial information regarding Other Post -Employment Benefits (OPEB) and the
outstanding obligations and commitments, and this agreement will allow the City to be in
compliance with this GASB requirement.
Funding Source: There are sufficient appropriations in the 2007-2008 fiscal year (and
subsequent years) for all of the required payments to the trust. Sufficient amounts will be
appropriated in future years' budgets.
ZE-
MEETING DATE: 2/19/2008 DEPARTMENT ID NUMBER: CT08-07
Recommended Action: Motion to:
Approve the following resolutions and authorize the Mayor to sign and the City Clerk to
attest to the agreement:
A. Resolution 2008-11 Agreement and Election to Prefund Other Post Employment
Benefits through CalPERS
B. Resolution 2008-12Delegation of Authority to Request Disbursements from CERBT
Alternative Action(s): Do not select CalPERS as the vendor to provide investment
services and select another vendor to provide these services.
Analysis: GASB 45 is entitled, "Accounting and Financial Reporting by Employers for Post
Employment Benefits Other Than Pensions". It is an accounting standard that the City is
required to adopt during fiscal year 2007-2008. The object of this new standard is to
measure a government's progress towards funding OPEB, or retiree medical insurance.
Retirees for the City of Huntington Beach receive their OPEB in one of two methods
depending on the employee association. Members of the Municipal Employee's Association,
Management Employee's Organization, Huntington Beach Fire Association, and non -
association employees receive a subsidy to the City's group medical plan depending on their
years of service. Members of the Police Officer's Association, Police Management
Association, Marine Safety Officer's Association, and Fire Management Association are
members of the Public Employee's Medical and Hospitalization Act (PEMCHA). The amount
of the medical subsidy is a sliding scale based on years of service that goes up to a
maximum amount of $344 per month.
The City of Huntington Beach is one of very few agencies that has been pre -funding its
retiree medical benefits and has been doing so since 1991. The vast majority of public
agencies did not pre -fund these benefits. As of September 30, 2007, the City had set aside
$7,314,000 for OPEB retiree medical benefits, which are currently invested with the City's
operating funds. Under rules in effect prior to GASB 45, the City had funded an amount
equal to or greater than the required amount for the past nine years. Pre -funding can
contribute to positive credit ratings for the City and enhance financial security for retirees.
GASB 45 was intended to compel public agencies to save today what they will owe
tomorrow. It significantly increases the amounts that agencies should be saving for OPEB.
The new rules require that public agencies measure these post -employment benefits. Public
agencies are now required to:
® Recognize OPEB earned by employees during the time they were actually employed
® Associate the costs of OPEB with the accounting periods during which the benefits are
earned rather than when benefits are paid or provided (at a future time)
® Calculate an actuarially -determined liability for OPEB through an actuarial valuation.
This liability for the City will include an implicit subsidy, which recognizes that active
employees subsidize the rates of retirees.
-2- 2/8/2008 11:55 AM
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 2/19/2008 DEPARTMENT ID NUMBER: CT08-07
• Provide a calculation of the portion of the liability that must be reported as an annual
accounting expense in their financial statements
• Provide a cumulative accounting of the extent to which the employer actually makes
contributions to offset the liability
While the statement does not require a local government to fund its actuarially -calculated
contributions or establish a trust to receive funds, a decision to not establish a trust and
pre -fund the trust will increase the liability to be recognized by the City in the financial
statements.
In anticipation of GASB 45, the City contracted with Aon Consulting to perform the attached
actuarial studies to establish the City's liability for OPEB. Below is a summary of the
major findings of the report:
• Annual Required Contribution to fund OPEB medical subsidies - $1,684,000 (the
City is funding 100% of this through appropriations in the 2007-08 budget)
• Contribution rate as a percent of salary to fully fund annual required contribution —
2.2%
• Projected payouts for benefits next three fiscal years:
2007-08
$1,595,000
2008-09
$1,723,000
2009-10
$1,810,000
• Retirees receiving medical subsidies or payments — 219
• Actuarial accrued liability (AAL) $22,338,000 using an earning rate of 7.75%
A Request For Proposal was issued to various vendors including CaIPERS. CalPERS was
selected from the list of vendors responding to the RFP as the top choice to provide
investment services and trust management for the retiree medical benefits. Responses
were received from the following firms:
• CalPERS
• Citi Institutional Consulting
0 Keenan and Associates
• Public Agency Retirement Solutions (PARS)
0 PFM Asset Management
• Robinson Capital Management
• Sage Advisory Services
0 US Bank
• Wells Fargo
The proposals were evaluated according to:
• Compliance with RFP requirements & understanding of project
-3- 2/8/2008 11:55 AM
REQUEST FOR CITY COUNCIL ACTION
MEETING ®ATE: 2/19/2008 DEPARTMENT I® NUMBER: CT08-07
• Methods and approach described to accomplish the scope of work of this RFP
• Knowledge & experience with similar projects
• Price
• References
In March 2007, CalPERS announced the formation of the California Public Employees
Retirement System's Retirement Benefit Trust Fund (CERBT), an IRS Section 115 Trust
that is compliant with GASB 45. This is a multi -employer trust available for all California
public employers. Currently, there are 25 local agencies participating in the CERBT with
an asset valuation of approximately $111 million. The trust earned a rate of 2.8% for the
first quarter ending 9-30-07 (first quarter of operation).
Some of the key points of the CalPERS CERBT are:
• CalPERS has administered pension plans for public employees since 1932, and the
City has a positive past history in relationships with CalPERS.
• CalPERS is the largest public pension system in the U.S., managing more than $230
billion in assets for more than 2,500 California employers.
• CalPERS has an outstanding record of investment performance. Over the past 20
years, CalPERS has averaged a 10% rate of return on investments.
• Since some of the City's retirees participate in the Public Employees' Medical Benefit
Act (PEMCHA), which is also administered by CalPERS, the City's contributions to the
OPEB will be less than they would under any other option. This is because PEMCHA
is a community -rated plan where the City's retirees are co -mingled with retirees from
other agencies. Therefore, the City will not be required to make an implicit subsidy
contribution for these employees, and this will lower the contribution rate.
The CERBT utilizes a higher discount rate (7.75%) based on historical performance,
and the reporting of liabilities (AAL) of the employer can be reduced.
• In order to participate in the CERBT, CalPERS requires that the City commit to a three
year contract. This is to aid CalPERS in maximizing return on investments.
The Legislature created the Annuitants' Health Care Coverage Fund in 1988 to allow for pre -
funding health care coverage. The law provides that the CalPERS Board has sole and
exclusive control and power over the administration and investments of these obligations. In
all other investment and trustee services options, the City would maintain these
responsibilities.
Strategic Plan Goal: Financial — F-2-1: Fully understand the financial implications of
financial decisions before they are made and recognize and disclose fiscal impacts of the
pension crisis.
-4- 2/8/2008 11:55 AM
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 2/19/2008 DEPARTMENT ID NUMBER: CT08-07
Environmental Status: Not Applicable.
Attachement(s):
Resolution 2008-11 Agreement and Election to Prefund Other
Post Employment Benefits through CalPERS
2.
Resolution 200R-12 Delegation of Authority to Request
Disbursements from CERBT
3.
Actuarial Valuation Plan - Post- Retirement Health Benefits (Including
Retiree Subsidy Medical Plan) September 30, 2007
4.
Certification of OPEB Funding Policy
-5- 2/8/2008 11.55 AM
ATTACHMENT #1
t
RESOLUTION NO. 2008-11
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF HUNTINGTON BEACH APPROVING AGREEMENT
WITH THE CALIFORNIA EMPLOYERS RETIREE BENEFIT TRUST
PROGRAM AND AUTHORIZING THE MAYOR TO SIGN SUCH
AN AGREEMENT ON BEHALF OF THE CITY
WHEREAS, pursuant to Memorandums of Understanding with each employee
association, the City provides a Retiree Medical Subsidy and Benefit to retirees; and
. WHEREAS, such non -pension medical benefits for retirees are commonly known
as an "other post -employment benefits" or "OPEBs." Previously, under Statement 12 of
the Governmental Accounting Standards Board ("GASB"), governments typically
followed a "pay-as-you-go" accounting approach in which the costs of OPEB benefits are
not reported on financial statements until after employees retire; and
WHEREAS, in 2004, GASB adopted Statement 45, which requires financial
statements to report the present value of estimated total OPEB benefits that is attributed to
employee services received in the current year, plus the cost of amortizing a portion of the
unfunded actuarial accrued liability for previous years. Statement 45 applies to the City's
financial statement for Fiscal Year 2007-08; and
WHEREAS, under Government Code Section 53216, the City may create a trust as
a means to prefund and invest OPEB obligations payable in the future. The City Council
has selected the California Employers Retiree Benefit Trust ("CERBT"), a multi -employer
trust established by the California Public Employees Retirement System (" CaIPERS") to
be the that trust; and
WHEREAS, request for proposals was issued to various vendors to provide
investment services and manage a trust for the Retiree Medical Subsidy and Benefit; and
WHEREAS, the City Council has selected the California Employers Retiree
Benefit Trust ("CERBT"), a multi -employer trust established by the California Public
Employees Retirement System, as the means to prefund the Retiree Medical Subsidy and
Benefit; and
WHEREAS, CaIPERS has sole and exclusive control and power over the CERBT,
the purposes of which include, but are not limited to (i) receiving contributions from
participating employers and establishing separate Employer Prefunding Accounts in the
CERBT for the performance of an essential governmental function, (ii) investing
contributed amounts and income thereon, if any, in order to receive yield on the funds, and
(ill) disbursing contributed amounts and income thereon, if any, to pay for costs of
administration of the CERBT and to pay for health care costs or other post employment
benefits in accordance with the terms of participating employers' plan; and
06-132/18689
Resolution No. 2008-11
WHEREAS, the CERBT is a trust fund that is intended to perform an essential
governmental function within the meaning of Section 115 of the Internal Revenue Code as
an agent multiple -employer plan as defined in GASB Statement No. 43 consisting of an
aggregation of single -employer plans, with pooled administrative and investment
functions;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Huntington Beach as follows:
Section 1. The City Council approves the "Agreement and Election of the City
of Huntington Beach to Prefund Other Post -Employment Benefits Through Ca1PERS."
Section 2. The City Council of the City of Huntington Beach hereby authorizes
the Mayor to sign and the City Clerk to attest to the Agreement, a copy of which is
attached hereto as Exhibit A.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at
a regular meeting thereof held on the 1 Ath day of February , 2008.
REVIE D A PROVED:
Ci Admimstrato
�22 �...j
Mayor
INITIATED AND APPROVED:
Finance Director
INITIATED AND APPROVED:
Q?Yreasu r
APPROVED AS TO FORM:
Jy�Attom�ey��
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06-132/18689 2
Resolution No. 2008-11
f
Resolution No. 2008-11
CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ("CERBT")
AGREEMENT AND ELECTION
OF
City of Huntington Beach
(NAME OF EMPLOYER)
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CaIPERS
WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the
Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for
annuitants (Prefunding Plan); and
WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) I,3oard
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to (I) receiving contributions
from participating employers and establishing separate Employer Prefunding Accounts
in the Prefunding Plan for the performance of an essential governmental function (ii)
investing contributed amounts and income thereon, if any, in order to receive yield on
the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for
costs of administration of the Prefunding Plan and to pay for health care costs or other
post employment benefits in accordance with the terms of participating employers'
plans, and
WHEREAS (3) City of Huntington Beach
(NAME OF EMPLOYER)
(Employer) desires to participate in the Prefunding Plan upon the terms and conditions
set by the Board and as set forth herein, and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by
the Board and (II) filing a duly adopted and executed Agreement and Election to Prefund
Other Post Employment Benefits (Agreement) as provided in the terms and conditions
of the Agreement, and
WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an
essential governmental function within the meaning of Section 115 of the Internal
Revenue Code as an agent multiple -employer plan as defined in Governmental
Accounting Standards Board (GASB) Statement No 43 consisting of an aggregation of
single -employer plans, with pooled administrative and Investment functions,
Rev 1211012007
Resolution No. 2008-11
NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND
EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS
A Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of
California or an entity whose income is excluded from gross income under Section 115
(1) of the Internal Revenue Code.
B. Adoption and Approval of the Agreement; Effective Date, Amendment
(1) Employer's governing body shall elect to participate in the Prefunding Plan by
adopting this Agreement and filing with the CalPERS Board a true and correct original
or certified copy of this Agreement as follows:
Filing by mail, send to: CalPERS
Constituent Relations Office
CERBT (OPEB)
P.O. Box 942709
Filing in person, deliver to:
Sacramento, CA 94229-2709
CaIPERS Mailroom
Attn. Employer Services Division
400 Q Street
Sacramento, CA 95814
(2) Upon receipt of the executed Agreement, and after approval by the Board, the
Board shall fix an effective date and shall promptly notify Employer of the effective date
of the Agreement
(3) The terms of this Agreement may be amended only in writing upon the agreement
of both CalPERS and Employer, except as otherwise provided herein Any such
amendment or modification to this Agreement shall be adopted and executed in the
same manner as required for the Agreement. Upon receipt of the executed amendment
or modification, the Board shall fix the effective date of the amendment or modification
(4) The Board shall institute such procedures and processes as it deems necessary to
administer the Prefunding Plan, to carry out the purposes of this Agreement, and to
maintain the tax exempt status of the Prefunding Plan Employer agrees to follow such
procedures and processes
Rev12/10/2007 2
Resolution No. 2008-11
C Actuarial Valuation and Employer Contributions
(1) Employer shall provide to the Board an actuarial valuation report on the basis of the
actuarial assumptions and methods prescribed by the Board. Such report shall be for
the Board's use in financial reporting, shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be_
(a) prepared and signed by a Fellow or Associate of the Society of Actuaries
who is also a Member of the American Academy of Actuaries or a person
with equivalent qualifications acceptable to the Board;
(b) prepared in accordance with generally accepted actuarial practice and
GASB Statement Nos. 43 and 45, and,
(c) provided to the Board prior to the Board's acceptance of contributions for
the valuation period or as otherwise required by the Board
(2) The Board may reject any actuarial valuation report submitted to it, but shall not
unreasonably do so. In the event that the Board determines, in its sole discretion, that
the actuarial valuation report is not suitable for use in the Board's financial statements or
if Employer fails to provide a required actuarial valuation, the Board may obtain, at
Employer's expense, an actuarial valuation that meets the Board's financial reporting
needs_ The Board may recover from Employer the cost of obtaining such actuarial
valuation by billing and collecting from Employer or by deducting the amount from
Employer's account in the Prefunding Plan
(3) Employer shall notify the Board of the amount and time of contributions which
contributions shall be made in the manner established by the Board
(4) Employer contributions to the Prefunding Plan may be limited to the amount
necessary to fully fund Employer's actuarial present value of total projected benefits, as
supported by the actuarial valuation acceptable to the Board As used throughout this
document, the meaning of the term "actuarial present value of total projected benefits"
is as defined in GASB Statement No 45 If Employer's contribution causes its assets in
the Prefunding Plan to exceed the amount required to fully fund the actuarial present
value of total projected benefits, the Board may refuse to accept the contribution
(5) Any Employer contribution will be at least $5000 or be equal to Employer's Annual
Required Contribution as that term is defined in GASB Statement No 45 Contributions
can be made at any time following the seventh day after the effective date of the
Agreement provided that Employer has first complied with the requirements of
Paragraph C
Rev 12/ 10/2007 3
Resolution No. 2008-11
D. Administration of Accounts, Investments, Allocation of Income
(1) The Board has established the Prefunding Plan as an agent plan consisting of an
aggregation of single -employer plans, with pooled administrative and investment
functions, under the terms of which separate accounts will be maintained for each
employer so that Employer's assets will provide benefits only under employer's plan
(2) All Employer contributions and assets attributable to Employer contributions shall be
separately accounted for in the Prefunding Plan (Employer's Prefunding Account)
(3) Employer's Prefunding Account assets may be aggregated with prefunding account
assets of other employers and may be co -invested by the Board in any asset classes
appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the
investment income or Employer's Prefunding Account in a manner determined by the
Board
(5) Investment income shall be allocated among employers and posted to Employer's
Prefunding Account as determined by the Board but no less frequently than annually.
(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund
the actuarial present value of total projected benefits, the Board, in compliance with
applicable accounting and legal requirements, may return such excess to Employer
E Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and
containing the information prescribed by the Board_
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account
at least annually reflecting the balance in Employer's Prefunding Account, contributions
made during the period and income allocated during the period, and such other
information as the Board determines
F Disbursements
(1) Employer may receive disbursements not to exceed the annual premium and other
costs of post employment healthcare benefits and other post employment benefits as
defined in GASB 43.
(2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the
persons authorized to request disbursements from the Prefunding Plan on behalf of
Employer
Rev12/10/2007 4
Resolution No. 2008-11
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will
be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3)
that are received on or after the first of a month will be processed by the 15ih of the
following month (For example, a disbursement request received on or between March
1 st and March 31 st will be processed by April 15th; and a disbursement request
received on or between April 1 st and April 30th will be processed by May 15th.)
(5) Ca1PERS shall not be liable for amounts disbursed in error if it has acted upon the
instruction of an individual authorized by Employer to request disbursements. In the
event of any other erroneous disbursement, the extent of CalPERS' ilability shall be the
actual dollar amount of the disbursement, plus interest at the actual earnings rate but
not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the
balance in Employer's Prefunding Account.
G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as
determined by the Board
H. Termination of Employer Participation in Prefunding Plan
(1) The Board may terminate Employer's participation in the Prefunding Plan if -
(a) Employer gives written notice to the Board of its election to terminate,
(b) The Board finds that Employer fails to satisfy the terms and conditions of
this Agreement or of the Board's rules or regulations
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing
reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding
Plan, except as otherwise provided below, and shall continue to be invested and accrue
income as provided in Paragraph D_
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not
make contributions to the Prefunding Plan
Rev 12/ 10/ 2007 5
Resolution No. 2008-11
(4) After Employer's participation in the Prefunding Plan terminates, disbursements
from Employer's Prefunding Account may continue upon Employer's instruction or
otherwise in accordance with the terms of this Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of this Agreement
(a) Employer may request a trustee to trustee transfer of the assets in
Employer's Prefunding Account. Upon satisfactory showing to the Board
that the transfer will satisfy applicable requirements of the Internal
Revenue Code and the Board's fiduciary duties, then the Board shall
effect the transfer within one hundred twenty (120) days. The amount to
be transferred shall be the amount in the Employer's Prefunding Account
as of the disbursement date and shall include investment earnings up to
the investment earnings allocation date immediately preceding the
disbursement date. In no event shall the investment earnings allocation
date precede the transfer by more than 120 days.
(b) Employer may request a disbursement of the assets in Employer's
Prefunding Account Upon satisfactory showing to the Board that all of
Employer's obligations for payment of post employment health care
benefits and other post employment benefits and reasonable
administrative costs of the Board have been satisfied, then the Board shall
effect the disbursement within one hundred twenty (120) days The
amount to be disbursed shall be the amount in the Employer's Prefunding
Account as of the disbursement date and shall include investment
earnings up to the investment earnings allocation date immediately
preceding the disbursement date_ In no event shall the investment
earnings allocation date precede the disbursement by more than 120
days
(6) After Employer's participation in the Prefunding Plan terminates and at such time
that no assets remain in Employer's Prefunding Account, this Agreement shall
terminate
(7) If, for any reason, the Board terminates the Prefunding Plan, the assets in
Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts
sufficient to pay post employment health care benefits and other post employment
benefits to annuitants for current and future annuitants described by the employer's
current substantive plan (as defined in GASB 43), and (ii) amounts sufficient to pay
reasonable administrative costs of the Board
(8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if
no provision has been made by Employer for ongoing payments to pay post
employment health care benefits and other post employment benefits to annuitants for
current and future annuitants, the Board is authorized to and shall appoint a third party
administrator to carry out Employer's Prefunding Plan Any and all costs associated
Rev 12/ 10/ 2007 6
Resolution No. 2008-11
with such appointment shall be paid from the assets attributable to contributions by
Employer
(9) If Employer should breach the representation and warranty set forth in Paragraph
A., the Board shall take whatever action it deems necessary to preserve the tax-exempt
status of the Pfefunding Plan.
I General Provisions
(1) Books and Records.
Employer shall keep accurate books and records connected with the performance of
this Agreement Employer shall ensure that books and records of subcontractors,
suppliers, and other providers shall also be accurately maintained. Such books and
records shall be kept in a secure location at the Employer's office(s) and shall be
available for inspection and copying by CaIPERS and its representatives-
(2) Audit
(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CaIPERS, and its authorized
representatives, and such consultants and specialists as needed, at all
reasonable times during normal business hours to inspect and copy, at the
expense of CalPERS, books and records of Employer relating to its
performance of this Agreement
(b) Employer shall be subject to examination and audit by the Bureau of State
Audits, CalPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of this Agreement
and for three years after final payment under this Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of this Agreement, including, but not limited to, the costs of
administering this Agreement Employer shall cooperate fully with the
Bureau of State Audits, CaIPERS, and its authorized representatives, and
such consultants and specialists as needed, in connection with any
examination or audit All adjustments, payments, and/or reimbursements
determined to be necessary by any examination or audit shall be made
promptly by the appropriate party.
(3) Notice
(a) Any notice, approval, or other communication required or permitted under
this Agreement will be given in the English language and will be deemed
received as follows
Rev 12/ 10/ 2007 7
Resolution No. 2008-11
Personal delivery. When personally delivered to the recipient
Notice is effective on delivery.
2 First Class Mail. When mailed first class to the last address of the
recipient known to the party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox
3. Certified mail When mailed certified mail, return receipt requested
Notice is effective on receipt, if delivery is confirmed by a return
receipt
4. Overnight Delivery When delivered by an overnight delivery
service, charges prepaid or charged to the sender's account, Notice
is effective on delivery, if delivery is confirmed by the delivery
service.
5 Telex or Facsimile Transmission. When sent by telex or fax to the
last telex or fax number of the recipient known to the party giving
notice Notice is effective on receipt, provided that (i) a duplicate
copy of the notice is promptly given by first-class or certified mail or
by overnight delivery, or (ii) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be
deemed received on the next business day if it is received after
5 00 p.m (recipient's time) or on a nonbusiness day
6_ E-mail transmission When sent by e-mail using software that
provides unmodifiable proof (i) that the message was sent, (ii) that
the message was delivered to the recipient's information processing
system, and (iii) of the time and date the message was delivered to
the recipient along with a verifiable electronic record of the exact
content of the message sent
Addresses for the purpose of giving notice are as shown in Paragraph B (1) of this
Agreement
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger
or overnight delivery service
(c) Any party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement
Rev 12/10/2007 8
Resolution No. 2008-11
(d) All notices, requests, demands, amendments, modifications or other
communications under this Agreement shall be in writing. Notice shall be
sufficient for all such purposes if personally delivered, sent by first class,
registered or certified mail, return receipt requested, delivery by courier
with receipt of delivery, facsimile transmission with written confirmation of
receipt by recipient, or e-mail delivery with verifiable and unmodifiable
proof of content and time and date of sending by sender and delivery to
recipient Notice is effective on confirmed receipt by recipient or 3
business days after sending, whichever is sooner.
(4) Modification
This Agreement may be supplemented, amended, or modified only by the mutual
agreement of the parties No supplement, amendment, or modification of this
Agreement shall be binding unless it is in writing and signed by the party to be charged-
(5) Survival
All representations, warranties, and covenants contained in this Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of this Agreement until such time as all
amounts in Employer's Prefunding Account have been disbursed.
(6) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained in or
granted by the provisions of this Agreement shall be effective unless it is in writing and
signed by the party waiving the breach, failure, right, or remedy No waiver of any
breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure,
right, or remedy, whether or not similar, nor shall any waiver constitute a continuing
waiver unless the writing so specifies-
(7) Necessary Acts, Further Assurances
The parties shall at their own cost and expense execute and deliver such further
documents and instruments and shall take such other actions as may be reasonably
required or appropriate to evidence or carry out the intent and purposes of this
Agreement
Rev 12 / 10/ 2007 9
Resolution No. 2008-11
A majority vote of Employer's Governing Body at a public meeting held on the 19th
day of the month of February, 2008 20&7- authorized entering into this
Agreement.
17
Signature of the Presiding Officer A4Z�- &f k,
Printed Name of the Presiding Officer Debbie Cook, Mayor
Name of Governing Body: City of Huntington Beach
Name of Employer City of Huntington Beach
Date February 21, 2008 VL J
Ci Clerk
BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BY
KENNE H W MARZION
ACTUARIAL AND EMPLOYER SERVICES BRANCH
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CalPERS
The effective date of this Agreement is InA44 /31 ;2W
;1,
':""FOR114
-bUGRATH TTOR F
Rev12/10/2007
Res. No. 2008-11
STATE OF CALIFORNIA
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, JOAN L. FLYNN the duly elected, qualified City Clerk of the City of
Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby
certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing resolution was passed and adopted
by the affirmative vote of at least a majority of all the members of said City Council
at a regular meeting thereof held on February 19, 2008 by the following vote:
AYES: Hansen, Hardy, Bohr, Cook, Coerper, Green, Carchio
NOES: None
ABSENT: None
ABSTAIN: None
Ci Clerk and ex-officiAlerk of the
City Council of the City of
Huntington Beach, California
ATTACHMENT
2
RESOLUTION NO. 2008-12
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF HUNTINGTON BEACH DELEGATING
AUTHORITY TO REQUEST DISBURSEMENTS FROM THE
CALIFORNIA EMPLOYERS RETIREE BENEFIT TRUST
WHEREAS, pursuant to Memorandums of Understanding with each employee
association, the City provides a Retiree Medical Subsidy and Benefit to retirees; and
WHEREAS, such non -pension, medical benefits for retirees are commonly known
as an "other post -employment benefits" or "OPEBs." Previously, under Statement 12 of
the Governmental Accounting Standards Board ("GASB"), governments typically
followed a "pay-as-you-go" accounting approach in which the costs of OPEB benefits are
not reported on financial statements until after employees retire; and
WHEREAS, in 2004, GASB adopted Statement 45, which requires financial
statements to report the present value of estimated total OPEB benefits that is attributed to
employee services received in the current year, plus the cost of amortizing a portion of the
unfunded actuarial accrued liability for previous years. Statement 45 applies to the City's
financial statement for Fiscal Year 2007-08; and
WHEREAS, under Government Code Section 53216, the City may create a trust as
a means to prefund and invest OPEB obligations payable in the future. The City Council
has selected the California Employers Retiree Benefit Trust ("CERBT"), a multi -employer
trust established by the California Public Employees Retirement System ("CaIPERS") to
be the that trust; and
WHEREAS, CaIPERS has sole and exclusive control and power over the CERBT,
the purposes of which include, but are not limited to (i) receiving contributions from
participating employers and establishing separate Employer Prefunding Accounts in the
CERBT for the performance of an essential governmental function, (ii) investing
contributed amounts and income thereon, if any, in order to receive yield on the funds, and
(iii) disbursing contributed amounts and income thereon, if any, to pay for costs of
administration of the CERBT and to pay for health care costs or other post employment
benefits in accordance with the terms of participating employers' plan; and
WHEREAS, the CERBT is a trust fund that is intended to perform an essential
governmental function within the meaning of Section 115 of the Internal Revenue Code as
an agent multiple -employer plan as defined in GASB Statement No. 43 consisting of an
aggregation of single -employer plans, with pooled administrative and investment
functions;
06-132/18644
Resolution No. 2008-12
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Huntington Beach that it delegates to the incumbents in the positions of Director of Human
Resources and Finance Director authority to request on behalf of the City disbursements
from the CERBT and to certify as to the purpose for which the disbursed finds will be
used.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at
a regular meeting thereof held on the 19th day of February , 2008.
REVIE A7 PPROVED:
City Administrator
INITIATED AND APPROVED:
' inane Director
APPROVED AS TO FORM:
Attorney
06-132/18644 2
Res. No. 2008-12
STATE OF CALIFORNIA
COUNTY OF ORANGE j ss:
CITY OF HUNTINGTON BEACH j
1, JOAN L. FLYNN the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-officio Clerk of the City Council of said City,
do hereby certify that the whole number of members of the City Council of the
City of Huntington Beach is seven; that the foregoing resolution was passed
and adopted by the affirmative vote of at least a majority of all the members of
said City Council at an regular meeting thereof held on February 19, 2008 by
the following vote:
AYES: Hansen, Hardy, Bohr, Cook, Coerper, Green, Carchio
NOES: None
ABSENT: None
ABSTAIN: None
Cif/Clerk and ex-officio Vlerk of the
City Council of the City of
Huntington Beach, California
ATTACHMENT #3
CITY OF HUNTINGTON BEACH
P®STRETIREMENT HEALTH BENEFITS
(INCLUDING RETIREE SUBSIDY MEDICAL PLAN)
Actuarial Valuation Study
Valuation Date: September 30, 2007
Date of Report: November 14, 2007
Executive Summary
Background
The City of Huntington Beach provides retiree medical benefits for eligible retirees enrolled in
City sponsored plans. Retirees must be employed by the City at retirement and have a minimum
of ten (10) years of continuous service. The benefits are provided in the form of-
® Monthly City contributions toward the retiree's premium until age 65, and
• Allowing pre-65 retirees to receive coverage at the active premium rates instead of
normally higher retiree rates.
City Contributions
Under the City of Huntington Beach Retiree Medical Subsidy Plan, the City makes contributions
for eligible retirees' medical plan premiums when the retiree enrolls in a City sponsored health
plan before age 65. The current monthly amount paid by the City ranges from $121 — $344,
depending on the retiree's years of service at retirement. The City provided amounts are detailed
in the Summary of Plan Provisions.
Implicit Subsidy
The City allows retirees to receive coverage prior to age 65 by paying premiums that are
developed by blending active and retiree costs. Since retirees are older and generally cost more
than actives, the premium paid by the retiree is less than the "true cost" of coverage for retirees.
For example, under the Blue Shield Safety PPO, the estimated "true cost" for a retiree age 62 as
of January 1, 2007 is $998 per month, while the required premium is only $432 per month. This
implicit subsidy is considered an obligation under the new GASB requirements. The implicit
subsidy does not apply to post 65 benefits as premiums are based exclusively on retiree costs. It
also does not apply to the Ca1PERS provided benefits as these premiums are considered
"community rated" and, unlike the City's other plan costs, do not vary due to demographic
differences of the employer.
The accounting rules do not require recognition of such implicit subsidization in the case of a
"community rated" plan. In this case, as just one of many employers in the plan, City premiums
are the same no matter how many City retirees are covered. These rates are dependent on the
proportion of retirees from all employers in the plan. Therefore, if the proportion of retirees in
the Ca1PERS plans from all employers were higher and resulted in higher blended premiums, the
Ca1PERS rates would be higher. In such a case, future higher rates would result in higher City
costs, but would not necessarily be fully recognized through the new retiree medical accounting
standards.
Prior Accounting Guidance
Up until now, the City has reported obligations for the Retiree Medical Subsidy Plan under the
guidance of GASB Statement No. 12.
City of Huntington Beach
AON Postretirement Health Benefits
i 0913012007Actuarial Valuation Report
Executive Summary (cont.)
GASB 45
In June 2004, the Governmental Accounting Standards Board (GASB) issued GASB Statement
45, which addresses accounting and financial reporting for Postemployment Benefits Other Than
Pensions (OPEB). This statement replaces and significantly modifies prior guidance. GASB 45
is effective for Phase I governments for fiscal years beginning after December 15, 2006.
In addition to recognition of the GASB standard, there are several other reasons an agency
should understand its OPEB obligations, such as:
• Pre -funding alternatives — although funding is not required, an unfunded plan results in
higher balance sheet liabilities and costs
® Bargaining issues — recognizing how the obligation will impact the collective bargaining
process in the near and long term
® Bond rating — potential impact to the cost of debt due to unfunded liabilities
The liabilities and annual costs for the City's contribution promises to retirees are calculated in
this actuarial valuation in accordance with GASB 45. Similar to most government entities, the
City has not previously prefunded (in an irrevocable trust) or recognized OPEB liability as
benefits are accrued. As this report shows, any required accrual determined on a GASB basis is
considerably higher than the amount on a pay-as-you-go basis.
It is important to note that only current active and retired participants are valued in this actuarial
study. Future new entrants or any projected growth in the City's employee population are not
considered.
This actuarial valuation determines the liabilities and annual costs for benefits based on the City
adopting GASB 45 for the fiscal year ending September 30, 2008.
ARC Development
GASB requires an Annual Required Contribution (ARC) to be developed each year based on the
Plan's assets and liabilities. Although GASB does not actually require prefunding, the portion of
the ARC that is not funded each year accumulates as a liability on the City's financial
statements.
The ARC can be developed under a variety of funding methods. The City has adopted the Entry
Age Normal cost method and elected to amortize the unfunded liability as a level percent of pay
over a 30 year period.
City of Huntington Beach
Am Postretirement Health Benefits
11 0913012007Actuarial Valuation Report
Executive Summary (cont.)
Summary of Results
Liabilities
There are a few terms to understand related to the Plan's liabilities. The Present Value of
Benefits (PVB) represents the actuarial present value of all future benefits expected to be paid to
current employees and retirees. The Actuarial Accrued Liability (AAL) is the portion of the
PVB attributable to past service. The Normal Cost is the portion of the PVB that is allocated to
the current plan year for active employees.
Each liability is a present value calculated by using a selected discount rate. As requested by the
City, results in this report are shown using a 7.75% discount rate. In order to understand the
sensitivity of results to changing this assumption, we also show results based on a 5.5% discount
rate. The table below summarizes the liability results based on these two discount rates as of
September 30, 2007:
5.5%
Present Value of Benefits (PVB) $36,906,000
Actuarial Accrued Liability $25,959,000
(AAL)
Normal Cost $1,125,000
7.75%
$28,945,000
$22,338,000
$786,000
Note: The AAL and normal cost shown above were calculated by spreading costs over the
participants' working lifetimes as a level percentage of pay.
As an explanation of the meaning of the discount rate, the PVB using a 7.75% discount rate
implies that if the City invested $28,945,000 today in an interest bearing account that earns
7.75%, the liabilities would be fully funded. By comparison, if the interest bearing account were
to only earn 5.5%, $36,906,000 would be required to fully fund the liability.
Discount Rate Selection
As illustrated above, the discount rate can have a considerable impact on the magnitude of the
liabilities, with lower discount rates resulting in higher liabilities. As guidance in selecting an
appropriate discount rate, GASB states that the discount rate should be based on the long-term
yield of investments used to finance the benefits.
The City intends to fully pre -fund its ARC through the Ca1PERS California Employers' Retiree
Benefit Trust (CERBT) Fund. As a result, Ca1PERS' anticipated 7.75% discount rate for fully
pre -funded plans was used. We also show amounts based on a 5.5% discount rate, which
illustrates the results if the City were to continue the previous pay-as-you-go funding policy.
If the City wanted to better understand the long term advantages and disadvantages to pre -
funding in a trust, a study which projects cash flow, accrual amounts, and balance sheet
obligations based on current and future participants could be performed.
City of Huntington Beach
Am Postretirement Health Benefits
iii 0913012007Actuarial Valuation Report
Executive Summary (cont.)
Assets
As of September 30, 2007, the City held $7.4 million in assets that are set aside for
postretirement health benefits. As requested, this valuation considers these as Plan assets for
purposes of determining the unfunded liabilities and annual costs. The City intends on
contributing these assets to the Ca1PERS trust prior to adoption of GASB 45.
Annual Required Contributions (ARC)
The following table compares the ARC for the fiscal year ending September 30, 2008 under the
methodology selected by the City, using the 5.5% and 7.75% discount rates:
Entry Age Normal Method
— 30 year amortization
% of pay
5.5% 7.75%
$1,983,000 $1,684,000
2.6% 2.2%
These costs can be compared to the estimated pay-as-you-go funding amount of $1,595,000.
The entry age normal method spreads unfunded past service liabilities over the specified
amortization period. In addition, results are developed by spreading costs as a level percent of
payroll ($76.3 million). Funding as a percent of payroll reduces current costs but increases
future costs as City payroll increases. It should be noted that the entry age normal method with
costs spread as a level percent of pay is also used to determine the ARC for CalPERS retirement
plans.
Sensitivity to Healthcare Trend
The healthcare trend rate also has a significant effect on the amounts reported. To illustrate,
increasing the healthcare trend rates by one percentage point each year would increase the
accrual by approximately 10%-12%.
Comparisons to Prior GASB 12 Accounting
For the City of Huntington Beach, there are two primary differences between accounting under
GASB 12 and the guidance under GASB 45.
Financial Statement Liability Recognition — Under GASB 45, the portion of the ARC that is not
funded each year accumulates as a liability on the City's financial statements. GASB 12 only
required disclosure of the actuarial obligations, but had no financial statement impact.
Implicit Subsidy Recognition — Under GASB 45, the implicit subsidy described above must be
recognized in the actuarial obligations. GASB 12 only required recognition of the flat dollar
subsidy contributed by the City.
City of Huntington Beach
Am Postretirement Health Benefits
iv 09/30/2007Actuarial Valuation Report
Executive Summary (cont.)
Comparisons to Prior Valuation Results
The following table compares certain results to the prior valuation update:
September 30,
September 30,
2006
2007
Discount Rate
7.50%
7.75%
Present Value of Benefits (PVB)
$ 28,129,000
$ 28,945,000
Actuarial Accrued Liability (AAL)
22,627,000
22,338,000
Assets
5,200,000
7,395,000
Unfunded AAL
17,427,000
14,943,000
Normal cost
693,000
816,000
ARC — Entry Age Normal — 30 year
1,906,000
1,684,000
When comparing 2007 results to the 2006 valuation update, the liabilities are similar. Although
the number of active participants was larger in the 2007 valuation and the liability, by its nature,
grows each year as active participants accrue additional benefits, this was offset by the use of a
higher discount rate in 2007 (7.75% compared to 7.50%).
However, the ARC is smaller in 2007 compared to 2006 due to the lower unfunded liability.
This decrease is primarily due to the City contributions that exceeded expected funding levels.
The following report shows the details of results by participant status and benefits provided,
based on a 7.75% discount rate.
City of Huntington Beach
Am Postretirement Health Benefits
v 0913012007Actuarial Valuation Report
Exhibits
Actuarial Valuation Certificate..............................................................................1
IIPlan Liabilities........................................................................................................ 3
III Annual Required Contributions............................................................................ 6
IV Projected Benefit Payments.................................................................................. 6
V GASB Reporting and Disclosure Information...................................................... 7
VIParticipant Information.......................................................................................... 8
VII Summary of Principal Plan Provisions..............................................................10
Vill Actuarial Assumptions........................................................................................ 12
IXGlossary................................................................................................................19
City of Huntington Beach
Am Postretirement Health Benefits
09/30/2007Actuarial Valuation Report
Actuarial Valuation Certificate
This report presents the results of the actuarial valuation for the City of Huntington Beach
Postretirement Health Benefits as of September 30, 2007 for development of the Annual
Required Contribution and disclosure items under Governmental Accounting Standards Board
(GASB) Statement 45.
This report was prepared using generally accepted actuarial practices and methods. The actuarial
assumptions used in the calculations are individually reasonable and reasonable in aggregate.
Aon Consulting did not audit the employee data and financial information used in this valuation.
On the basis of our review of this data, we believe that the information is sufficiently complete
and reliable, and that it is appropriate for the purposes intended.
Actuarial computations under GASB 45 are for purposes of fulfilling employer accounting
requirements. The calculations reported herein have been made on a basis consistent with our
understanding of these accounting standards. Determinations for purposes other than meeting
Employer financial accounting requirements may be different from these results. As required by
GASB 45, this valuation assumes this will be an ongoing plan. However, this assumption does
not imply any obligation by the employer to continue the plan.
This report is intended for the sole use of the City of Huntington Beach. It is intended only to
supply information for the City to comply with the stated purpose of the report and may not be
appropriate for other business purposes. Reliance on information contained in this report by
anyone for other than the intended purposes, puts the relying entity at risk of being misled
because of confusion or failure to understand applicable assumptions, methodologies, or
limitations of the report's conclusions. Accordingly, no person or entity, including the City of
Huntington Beach should base any representations or warranties in any business agreement on
any statements or conclusions contained in this report without the written consent of Aon
Consulting.
The actuary whose signature appears below is a Member of the American Academy of Actuaries
and meets the Qualification Standards of the American Academy of Actuaries to render the
actuarial opinion contained herein. The actuary is available to answer any questions with regard
to the matters enumerated in this report.
City of Huntington Beach
Am Postretirement Health Benefits
1 0913012007Actuarial Valuation Report
I Actuarial Valuation Certificate (cont.)
Aon's relationship with the Plan and the Plan Sponsor is strictly professional. There are no
aspects of the relationship that may impair or appear to impair the objectivity of our work.
Respectfully submitted,
Bradley J. A AA
Senior Vice President
Enrollment Number 05-5899
Tele: (213) 996-1729
brad_au@aon.com
Aon Consulting
707 Wilshire Boulevard
Suite 5700
Los Angeles, CA 90017
November 14, 2007
J-\Clients\CityEbch\val2007\RetMed\Rpt2007_Retmed Final.doc
City of Huntington Beach
Am Postretirement Health Benefits
2 0913012007Actuarial Valuation Report
11 Plan Liabilities
The liabilities shown in this exhibit were calculated using a 7.75% discount rate as of the
September 30, 2007 valuation date. They are utilized in the development of the Annual
Required Contribution (ARC).
While GASB 45 allows the development of the ARC under various funding cost methods, the
City has elected to use the Entry Age Normal cost method, which is based on the AAL shown.
The Present Value of Benefits (PVB) represents the actuarial present value of all benefits ever
to be paid to current employees and retirees. The PVB follows:
(amounts in thousands)
Misc
Fire
Police
Life
Total
PVB
City Contribution
Active
$ 3,251
$ 1,370
$ 2,554
$ 133
$ 7,308
Retirees
1,127
767
1,315
65
3,274
Subtotal
4,378
2,137
3,869
198
10,582
Implicit Subsidy
Active
7,861
7,003
0
0
14,864
Retirees
1,556
1,943
0
0
3,499
Subtotal
9,417
8,946
0
0
18,363
All Benefits
Active
11,112
8,373
2,554
133
22,172
Retirees
2,683
2,710
1,315
65
6,773
Total PVB
13,795
11,083
3,869
198
28,945
PVB Per Particpant
Active
17
68
10
10
21
Retirees
29
54
18
22
31
City of Huntington Beach
Am Postretirement Health Benefits
3 0913012007Actuarial Valuation Report
II Plan Liabilities (coat.)
The Actuarial Accrued Liability (AAL) is a portion of the PVB attributable to past service.
For retirees and fully eligible active employees, the AAL is equal to the PVB. For other active
employees, the AAL is the portion of the PVB deemed to be accrued to date. The Normal Cost
is the portion of the PVB that is allocated to the current plan year for active employees.
The AAL in this report is based on the Entry Age Normal cost method and has been developed
by spreading costs as a level percentage of payroll, as follows:
(amounts in thousands) Misc Fire Police Life Total
FAN AAL
City Contribution
Active $ 2,588 $ 1,003 $ 1,729 $ 112 $ 5,432
Retirees 1,127 767 1,315 65 3,274
Subtotal 3,715 1,770 3,044 177 8,706
Implicit Subsidy
Active
5,483
4,650
0
0
10,133
Retirees
1,556
1,943
0
0
3,499
Subtotal
7,039
6,593
0
0
13,632
All Benefits
Active
8,071
5,653
1,729
112
15,565
Retirees
2,683
2,710
1,315
65
6,773
Total AAL
10,754
8,363
3,044
177
22,338
AAL Per Participant
Active
12
46
7
9
15
Retirees
29
54
18
22
31
Normal Cost
City Contribution
87
46
105
3
241
Implicit Subsidy
288
257
0
0
545
Total Normal Cost
375
303
105
3
786
NC Per Active Participant
$ 0.6
$ 2.4
$ 0.4
$ 0.2
$ 0.8
City of Huntington Beach
AIM Postretirement Health Benefits
4 0913012007Actuarial Valuation Report
III Annual Required Contributions
The ARC amounts shown on this page are determined by amortizing future costs as a level
percent of payroll. The level percent of payroll method will reduce current costs but increase
future costs as City payroll increases over time.
The ARC amounts shown assume payments are made on average in the middle of the year. The
assets are allocated proportionately to the liability for illustration purposes.
The Entry Age Normal method is used by the City and is the same method used to develop the
City's CalPERS pension costs.
Under this method, the ARC
is equal to
the Normal Cost plus the
amortization of the unfunded AAL
over the selected period.
(in thousands)
Mise Fire
Police
Life Total
AAL
$10,754 $8,363
$3,044
$177 $22,338
Assets (allocated by AAL)
3,560 2,768
1,008
59 7,395
Unfunded AAL
$7,194 $5,595
$2,036
$118 $14,943
Normal Cost
389 315
109
3 816
Percent of Payroll
1.0% 2.7%
0.5%
0.3% 1.1%
Normal Cost
$389
$315
$109
$3
$816
Amortization of Unfunded AAL
418
325
118
7
868
30 year amortization
$807
$640
$227
$10
$1,684
Percent of Payroll
2.0%
5.6%
1.0%
0.9%
2.2%
Note: 30 years is the longest period that GASB allows for amortizing unfunded liabilities.
City of Huntington Beach
Am Postretirement Health Benefits
5 09/30/2007Actuarial Valuation Report
The following table shows the estimated projected net City benefit payments based on the
current plan provisions, current plan participants, and the valuation assumptions used in this
report. The payments would be equivalent to funding the liabilities on a pay-as-you-go basis.
Year Ending
September 30
Projected Distributions
city
Contribution
Implicit
Subsidy Total
2008
$ 827,000
$ 768,000
$1,595,000
2009
879,000
844,000
1,723,000
2010
920,000
890,000
1,810,000
2011
946,000
1,023,000
1,969,000
2012
968,000
1,128,000
2,096,000
2013
973,000
1,206,000
2,179,000
2014
936,000
1,270,000
2,206,000
2015
930,000
1,377,000
2,307,000
2016
934,000
1,490,000
2,424,000
2017
924,000
1,658,000
2,582,000
2018
966,000
1,835,000
2,801,000
2019
957,000
1,901,000
2,858,000
2020
975,000
2,059,000
3,034,000
2021
971,000
2,197,000
3,168,000
2022
966,000
2,326,000
3,292,000
2023
950,000
2,363,000
3,313,000
2024
956,000
2,406,000
3,362,000
2025
953,000
2,526,000
3,479,000
2026
921,000
2,446,000
3,367,000
2027
877,000
2,364,000
3,241,000
2028
850,000
2,244,000
3,094,000
2029
794,000
2,076,000
2,870,000
2030
759,000
2,081,000
2,840,000
2031
703,000
2,031,000
2,734,000
2032
644,000
1,889,000
2,533,000
2033
622,000
1,909,000
2,531,000
2034
578,000
1,855,000
2,433,000
2035
531,000
1,744,000
2,275,000
2036
474,000
1,599,000
2,073,000
2037
431,000
1,467,000
1,898,000
City of Huntington Beach
Am Postretirement Health Benefits
6 0913012007Actuarial Valuation Report
115-f-11 IT:
GASB 45 requires certain items to be disclosed in the footnotes to the City's financial
statements, including the following:
® Plan description
o Name of plan and identification of the entity that administers plan
o Brief description of the types of benefits
® Funding policy
o Required contribution rates of plan members
o Required contribution rates of employer
In addition, the tables below show required supplementary information to be shown with three
years of historical information in the City's financial statements.
Sample information is shown as if the City adopted GASB 45 for the current fiscal year and
elected to use the entry age normal cost method with unfunded liabilities amortized over 30
years.
Development of Net OPEB Obligation (NOO) and Annual OPEB Cost (000s omitted)
Adjustment to
Annual NOO
Interest on
the Annual
Annual
Fiscal Required Actual End
Net OPEB
Required
OPEB
Interest Salary
Amortization
Year Contributions Contribution of Year
Obligation
Contribution
Cost
Rate Scale
Factor
07/08 $ 1,684 N/A N/A
$ 0
$ 0
$1,684
7.75% 3.25%
17.2
Schedule of Funding Progress (000s omitted)
Unfunded
UAAL as a
Actuarial Actuarial
Actuarial
Percent of
Type of Actuarial Value of Accrued
Accrued
Funded
Covered
Covered Interest
Salary
Valuation Valuation Date Assets Liability
Liability
Ratio
Payroll
Payroll Rate
Scale
Actual 09/30/2007 $ $7,395 $ 22,338
$ 14,943
33.1%
$76,297
19.6% 7.75%
3.25%
Schedule of Employer Contributions (000s omitted)
Fiscal Year Annual
Actual
Percentage
Net OPEB
Ending: OPEB Costs
Contribution
Contribution
Obligation
9/30/2008 $ 1,684
N/A
N/A
N/A
�y City of Huntington Beach
A® Postretirement Health Benefits
7 0913012007Actuarial Valuation Report
VI Participant Information
These exhibit summaries contain participant demographic information.
Active Employee Age/Service Distribution
Years of Service
Age
0-4
5-9
10-14
15-19
20-24
25-29
30-34
>35
Total
<25
19
0
0
0
0
0
0
0
19
25-29
53
14
0
0
0
0
0
0
67
30-34
56
41
5
0
0
0
0
0
102
35-39
45
71
20
13
1
0
0
0
150
40-44
37
38
34
45
13
0
0
0
167
45-49
32
29
22
45
49
20
0
0
197
50-54
16
28
12
28
29
28
20
0
161
55-59
10
13
6
15
13
21
22
12
112
60-64
4
10
4
11
5
9
8
5
56
>65
2
2
0
4
3
2
0
0
13
Total
274
246
103
161
113
80
50
17
1,044
Participant Statistics
Retirees
Number of retirees
Number of retiree spouses
Average age of retirees
Actives
Number of actives
Number of active spouses
Average age of actives
Average past service
Estimated payroll (in millions),
FYE 9/30/08
Misc
Fire
Police
Life Total
93
50
73
3 219
29
40
61
3 133
59.90
60.57
58.52
56.50 59.69
646
124
261
13
1,044
425
99
197
13
734
47.69
41.42
40.24
41.46
45.01
13.28
13.49
11.59
15.05
12.91
$40.34
$11.46
$23.34
$1.16
$76.30
City of Huntington Beach
Postretirement Health Benefits
8 0913012007Actuarial Valuation Report
A Participant Information (cont.)
Participation By Medical Plan
The table below summarizes the number of current participants in each medical plan:
Retirees
Misc
Fire
Police Life
Total
BlueShield HMO
30
11
13
54
BlueShield High
12
12
BlueShield Low
38
38
BlueShield Safety
31
31
Kaiser
5
1
1
7
Waived
1
1
2
PERS Care
1
1
PERS CHOICE
4
4
PORAC
5
50 3
58
Implicit Subsidy Only
7
1
4
12
Grand Total
93
50
73 3
219
Actives
Plan
Misc
Fire
Police
Life
Total
Kaiser HMO
63
3
66
BlueShield HMO
273
14
287
BlueShield PPO
1
98
99
B1ueSield Lo Opt 80/20
142
1
143
BlueShield Hi Opt 90/10
100
100
Ca1PERS 80/20
5
5
Ca1PERS HMO
47
1
48
CalPERS Kaiser
5
5
PORAC
6
179
12
197
Waived
67
2
25
94
Grand Total
646
124
261
13
1,044
City of Huntington Beach
Aw Postretirement Health Benefits
9 09/30/2007Actuarial Valuation Report
VII Summary of Principal Playa Provisions
The following plan provisions are the basis for the calculations in this actuarial valuation.
1. Benefit Eligibility
All employees that are guaranteed a retirement benefit allowance by Ca1PERS, provided
they have a minimum of ten (10) years of continuous service with the City (or are granted
an industrial disability retirement) and are employed by the City at the time of their
retirement.
2. Benefits / Plans Covered
The City generally provides retirees access to the same medical coverage as active
participants. Prior to age 65, the retiree premiums are the same as active premiums and
are developed by blending active and retiree costs. The actuarial assumptions exhibit
provides details of the premiums and contributions. After age 65, retiree premiums are
based exclusively on retiree costs.
Retirees shall receive a maximum of the following monthly amounts for payment of
medical premiums. Disabled retirees with less than ten (10) years of service shall receive
the subsidy assuming they have ten (10) years of service.
Years of Retirements on or After
Service October 1, 1992
10
$ 121.00
11
136.00
12
151.00
13
166.00
14
181.00
15
196.00
16
211.00
17
226.00
18
241.00
19
256.00
20
271.00
21
286.00
22
300.00
23
315.00
24
330.00
25 or more
344.00
Payment of benefit shall continue until the retiree is eligible for Medicare coverage.
Once a retiree is eligible for Medicare, coverage for dependents will continue until the
earlier of age 65 or the expiration of 36 months of COBRA continuation coverage.
City of Huntington Beach
Postretirement Health Benefits
10 0913012007Actuarial Valuation Report
VII Summary of Principal Plan Provisions (cont.)
Employees who retire from the City after January 1, 2004 and are granted a retirement
allowance by the California Public Employees' Retirement System and are not eligible
for the City's Retiree Subsidy Medical Plan may choose to participate in City -sponsored
medical insurance plans until the first of the month in which they turn age sixty-five (65).
The retiree shall pay the full premium for City -sponsored medical insurance for
themselves and/or qualified dependents without any City subsidy.
3. Dependent coverage
Eligible spouses may elect coverage under the medical plans if they pay the required
contribution.
Once a retiree is eligible for Medicare, coverage for dependents will continue until the
earlier of age 65 or the expiration of 36 months of COBRA continuation coverage.
4. Retiree contributions
Retirees pay the portion of premiums not paid by the City.
City of Huntington Beach
Postretirement Health Benefits
11 0913012007Actuarial Valuation Report
1.
2.
3.
4.
VIII Actuarial Assumptions
Actuarial Cost Method
The costs shown in the report were developed using the Entry Age Normal (EAN) cost
method, which spreads plan costs for each participant from entry date (assuming the plan
existed on the employee's hire date) to the expected retirement date. Under the EAN cost
method, the plan's normal cost is developed as a level percentage of payroll spread over
the participants' working lifetime. The AAL is the cumulative value, on the valuation
date, of prior normal costs. For retirees, the AAL is the present value of all projected
benefits.
The ARC under this method equals the normal cost plus the amortization of the unfunded
AAL based on the following:
■ Specified amortization period (i.e., 30 years)
® Level percentage of future payroll amounts
The Plan costs are derived by making certain specific assumptions as to the rates of
interest, mortality, turnover, and the like, which are assumed to hold for many years into
the future. Actual experience may differ somewhat from the assumptions and the effect
of such differences is spread over all periods. Due to these differences, the costs
determined by the valuation must be regarded as estimates of the true Plan costs.
Discount Rate
7.75% - This is based on the assumption the City intends to fully pre -fund its ARC
through the Ca1PERS California Employers' Retiree Benefit Trust (CERBT) Fund.
Payroll Increases
3.25% - This is the annual rate at which total payroll is expected to increase and is used
in the cost method used to calculate the ARC as a level percent of payroll.
Mortality
Mortality rates developed in the Ca1PERS 1997-2002 Experience Study were used in the
valuation. Sample rates are as follows:
Pre -Retirement
Post -Retirement
Miscellaneous
Fire & Police
All Groups
Age
Male
Female
Male
Female
Male
Female
50
0.00156
0.00102
0.00179
0.00125
0.00245
0.00136
55
0.00221
0.00151
0.00248
0.00178
0.00429
0.00253
60
0.00314
0.00226
0.00344
0.00256
0.00721
0.00442
65
0.00447
0.00336
0.00480
0.00369
0.01302
0.00795
70
0.00634
0.00500
0.00671
0.00537
0.02135
0.01276
75
0.00900
0.00745
0.00940
0.00785
0.03716
0.02156
80
0.01277
0.01108
0.01320
0.01151
0.06256
0.03883
City of Huntington Beach
Postretirement Health Benefits
12 09/30/2007Actuarial Valuation Report
VIII Actuarial Assumptions (cont.)
5. 'Turnover
Turnover rates developed in the Ca1PERS 1997-2002 Experience Study were used in the
valuation. The following sample rates are based on age and service:
Public Agency - Police
Years of Service
Attained Age
0
5
10
15
20
25
30
35
30
0.1299
0.0297
0.0213
0.0129
35
0.1299
0.0297
0.0213
0.0129
0.0097
40
0.1299
0.0297
0.0213
0.0129
0.0097
0.0082
45
0.1299
0.0297
0.0213
0.0129
0.0097
0.0082
0.0076
50
0.1299
0.0110
0.0068
0.0035
0.0022
0.0015
0.0012
0.0012
55
0.1299
0.0110
0.0068
0.0035
0.0022
0.0015
0.0012
0.0012
Public Agency - Fire
Years of Service
Attained Age
0
5
10
15
20
25
30
35
30
0.0947
0.0257
0.0090
0.0079
35
0.0947
0.0257
0.0090
0.0079
0.0069
40
0.0947
0.0257
0.0090
0.0079
0.0069
0.0057
45
0.0947
0.0257
0.0090
0.0079
0.0069
0.0057
0.0054
50
0.0947
0.0095
0.0029
0.0021
0.0016
0.0010
0.0009
0.0009
55
0.0947
0.0095
0.0029
0.0021
0.0016
0.0010
0.0009
0.0009
Public Agency - Miscellaneous & Life
Years of Service
Attained Age
0
5
10
15
20
25
30 35
30
0.1622
0.0696
0.0574
0.0515
35
0.1553
0.0627
0.0504
0.0446
0.0387
40
0.1483
0.0557
0.0435
0.0376
0.0318
0.0259
45
0.1414
0.0488
0.0366
0.0307
0.0249
0.0190
0.0131
50
0.1345
0.0155
0.0095
0.0064
0.0041
0.0022
0.0010 0.0002
55
0.1275
0.0129
0.0073
0.0046
0.0025
0.0009
0.0002 0.0002
A�o®m City of Huntington Beach
ON Postretirement Health Benefits
13 09/30/2007Actuarial Valuation Report
VIII Actuarial Assumptions (cont.)
6. retirement Age
Retirement rates developed in the 1997-2002 CalPERS Experience Study were used in
the valuation. Sample rates are as follows:
Miscellaneous 2% @ 55
Years of Service
Attained
Age
5
10
15
20
25
30
50
0.0145
0.0184
0.0224
0.0269
0.0307
0.0366
51
0.0106
0.0135
0.0164
0.0198
0.0226
0.0269
52
0.0114
0.0145
0.0176
0.0212
0.0241
0.0287
53
0.0150
0.0190
0.0231
0.0278
0.0318
0.0378
54
0.0199
0.0252
0.0307
0.0369
0.0421
0.0502
55
0.0475
0.0604
0.0734
0.0883
0.1008
0.1200
56
0.0395
0.0502
0.0611
0.0735
0.0838
0.0998
57
0.0427
0.0542
0.0659
0.0793
0.0905
0.1078
58
0.0473
0.0601
0.0730
0.0879
0.1003
0.1194
59
0.0510
0.0648
0.0788
0.0948
0.1082
0.1287
60
0.0715
0.0908
0.1104
0.1328
0.1516
0.1804
Fire 3% @ 50
Years of Service
Attained
Age
5
10
15
20
25
30
50
0.0341
0.0341
0.0341
0.0477
0.0679
0.0804
51
0.0463
0.0463
0.0463
0.0647
0.0922
0.1091
52
0.0693
0.0693
0.0693
0.0967
0.1377
0.1630
53
0.0835
0.0835
0.0835
0.1166
0.1661
0.1965
54
0.1025
0.1025
0.1025
0.1431
0.2038
0.2412
55
0.1265
0.1265
0.1265
0.1766
0.2516
0.2977
56
0.1210
0.1210
0.1210
0.1690
0.2407
0.2848
57
0.1010
0.1010
0.1010
0.1411
0.2010
0.2378
58
0.1184
0.1184
0.1184
0.1652
0.2354
0.2786
59
0.1002
0.1002
0.1002
0.1399
0.1993
0.2358
60
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
City of Huntington Beach
Postretirement Health Benefits
14 0913012007Actuarial Valuation Report
Vill Actuarial Assumptions (cont.)
Police 3% @ 50
Years of Service
Attained
Age
5
10
15
20
25
30
50
0.0435
0.0435
0.0435
0.0821
0.1208
0.1559
51
0.0385
0.0385
0.0385
0.0728
0.1071
0.1382
52
0.0614
0.0614
0.0614
0.1159
0.1705
0.2200
53
0.0689
0.0689
0.0689
0.1303
0.1916
0.2472
54
0.0710
0.0710
0.0710
0.1342
0.1974
0.2547
55
0.0898
0.0898
0.0898
0.1698
0.2497
0.3222
56
0.0687
0.0687
0.0687
0.1299
0.1910
0.2465
57
0.0803
0.0803
0.0803
0.1518
0.2232
0.2880
58
0.0791
0.0791
0.0791
0.1495
0.2198
0.2837
59
0.0820
0.0820
0.0820
0.1549
0.2279
0.2940
60
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
Life 3%@50
Years of
Service
Attained
Age
5
10
15
20
25
30
50
0.0435
0.0435
0.0435
0.0821
0.1208
0.1559
51
0.0385
0.0385
0.0385
0.0728
0.1071
0.1382
52
0.0614
0.0614
0.0614
0.1159
0.1705
0.2200
53
0.0689
0.0689
0.0689
0.1303
0.1916
0.2472
54
0.0710
0.0710
0.0710
0.1342
0.1974
0.2547
55
0.0898
0.0898
0.0898
0.1698
0.2497
0.3222
56
0.0687
0.0687
0.0687
0.1299
0.1910
0.2465
57
0.0803
0.0803
0.0803
0.1518
0.2232
0.2880
58
0.0791
0.0791
0.0791
0.1495
0.2198
0.2837
59
0.0820
0.0820
0.0820
0.1549
0.2279
0.2940
60
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
City of Huntington Beach
Postretirement Health Benefits
15 09/30/2007Actuarial Valuation Report
Vill Actuarial Assumptions (cont.)
7. Disability
Disability rates developed in the 1997-2002 CalPERS Experience Study were used in the
valuation. Sample rates are as follows:
Age
Fire
Police
30
0.0022
0.0058
40
0.0042
0.0116
50
0.0067
0.0175
60
0.0616
0.0601
8. Annual Medical Inflation ("Trend")
The medical trend rate represents the long-term expected growth of medical benefits paid
by the plan, due to non -age -related factors such as general medical inflation, utilization,
new technology, and the like. The following table sets forth the trend assumptions used
for the valuation:
Year Annual Rate
1 11.0%
2 10.0%
3 9.0%
4 8.0%
5 7.0%
6 6.0%
7+ 5.0%
9. Monthly Medical Costs & Plan Election Percentage
The following 2007 active and retiree costs were used to develop the claims costs used in
the September 30, 2007 valuation
Assumed Election %
Plan Single Coverage
at Retirement
Miscellaneous
Blue Shield -HMO $352
40%
Blue Shield -Low 463
40%
Blue Shield -High 645
20%
Fire
Blue Shield -HMO 352
25%
Blue Shield -Safety 432
75%
Police & Life
Blue Shield HMO 407
20%
PORAC 439
80%
Underlying this estimate is the assumption that future retirees elect coverage, by plan, in
the same proportion as current retirees.
AA
AON
City of Huntington Beach
Postretirement Health Benefits
16
0913012007Actuarial Valuation Report
Vill Actuarial Assumptions (cont.)
10. Base Year Claims
The expected monthly claims for retirees not yet eligible for Medicare were developed
from the costs shown above. The following are claims at sample ages:
Miscellaneous
Age
BS-HMO
BS-Low
Male
Female
Male
Female
<30
$144.12
$259.41
$189.49
$341.08
30-34
187.35
288.24
246.34
378.98
35-39
245.00
317.06
322.14
416.88
40-44
288.24
345.89
378.98
454.78
45-49
345.89
432.36
454.78
568.47
50-54
432.36
461.18
568.47
606.37
55-59
518.83
504.42
682.17
663.22
60-64
648.54
547.65
852.71
720.07
Fire
Age
BS-HMO
BS-Safety
Male
Female
Male
Female
<30
$202.43
$364.37
$248.51
$447.32
30-34
263.16
404.86
323.07
497.03
35-39
344.13
445.34
422.47
546.73
40-44
404.86
485.83
497.03
596.43
45-49
485.83
607.29
596.43
745.54
50-54
607.29
647.77
745.54
795.24
55-59
728.74
708.50
894.65
869.79
60-64
910.93
769.23
1118.31
944.35
Ca1PERS Health Plans (Fire, Police, & Life)
BS-High
Male Female
$263.85 $474.93
343.01 527.70
448.55 580.47
527.70 633.24
633.24 791.56
791.56 844.33
949.87 923.48
1187.33 1002.64
The Ca1PERS health benefit costs are not assumed to vary by age as costs are considered
to be "community rated". Therefore, the costs at each age are equal to the premiums
charged for each plan (e.g. Blue Shield HMO - $456, PORAC - $492).
Estimated 2007-2008 claims assume medical costs increase 12% from the January 1,
2007 levels.
City of Huntington Beach
Am Postretirement Health Benefits
17 09/30/2007Actuarial Valuation Report
VIII Actuarial Assumptions (cont.)
11. Monthly Retiree Contributions
The assumed monthly retiree contributions were based on premiums paid by current
retirees not yet eligible for Medicare less any City contributions on behalf of the retiree.
12. Participants Valued
Only current active and retired participants are valued. No future entrants are considered
in this valuation.
13. Plan Participation
85% of future eligible retirees are assumed to elect coverage.
14. Spouse Assumption
Current marital status is used. Males are assumed to be three years older than their
female spouses.
City of Huntington Beach
Postretirement Health Benefits
18 0913012007Actuarial Valuation Report
IX Glossary
Actuarial Accrued Liability (AAL)
As determined by a particular Actuarial Cost Method, the portion of the Actuarial Present Value
of plan benefits and expenses which is attributable to past service, and thus not provided for by
future Normal Costs.
Actuarial Assumptions
Assumptions as to the occurrence of future events affecting benefit costs, such as: mortality,
withdrawal, disablement and retirement; changes in compensation and employer provided
benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to
determine the Actuarial Value of Assets; and other relevant items. The Actuarial Assumptions
are used in connection with the Actuarial Cost Method to allocate plan costs over the working
lifetime of plan participants.
Actuarial Cost Method
A procedure for determining the Actuarial Present Value of plan benefits and expenses and for
developing an actuarially equivalent allocation of such value to time periods (e.g., past service,
future service), usually in the form of a Normal Cost and an Actuarial Accrued Liability.
Actuarial Experience Gain or Loss
A measure of the difference between actual experience and that expected based upon a set of
Actuarial Assumptions, during the period between two Actuarial Valuation Dates, as determined
in accordance with a particular Actuarial Cost Method.
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 amounts 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.
City of Huntington Beach
Am Postretirement Health Benefits
19 09/30/2007Actuarial Valuation Report
IX Glossary (cont.)
Actuarial Present Value of Total Projected Benefits or Present Value of Benefits
(PVB)
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 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 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.
Actuarial Valuation
The determination, as of a Valuation Date, of the Normal Cost, Actuarial Accrued Liability,
Actuarial Value of Assets, and related Actuarial Present Values for a benefit plan.
Actuarial Valuation Date
The date as of which an actuarial valuation is performed.
Actuarial Value of Assets
The value of cash, investments, and other property belonging to a benefit plan, as used by the
actuary for the purpose of an Actuarial Valuation.
Agent Multiple -Employer Plan
An aggregation of single -employer plans, with pooled administrative and investment functions.
Separate accounts are maintained for each employer so that the employer's contributions provide
benefits only for the employees of that employer. A separate actuarial valuation is performed for
each individual employer's plan to determine the employer's periodic contribution rate and other
information for the individual plan, based on the benefit formula selected by the employer and
the individual plan's proportionate share of the pooled assets. The results of the individual
valuations are aggregated at the administrative level.
Aggregate Actuarial Cost Method
A method under which the excess of the Actuarial Present Value of Projected Benefits of the
group included in an Actuarial Valuation over the Actuarial Value of Assets is allocated on a
level basis over the earnings or service of the group between the valuation date and assumed
exit. This allocation is performed for the group as a whole, not as a sum of individual
allocations. That portion of the Actuarial Present Value allocated to a valuation year is called
the Normal Cost. The Actuarial Accrued Liability is equal to the Actuarial Value of Assets.
City of Huntington Beach
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20 0913012007Actuarial Valuation Report
IX Glossary (cont.)
Amortization (of Unfunded Actuarial Accrued Liability)
The portion of benefit plan costs or contributions which is designed to pay off principal and
interest on the Unfunded Actuarial Accrued Liability.
Annual OPEB Cost (AOC)
An accrual -basis measure of the periodic cost of an employer's participation in a defined benefit
OPEB plan.
Annual Required Contributions of the Employer (ARC)
The employer's periodic required contributions to a Defined Benefit OPEB Plan, which is the
basis for determining an employer's Annual OPEB Cost. For a Cost Sharing Multiple -Employer
Plan, the Contractually Required Contributions should be used to determine an employer's
Annual OPEB Cost.
Contractually Required Contributions (CRC)
The contributions assessed by a Cost Sharing Multiple -Employer Plan to the participating
employer for a period, without regard for the method used to determine the amounts.
Cost Sharing Multiple -Employer Plan
A single plan with pooling (cost -sharing) arrangements for the participating employers. All
risks, rewards, and costs, including benefit costs, are shared and are not attributed individually to
the employers. A single actuarial valuation covers all plan members, and the same contribution
rate(s) applies for each employer.
Covered Group
Plan members included in an actuarial valuation.
Deferred Inactives
Former employees, not yet receiving retirement benefits, who are eligible for plan benefits in the
future.
Defined Benefit OPEB Plan
An OPEB plan having terms that specify the benefits to be provided at or after separation from
employment. The benefits may be specified in dollars (for example, a flat dollar payment or an
amount based on one or more factors such as age, years of service, and compensation), or as a
type or level of coverage (for example, prescription drugs or a percentage of healthcare
insurance premiums).
City of Huntington Beach
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IX Glossary (cont.)
Discount Rate (Investment Return Assumption)
The rate used to adjust a series of future payments to determine the present value by reflecting
the time value of money.
Employer Contributions
Contributions made in relation to the annual required contributions of the employer (ARC). An
employer has made a contribution in relation to the ARC if the employer has (a) made payments
of benefits directly to or on behalf of a retiree or beneficiary, (b) made premium payments to an
insurer, or (c) irrevocably transferred assets to a trust, or equivalent arrangement, in which plan
assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with
the terms of the plan and are legally protected from creditors of the employer(s) of plan
administrator. Employer contributions generally do not necessarily equate to benefits paid.
Entry Age Formal Actuarial Cost Method
A method under which the Actuarial Present Value of the Projected Benefits of each individual
included in an Actuarial Valuation is allocated on a level basis over the earnings or service of the
individual between entry age and assumed exit age(s). The portion of this Actuarial Present
Value allocated to a valuation year is called the Normal Cost. The portion of this Actuarial
Present Value not provided for at a valuation date by the Actuarial Present Value of future
Normal Costs is called the Actuarial Accrued Liability.
Funded Ratio
The actuarial value of assets expressed as a percentage of the Actuarial Accrued Liability.
Funding Excess
The excess of the Actuarial Value of Assets over the Actuarial Accrued Liability.
Funding Policy
The program for the amounts and timing of contributions to be made by plan members,
employer(s), and other contributing entities to provide the benefits specified by an OPEB plan.
Healthcare Cost Trend Rate
The rate of change in 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.
City of Huntington Beach
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22 0913012007Actuarial Valuation Report
IX Glossary (cont.)
Implicit Rate Subsidy
The differential between utilizing a blend of active and non -Medicare retiree experience for cost
of benefits, and utilizing solely the expected retiree experience. Blending a lower cost active
cohort with retirees results in an implicit rate subsidy for the retirees of the entire group.
Inactives
Certain former employees with a minimum amount of years of creditable service who have
benefits payable from the retirement system.
Level Percentage of Projected Payroll Amortization Method
Amortization payments are calculated so that they are a constant percentage of the projected
payroll of active plan members over a given number of years. The dollar amount of the
payments generally will increase over time as payroll increases (e.g., due to inflation); in dollars
adjusted for inflation, the payments can be expected to remain level.
Market -Related Value of Plan Assets
A term used with reference to the actuarial value of assets. A market related value may be fair
value, market value (or estimated market value), or a calculated value that recognizes changes in
fair or market value over a period of, for example, three to five years.
Net OPEB Obligation (NOO)
The cumulative difference since the effective date of this Statement between Annual OPEB Cost
and the employer's contributions to the plan, including the OPEB liability (asset) at transition, if
any, and excluding (a) short-term differences and (b) unpaid contributions that have been
converted to OPEB-related debt.
Normal Cost
The portion of the Actuarial Present Value of plan benefits and expenses that is allocated to a
valuation year by the Actuarial Cost Method.
OPEB Assets
The amount recognized by an employer for contributions to an OPEB plan greater than OPEB
expense.
OPEB Expenditures
The amount recognized by an employer in each accounting period for contributions to an OPEB
plan on the modified accrual basis of accounting.
City of Huntington Beach
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23 0913012007Actuarial Valuation Report
IX Glossary (cont.)
OPEB Expense
The amount recognized by an employer in each accounting period for contributions to an OPEB
plan on the accrual basis of accounting.
OPEB Liabilities
The amount recognized by an employer for contributions to an OPEB plan less than OPEB
expense/expenditures.
Other Postemployment Benefits (OPEB)
Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB)
include postemployment healthcare benefits, regardless of the type of plan that provides them,
and all postemployment benefits provided separately from a pension plan, excluding benefits
defined as termination offers and benefits.
Pay -As -You -Go
A method of financing a 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.
Plan Assets
Resources, usually in the form of stocks, bonds, and other classes of investments, that have been
segregated and restricted in a trust, or equivalent arrangement, in which (a) employer
contributions to the plan are irrevocable, (b) assets are dedicated to providing benefits to retirees
and their beneficiaries, (c) assets are legally protected from creditors of the employers or plan
administrator, for the payment of benefits in accordance with the terms of the plan.
Plan Members
The individuals covered by the terms of an OPEB plan. The plan membership generally includes
employees in active service, terminated employees who have accumulated benefits but are not
yet receiving them, and retired employees and beneficiaries currently receiving benefits.
Postemployment
The period between termination of employment and retirement as well as the period after
retirement.
Postemployment Healthcare Benefits
Medical, dental, vision, and other health -related benefits provided to terminated or retired
employees and their dependents and beneficiaries.
Am City of Huntington Beach
Postretirement Health Benefits
24 09/30/2007Actuarial Valuation Report
C 4 .
IX Glossary (cunt.)
Postretirement Benefit Increase
An increase in the benefits of retirees or beneficiaries granted to compensate for the effects of
inflation (cost -of -living adjustment) or for other reasons. Ad hoc increases may be granted
periodically by a decision of the board of trustees, legislature, or other authoritative body; both
the decision to grant an increase and the amount of the increase are discretionary. Automatic
increases are periodic increases specified in the terms of the plan; they are nondiscretionary
except to the extent that the plan terms can be changed.
Projected Benefits
Those plan benefit amounts which are expected to be paid at various future times under a
particular set of Actuarial Assumptions, taking into account such items as the effect of
advancement in age and past and anticipated future compensation and service credits. That
portion of an individual's Projected Benefit allocated to service to date, determined in
accordance with the terms of a plan and based on future compensation as projected to retirement,
is called the Credited Projected Benefit.
Projected Unit Credit Actuarial Cost Method
A method under which the benefits (projected or unprojected) of each individual included in an
Actuarial Valuation are allocated by a consistent formula to valuation years. The Actuarial
Present Value of benefits allocated to a valuation year is called the Normal Cost. The Actuarial
Present Value of benefits allocated to all periods prior to a valuation year is called the Actuarial
Accrued Liability.
Under this method, the Actuarial Gains (or Losses), as they occur, generally reduce (or increase)
the Unfunded Actuarial Accrued Liability.
Under this method, benefits are projected to all future points in time under the terms of the Plan
and actuarial assumptions (for example, health trends). Retirees are considered to be fully
attributed in their benefits. For actives, attribution is to expected retirement age; thus, benefits at
each future point in time are allocated to past service based on a proration of service -to -date over
total projected service.
Required Supplementary Information (RSI)
Schedules, statistical data, and other information that are an essential part of financial reporting
and should be presented with, but are not part of, the basic financial statements of a
governmental entity.
Single -Employer Plan
A plan that covers the current and former employees, including beneficiaries, of only one
employer.
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25 09/30/2007Actuarial Valuation Report
IX Glossary (cont.)
Sponsor
The entity that established the plan. The sponsor generally is the employer or one of the
employers that participate in the plan to provide benefits for their employees and employees of
other employers.
Substantive Plan
The terms of an OPEB plan as understood by the employer(s) and plan members.
Transition Year
The fiscal year in which this Statement is first implemented.
Unfunded Actuarial Accrued Liability (Unfunded Actuarial Liability)
The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets.
City of Huntington Beach
Postretirement Health Benefits
26 0913012007Actuarial Valuation Report
ATTACHMENT
CERTIFICATION OF OPEB FUNDING POLICY
As the employer, I certify that our funding policy is to contribute consistently an
amount at least equal to 100 % of the ARC.
City of' -Huntington Beach
Name of Employer
Dan T. Villella, Finance Director
Printed Name and Title of Person Signing the Form
ignature Date
INITIATING DEPARTMENT:
City Treasurer
SUBJECT:
Trust Agreement with California Public Employee
Retirement System
COUNCIL MEETING DATE:
February 19, 2008
RCA ATTACHMENTS
STATUS
Ordinance (w/exhibits & legislative draft if applicable)
Attached
❑
Not Applicable
Resolution (w/exhibits & legislative draft if applicable)
Attached
❑
Not Applicable
Tract Map, Location Map and/or other Exhibits
Attached
❑
Not Applicable
Contract/Agreement (w/exhibits if applicable)
Attached
❑
(Signed in full by the City Attorney)
Not Applicable
Subleases, Third Party Agreements, etc.
Attached
❑
(Approved as to form by City Attorney)
Not Applicable
Certificates of Insurance (Approved by the City Attorney)
Attached
❑
Not Applicable
Fiscal Impact Statement (Unbudgeted, over $5,000)
Attached
❑
Not Applicable
Bonds (If applicable)
Attached
❑
Not Applicable
Staff Report (If applicable)
Attached
Not Applicable
El
Commission, Commission, Board or Committee Report (If applicable)
Attached
❑
Not Applicable
Findings/Conditions for Approval and/or Denial
Attached
❑
Not Applicable
EXPLANATION FOR Rl SUG AVACC;IV�Iiv EDITS
J'!
REVIEWED
RETURNED
FORWARDED
Administrative Staff
Deputy City Administrator (Initial)
( )
( )
City Administrator (Initial)
( )
City Clerk
( )
EXPLANATION FOR RETURN OF ITEM:
(Below, o. 0 0
RCA Author: SLF
City ®f Huntington Beach
2000 Main Street • Huntington Beach, CA 92648
OFFICE OF THE CITY CLERK
JOAN L. FLYNN
CITY CLERK
February 22, 2008
CalPERS
Constituent Relations Office
CERBT (OPEB)
P. O. Box 942709
Sacramento, CA 94229-2709
To Whom It May Concern:
Enclosed please find two originals of the California Employer's Retiree Benefit Trust
Program (CERBT) Agreement and Election of the City of Huntington Beach to Prefund
Other Post Employment Benefits Through CalPERS.
Upon execution, please return a complete copy to:
Joan L. Flynn
City Clerk
2000 Main Street
Huntington Beach CA 92648
Your attention to this matter is greatly appreciated.
Sincerely,
,?Q�oj 61;p�_ J+.A)
Joan L. Flynn
City Clerk
JF:pe
Enclosure: Agreements
G:fo11owup:agrmt1tr
Sister Cities: Anjo, Japan • Waitakere, New Zealand
( Telephone: 714-536-52271