City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council receive an overview presentation of the draft
actuarial valuation study of Post-Retirement Health Benefits by AON Consulting and
the Chief Financial Officer.
BACKGROUND:
The Governmental Accounting Standards Board (GASB) is the organization that is
responsible for providing the standards that apply to financial reports of all state and
local governmental entities. In June of 2004, GASB issued Statement No. 45:
Accounting and Financial Reporting by Employers for Postemployment Benefits Other
Than Pensions (GASB 45).
In addition to pensions, many state and local governmental employers provide Other
Post-Employment Benefits (OPEB) as part of the total compensation offered to attract
and retain the services of qualified employees. OPEB includes post-employment
healthcare, as well as other forms of post-employment benefits (for example, life
insurance) when provided separately from a pension plan. GASB 45 established
standards for the measurement, recognition, and display of OPEB
expense/expenditures and related liabilities (assets), note disclosures, and, if
applicable, required supplementary information (RSI) in the financial reports of state
and local governmental employers. Culver City offers post-employment health care
benefits to qualifying retirees. Culver City is required to implement GASB 45 into its
financial statements effective with Fiscal Year 2008-09.
The approach followed in GASB 45 generally is consistent with the approach adopted
in GASB Statement No. 27, Accounting for Pensions by State and Local
Governmental Employers (GASB 27), with modifications to reflect differences between
Meeting Date: 05/05/08 Item Number: J-1
AGENDA ITEM: JOINT ITEM: Presentation of Draft Actuarial Valuation Study of
Post-Retirement Health Benefits
Contact Person/Dept.: Jeff Muir, CFO Phone Number: 310.253.6016
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [x]
Public Notification:
Master Notification List (4/30/08)
Department Approval:
Jeff Muir (04/30/08)
City Attorney Approval:
Carol Schwab (by H. Baker) (04/30/08)
Fiscal Impact Review:
Jeff Muir (04/30/08)
City Manager Approval:
Jerry B. Fulwood (04/30/08) City of Culver City, California
City Council Agenda Item Report
pension benefits and OPEB. Statement No. 43, Financial Reporting for
Postemployment Benefit Plans Other Than Pension Plans (GASB 43), addresses
financial statement and disclosure requirements for reporting by administrators or
trustees of OPEB plan assets or by employers or sponsors that include OPEB plan
assets as trust or agency funds in their financial reports.
The Approach of GASB 45
Post-Employment benefits (OPEB as well as pensions) are part of an exchange of
salaries and benefits for employee services rendered. Of the total benefits offered by
employers to attract and retain qualified employees, some benefits, including salaries
and active-employee healthcare, are taken while the employees are in active service,
whereas other benefits, including post-employment healthcare and other OPEB, are
taken after the employees’ services have ended. Nevertheless, both types of benefits
constitute compensation for employee services.
From an accrual accounting perspective, the cost of OPEB, like the cost of pension
benefits, generally should be associated with the periods in which the exchange
occurs, rather than with the periods (often many years later) when benefits are paid or
provided. However, in current practice, most OPEB plans are financed on a pay-as-
you-go basis, and financial statements generally do not report the financial effects of
OPEB until the promised benefits are paid. As a result, current financial reporting
generally fails to:
• Recognize the cost of benefits in periods when the related services are
received by the employer
• Provide information about the actuarial accrued liabilities for promised
benefits associated with past services and whether and to what extent those
benefits have been funded
• Provide information useful in assessing potential demands on the
employer’s future cash flows.
GASB 45 changes the financial reports issued by governmental entities by (a)
requiring systematic, accrual-basis measurement and recognition of OPEB cost
(expense) over a period that approximates employees’ years of service and (b)
providing information about actuarial accrued liabilities associated with OPEB and
whether and to what extent progress is being made in funding the plan.
Measurement (the Parameters)
Employers that participate in single-employer or agent multiple-employer defined
benefit OPEB plans (sole and agent employers) are required to measure and disclose City of Culver City, California
City Council Agenda Item Report
an amount for annual OPEB cost on the accrual basis of accounting. Annual OPEB
cost is equal to the employer’s annual required contribution to the plan (ARC), with
certain adjustments if the employer has a net OPEB obligation for past under- or over-
contributions.
The ARC is defined as the employer’s required contributions for the year, calculated in
accordance with certain parameters, and includes (a) the normal cost for the year and
(b) a component for amortization of the total unfunded actuarial accrued liabilities (or
funding excess) of the plan over a period not to exceed thirty years. The parameters
include requirements for the frequency and timing of actuarial valuations as well as for
the actuarial methods and assumptions that are acceptable for financial reporting. If
the methods and assumptions used in determining a plan’s funding requirements meet
the parameters, the same methods and assumptions are required for financial
reporting by both a plan and its participating employer(s). However, if a plan’s method
of financing does not meet the parameters (for example, the plan is financed on a pay-
as-you-go basis), the parameters nevertheless apply for financial reporting purposes.
Under GASB 45, for financial reporting purposes, an actuarial valuation is required at
least biennially for OPEB plans with a total membership (including employees in active
service, terminated employees who have accumulated benefits but are not yet
receiving them, and retired employees and beneficiaries currently receiving benefits)
of 200 or more, or at least triennially for plans with a total membership of fewer than
200. Culver City has a total membership exceeding 200, and will therefore be
required to have biennial actuarial valuations.
The projection of benefits included in the actuarial valuation should include all benefits
covered by the current substantive plan (the plan as understood by the employer and
plan members) at the time of each valuation and should take into consideration the
pattern of sharing of benefit costs between the employer and plan members to that
point, as well as certain legal or contractual caps on benefits to be provided. The
parameters require that the selection of actuarial assumptions, including the
healthcare cost trend rate for post-employment healthcare plans, be guided by
applicable actuarial standards.
Net OPEB Obligation—Measurement
An employer’s net OPEB obligation is defined as the cumulative difference between
annual OPEB cost and the employer’s contributions to a plan, including the OPEB
liability or asset at transition, if any. (Because retroactive application of the
measurement requirements of GABS 45 is not required, for most employers, including
Culver City, the OPEB liability at the beginning of the transition year will be zero.) An
employer with a net OPEB obligation is required to measure annual OPEB cost equal
to (a) the ARC, (b) one year’s interest on the net OPEB obligation, and (c) an City of Culver City, California
City Council Agenda Item Report
adjustment to the ARC to offset the effect of actuarial amortization of past under- or
over-contributions.
Financial Statement Recognition and Disclosure
Sole and agent employers should recognize OPEB expense in an amount equal to
annual OPEB cost in government-wide financial statements and in the financial
statements of proprietary funds and fiduciary funds from which OPEB contributions
are made. OPEB expenditures should be recognized on a modified accrual basis in
governmental fund financial statements. Net OPEB obligations, if any, including
amounts associated with under- or over-contributions from governmental funds,
should be displayed as liabilities (or assets) in government-wide financial statements.
Similarly, net OPEB obligations associated with proprietary or fiduciary funds from
which contributions are made should be displayed as liabilities (or assets) in the
financial statements of those funds.
Employers are required to disclose descriptive information about each defined benefit
OPEB plan in which they participate, including the funding policy followed. In addition,
sole and agent employers are required to disclose information about contributions
made in comparison to annual OPEB cost, changes in the net OPEB obligation, the
funded status of each plan as of the most recent actuarial valuation date, and the
nature of the actuarial valuation process and significant methods and assumptions
used. Sole and agent employers also are required to present as RSI a schedule of
funding progress for the most recent valuation and the two preceding valuations,
accompanied by notes regarding factors that significantly affect the identification of
trends in the amounts reported.
Effective Dates and Transition
GASB 45 generally provides for prospective implementation—that is, that employers
set the beginning net OPEB obligation at zero as of the beginning of the initial year.
Implementation is required in three phases based on a government’s total annual
revenues in the first fiscal year ending after June 15, 1999. The definitions and cutoff
points for that purpose are the same as those in GASB 34, Basic Financial
Statements—and Management’s Discussion and Analysis—for State and Local
Governments. GASB 34 is effective for periods beginning after December 15, 2006,
for phase 1 governments (those with total annual revenues of $100 million or more);
after December 15, 2007, for phase 2 governments (those with total annual revenues
of $10 million or more but less than $100 million); and after December 15, 2008, for
phase 3 governments (those with total annual revenues of less than $10 million).
Culver City is considered a phase 2 city and will be required to implement GASB 45
into its financial statements beginning with Fiscal Year 2008-09 and all years
thereafter. City of Culver City, California
City Council Agenda Item Report
DISCUSSION:
On November 14, 2007, the City Council awarded a contract to AON Consulting to
perform an actuarial study associated with the implementation of GASB 45. The
primary purpose of this study was to determine the long-term costs of the City’s
medical insurance for retirees. The draft report (Draft Report) was recently provided
to the City and presented to the Budget & Finance Subcommittee. The report
analyzes the cost to provide the benefits currently offered over the next thirty years,
based on current active and retired employees, and using actuarial assumptions and
trends.
The City currently funds this benefit on a pay-as-you-go basis, and the estimated
amount for Fiscal Year 2007-08 is $3.7 million. The Draft Report shows that this cost
will continuously rise at a fairly significant rate, doubling from the current amount by
2017 and reaching almost $14 million per year at the end of the thirty years. If the City
wanted to pre-fund this benefit today, it would need to invest $105 million with a 7.75%
rate-of-return (similar to what CalPERS assumes for their portfolio), or $208 million if it
earned 4% (the approximate earnings rate for the City’s investment portfolio). If the
City chose to fund the benefit pursuant to GASB 45 over the thirty years, and deposit
funds annually into an irrevocable trust fund, it would require $7.4 million annually in a
trust earning 7.75% (lower earnings would require a higher amount). This means
basically doubling the current amount the City pays. While there is not a legal
requirement to fund this amount, the issue facing the City is that in about ten years
this is the amount the City will need to fund on a pay-as-you-go basis, and it will
continue to rise. Additionally, the City will be required to report the difference between
the Actuarially Required Contribution (ARC) and what it actually funds on its financial
statements.
There are only two achievable methods to control the future costs of retiree medical
coverage: Pre-funding these future costs or limiting liability. There are several ways
the future liabilities can be limited, including: curbing (reducing) benefits, capping
employer contributions, converting to a defined contribution plan or increasing vesting
requirements. For reference, the average present value of the current retiree medical
benefit is nearly $200,000 per employee. The City has formed a Health Benefits
Committee consisting of staff from the Departments of Human Resources and Finance
and from the City Manager’s Office, along with representatives from the City’s
bargaining groups to discuss this issue. The Proposed 2008-09 and 2009-10 Budget
allocates $100,000 towards pre-funding this benefit. Further pre-funding of the
existing benefits will require identifying significant new revenues or expenditure
reductions in other areas.
City of Culver City, California
City Council Agenda Item Report
An actuary from AON Consulting will be providing a summary explanation and
discussion of the draft report.
ATTACHMENTS:
1. Draft Actuarial Valuation Report
MOTION:
That the City Council and Redevelopment Agency:
Receive a presentation from AON Consulting and the Chief Financial Officer.
MEETING DATE: 05/05/08
AGENDA ITEM: Presentation of Draft Actuarial Valuation Study of
Postretirement Health Benefits
ATTACHMENTS
Pages
1. Draft Actuarial Valuation Report 1-33
CITY OF CULVER CITY
POSTRETIREMENT HEALTH BENEFITS
Actuarial Valuation Study
Valuation Date: July 1, 2007
Date of Report: April 15, 2008
Executive Summary
Background
The City of Culver City provides retiree healthcare benefits for employees who retire with
CalPERS pension benefits immediately upon termination of employment from the City. Eligible
retirees must elect coverage through the City’s contract with CalPERS healthcare benefits.
Under the program, the City pays a portion of the premiums for retiree medical coverage.
Participants who retired before January 1, 2007 are eligible for a City contribution up to 100% of
the average of Kaiser and PERSCare premiums. For retirees after January 1, 2007, the City pays
70% of the PERSCare premium and 95% of the premium for all other plans.
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 government entities as early as fiscal years beginning after December 15, 2006.
There are several reasons an agency should review its OPEB obligations sooner rather than later,
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 does not currently prefund contributions in a qualified irrevocable trust or recognize OPEB
liability as benefits are accrued. As this report shows, any required accrual determined on a
GASB basis will be 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 as if the City
adopted GASB 45 for the fiscal year ending June 30, 2008.
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Executive Summary (cont.)
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. This report shows results under
two of the methods permitted – Aggregate and Entry Age Normal. We also show the ARC
calculated using different amortization periods as a level percent of pay.
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, which represents the City’s
intention to fully pre-fund the ARC. In order to understand the sensitivity of results to changing
this assumption, we also show results based on a 4.00% discount rate. The table below
summarizes the liability results based on these two discount rates as of July 1, 2007:
4.00% 7.75%
Present Value of Benefits (PVB) $208,690,000 $105,154,000
Actuarial Accrued Liability (AAL) $158,324,000 $89,558,000
Normal Cost $4,604,000 $1,911,000
Note: The AAL and Normal Cost were calculated by spreading costs over the participants’
working lifetimes as a level percentage of pay. The costs could also be spread as level dollar
amounts.
As an explanation of the meaning of the discount rate, the PVB using a 7.75% discount rate
implies that if the City invested $105,154,000 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 4.0%, $208,690,000 would be required to fully fund the liability.
City of Culver City
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Executive Summary (cont.)
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.
For example, if the City were to pre-fund the obligations by contributing into a trust with a mix
of asset classes, 7.75% might be an appropriate discount rate. However, for an unfunded plan or
in the case where contributions are simply allocated to separate accounts, but still reside in
general assets, it is more appropriate to consider the return on general City assets. The liabilities
shown in the report are based on a 4.0% discount rate.
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 should be performed.
Annual Required Contributions (ARC)
As discussed above, the ARC can be developed using various methodologies. Selecting an
appropriate method and amortization period for funding the liabilities is a balance between the
City’s ability to pay costs immediately and the long-term cost of borrowing.
The following table summarizes the ARC under the methodologies provided in the report based
on both the 4.0% and 7.75% discount rates for the fiscal year ending June 30, 2008:
4.00% 7.75%
Aggregate Method $16,048,000 $10,350,000
% of pay 34.1% 22.0%
Entry Age Normal Method
30 year amortization $10,681,000 $7,466,000
% of pay 22.7% 15.9%
20 year amortization $13,322,000 $8,859,000
% of pay 28.3% 18.8%
10 year amortization $21,260,000 $13,298,000
% of pay 45.2% 28.3%
These annual costs can be compared to the estimated pay-as-you-go funding amount of
$3,732,000.
City of Culver City
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Executive Summary (cont.)
The difference in the cost methods is the period over which past service liabilities are spread.
The aggregate method spreads unfunded past service liabilities over the future working lifetimes
of active participants while the entry age normal method spreads unfunded past service liabilities
over the specified amortization period. It should be noted that the entry age normal method with
costs spread as a level percent of pay is used to determine the ARC for CalPERS retirement
plans.
The results shown are developed by spreading costs as a level percent of payroll ($47.0 million),
as compared to a level dollar amount. Funding as a percent of payroll reduces current costs but
increases future costs as City payroll increases. Funding over a longer period reduces annual
costs but extends the funding period.
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 23-26%.
* * *
The following report shows the details of results by participant status and benefits provided,
based on a 4.00% discount rate.
City of Culver City
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Table of Contents
Exhibits Page
I Actuarial Valuation Certificate.................................................................................... 1
II Plan Liabilities ................................................................................................................ 3
III Annual Required Contributions ................................................................................... 5
IV Projected Benefit Payments........................................................................................ 6
V GASB Reporting and Disclosure Information ........................................................ 7
VI Participant Information................................................................................................... 8
VII Summary of Principal Plan Provisions .................................................................. 13
VIII Actuarial Assumptions................................................................................................. 14
IX Glossary ........................................................................................................................... 20
J:\Clients\CityCulver\RetMed\val2007\Report\Culver City OPEB Report - 2007 Draft #2.doc
City of Culver City
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v 07/01/2007 Actuarial Valuation Report
I Actuarial Valuation Certificate
This report presents the results of the actuarial valuation for the City of Culver City
Postretirement Health Benefits as of July 1, 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. 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 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 Culver City
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1 07/01/2007 Actuarial 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. Au, MAAA
Senior Vice President
Tele: (213) 996-1729
brad_au@aon.com
Aon Consulting
707 Wilshire Boulevard
Suite 2600
Los Angeles, CA 90017
April 15s, 2008
City of Culver City
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II Plan Liabilities
The liabilities shown in this exhibit were calculated using a 4.0% discount rate as of the July 1,
2007 valuation date. They are utilized in the development of the Annual Required Contribution
(ARC) under various alternatives shown in the following exhibit.
While GASB 45 allows the development of the ARC under various funding cost methods, this
report shows the ARC under the Aggregate and Entry Age Normal cost methods, which are
based on the following PVB and AAL liabilities, respectively.
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:
Police Fire Miscellaneous Total
PVB
Pre-65
Actives $13,215,000 $6,397,000 $19,125,000 $38,737,000
Retirees 8,948,000 3,003,000 9,164,000 21,115,000
Subtotal $22,163,000 $9,400,000 $28,289,000 $59,852,000
Post-65
Actives 16,554,000 $10,922,000 $56,028,000 $83,504,000
Retirees 15,456,000 11,190,000 38,688,000 65,334,000
Subtotal $32,010,000 $22,112,000 $94,716,000 $148,838,000
Total
Actives $29,769,000 $17,319,000 $75,153,000 $122,241,000
Retirees 24,404,000 14,193,000 47,852,000 86,449,000
Total PVB $54,173,000 $31,512,000 $123,005,000 $208,690,000
PVB Per Participant
Active $276,000 $275,000 $155,000 $186,000
Retirees $281,000 $200,000 $168,000 $195,000
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II Plan Liabilities (cont.)
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. Spreading costs as a level percent of payroll
results in lower AAL (i.e. past service liability) and higher normal cost (i.e. future service
liability) than if costs are spread as a level amount.
The AAL and Normal Cost developed by spreading costs as a level percent of payroll follows:
Police Fire Miscellaneous Total
AAL
Pre-65
Actives $8,194,000 $4,077,000 $9,958,000 $22,229,000
Retirees 8,948,000 3,003,000 9,164,000 21,115,000
Subtotal $17,142,000 $7,080,000 $19,122,000 $43,334,000
Post-65
Actives $11,105,000 $7,406,000 $31,135,000 $49,646,000
Retirees 15,456,000 11,190,000 38,688,000 65,334,000
Subtotal $26,561,000 $18,596,000 $69,823,000 $114,980,000
Total
Actives $19,299,000 $11,483,000 $41,093,000 $71,875,000
Retirees 24,404,000 14,193,000 47,852,000 86,449,000
Total AAL $43,703,000 $25,676,000 $88,945,000 $158,324,000
AAL Per Participant
Active $179,000 $182,000 $85,000 $109,000
Retirees $281,000 $200,000 $168,000 $195,000
Normal Cost
Pre-65 $410,000 $179,000 $844,000 $1,433,000
Post-65 461,000 278,000 2,432,000 3,171,000
Total Normal Cost $871,000 $457,000 $3,276,000 $4,604,000
Normal Cost per Active $8,100 $7,300 $6,700 $7,000
Expected Benefit Payments $868,000 $610,000 $2,181,000 $3,659,000
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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 at the end of the year. The assets are
allocated proportionately to the actuarial accrued liability for illustration purposes.
Aggregate Cost Method
The Aggregate method is one of the more basic and easy to understand cost methods. Under this
method, the ARC is the amount required to fund the unfunded PVB over the future working
lifetime of active participants.
Police Fire Miscellaneous Total
PVB $54,173,000 $31,512,000 $123,005,000 $208,690,000
Assets
0 0 0 0
Unfunded PVB 54,173,000 31,512,000 123,005,000 208,690,000
ARC $4,166,000 $2,423,000 $9,459,000 $16,048,000
% of Payroll 40.9% 39.1% 30.8% 34.1%
Entry Age Normal Cost Method
The Entry Age Normal method is 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.
Police Fire Miscellaneous Total
Accrued Liability $43,703,000 $25,676,000 $88,945,000 $158,324,000
Assets Allocated by AAL
0 0 0 0
Unfunded Accrued Liability 43,703,000 25,676,000 88,945,000 158,324,000
Normal Cost, plus interest $906,000 $475,000 $3,407,000 $4,788,000
Percent of payroll 8.9% 7.7% 11.1% 10.2%
ARC
- 30 year amortization $2,533,000 $1,431,000 $6,717,000 $10,681,000
Percent of payroll 24.9% 23.1% 21.9% 22.7%
- 20 year amortization $3,262,000 $1,859,000 $8,201,000 $13,322,000
Percent of payroll 32.0% 30.0% 26.7% 28.3%
- 10 year amortization $5,453,000 $3,146,000 $12,661,000 $21,260,000
Percent of payroll 53.6% 50.8% 41.3% 45.2%
Note: 30 years is the longest period that GASB allows for amortizing unfunded liabilities.
City of Culver City
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5 07/01/2007 Actuarial Valuation Report
IV Projected Benefit Payments
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 June 30 Police Fire Miscellaneous Total
2008 $ 886,000 $ 622,000 $ 2,224,000 $ 3,732,000
2009 999,000 696,000 2,474,000 4,169,000
2010 1,117,000 770,000 2,723,000 4,610,000
2011 1,241,000 845,000 2,981,000 5,067,000
2012 1,366,000 926,000 3,241,000 5,533,000
2013 1,493,000 1,000,000 3,508,000 6,001,000
2014 1,594,000 1,058,000 3,737,000 6,389,000
2015 1,671,000 1,107,000 3,943,000 6,721,000
2016 1,765,000 1,156,000 4,182,000 7,103,000
2017 1,868,000 1,207,000 4,426,000 7,501,000
2018 1,971,000 1,259,000 4,649,000 7,879,000
2019 2,072,000 1,311,000 4,890,000 8,273,000
2020 2,170,000 1,371,000 5,109,000 8,650,000
2021 2,285,000 1,431,000 5,371,000 9,087,000
2022 2,391,000 1,482,000 5,625,000 9,498,000
2023 2,510,000 1,549,000 5,882,000 9,941,000
2024 2,613,000 1,605,000 6,123,000 10,341,000
2025 2,709,000 1,660,000 6,354,000 10,723,000
2026 2,811,000 1,711,000 6,598,000 11,120,000
2027 2,896,000 1,752,000 6,811,000 11,459,000
2028 2,998,000 1,784,000 7,012,000 11,794,000
2029 3,072,000 1,824,000 7,229,000 12,125,000
2030 3,170,000 1,861,000 7,417,000 12,448,000
2031 3,272,000 1,888,000 7,586,000 12,746,000
2032 3,331,000 1,913,000 7,741,000 12,985,000
2033 3,416,000 1,937,000 7,887,000 13,240,000
2034 3,486,000 1,971,000 7,996,000 13,453,000
2035 3,552,000 1,983,000 8,099,000 16,634,000
2036 3,607,000 1,992,000 8,160,000 13,759,000
2037 3,639,000 2,000,000 8,218,000 13,857,000
2038 3,678,000 2,004,000 8,244,000 13,926,000
City of Culver City
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6 07/01/2007 Actuarial Valuation Report
V GASB Reporting and Disclosure Information
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, elected
to use the entry age normal cost method with unfunded liabilities amortized over 30 years, and
continues to fund on a pay-as-you-go basis.
Development of Net OPEB Obligation (NOO) and Annual OPEB Cost (000s omitted)
Fiscal Year
Ending
Annual
Required
Contributions
Actual
Contribution
NOO
End
of Year
Interest on
Net OPEB
Obligation
Adjustment to
the Annual
Required
Contribution
Annual
OPEB
Cost
Interest
Rate
Salary
Scale
Amortization
Factor
06/30/08 $10,681 $3,732 $6,949 $0 $0 $10,681 4.00% 3.25% 26.9
Schedule of Funding Progress (000s omitted)
Type of
Valuation
Actuarial
Valuation Date
Actuarial
Value of
Assets
Actuarial
Accrued
Liability
Unfunded
Actuarial
Accrued
Liability
Funded
Ratio
Covered
Payroll
UAAL as a
Percent of
Covered
Payroll
Interest
Rate
Salary
Scale
Actual 7/1/08 $0 $158,324 $158,324 0% $47,046 337% 4.00% 3.25%
Schedule of Employer Contributions (000s omitted)
Fiscal Year
Ending
Annual
OPEB Costs
Actual
Contribution
Percentage
Contribution
Net OPEB
Obligation
6/30/2008 $10,681 $3,732 34.9% $6,949
City of Culver City
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7 07/01/2007 Actuarial Valuation Report
VI Participant Information
These exhibit summaries contain participant demographic information.
Participant Statistics
Police Fire Miscellaneous Total
Actives
Number 108 63 486 657
Average age of actives 39.90 43.07 43.63 42.96
Average entry age 26.64 27.64 35.05 32.96
Average past service 13.26 15.43 8.58 10.00
Average future service 12.59 12.08 14.15 13.71
Total Salary $10,179,130 $6,197,120 $30,670,185 $47,046,435
Service retirees
Number 28 34 209 271
Average retiree age 64.02 69.70 67.60 67.49
Disabled retirees
Number 52 26 38 116
Average disabled retiree age 58.80 64.46 61.90 61.08
Survivors
Number 7 11 38 56
Average survivor age 67.46 78.52 73.10 73.46
Total Retirees
Number 87 71 285 443
Average age 61.18 69.15 67.57 66.57
City of Culver City
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8 07/01/2007 Actuarial Valuation Report
VI Participant Information (cont.)
Active Employee Age/Service Distributions
Police
Years of Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 >=30 Total
<25 1 1
25-29 9 5 14
30-34 6 10 16
35-39 1 11 5 3 20
40-44 1 2 7 5 4 1 20
45-49 2 2 3 6 9 22
50-54 2 2 2 5 11
55-59 2 2 4
60-64 0
>=65 0
Total 20 28 16 13 14 15 2 108
Fire
Years of Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 >=30 Total
<25 2 2
25-29 5 5
30-34 6 2 8
35-39 2 1 2 5
40-44 1 2 3 4 10
45-49 2 1 4 4 3 14
50-54 2 9 2 13
55-59 5 1 6
60-64 0
>=65 0
Total 16 7 6 8 6 17 3 63
Miscellaneous
Years of Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 >=30 Total
<25 12 12
25-29 30 10 40
30-34 33 26 1 60
35-39 30 20 10 7 67
40-44 18 30 5 5 5 63
45-49 29 29 7 16 8 4 93
50-54 12 17 11 20 6 9 2 77
55-59 8 14 8 5 5 5 1 46
60-64 2 9 2 3 2 3 2 23
>=65 1 1 1 1 1 5
Total 174 156 45 57 27 21 6 486
City of Culver City
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VI Participant Information (cont.)
Grand Total – All Groups
Years of Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 >=30 Total
<25 15 15
25-29 44 15 59
30-34 45 38 1 84
35-39 33 32 17 10 92
40-44 20 34 15 14 9 1 93
45-49 31 31 10 23 18 16 129
50-54 12 17 13 22 10 23 4 101
55-59 8 14 8 5 7 10 4 56
60-64 2 9 2 3 2 3 2 23
>=65 1 1 1 1 1 5
Total 210 191 67 78 47 53 11 657
City of Culver City
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10 07/01/2007 Actuarial Valuation Report
VI Participant Information (cont.)
Distribution of Participants by Medical Plan – Actives
Police Single Dual Family None Grand Total
BlueShield 9 3 4 0 16
Kaiser 6 3 9 0 18
PERSCare 0 1 1 0 2
PERSChoice 6 1 4 0 11
PORAC 15 11 34 0 60
WAIVED 0 0 0 1 1
Total 36 19 52 1 108
Fire Single Dual Family None Grand Total
BlueShield 8 1 3 0 12
Kaiser 1 1 8 0 10
PERSCare 1 0 1 0 2
PERSChoice 1 6 32 0 39
PORAC 0 0 0 0 0
WAIVED 0 0 0 0 0
Total 11 8 44 0 63
Miscellaneous Single Dual Family None Grand Total
BlueShield 38 16 84 0 138
Kaiser 39 35 107 0 181
PERSCare 7 1 1 0 9
PERSChoice 37 20 39 0 96
PORAC 0 0 0 0 0
WAIVED 0 0 0 62 62
Total 121 72 231 62 486
Total Actives Single Dual Family None Grand Total
BlueShield 55 20 91 0 166
Kaiser 46 39 124 0 209
PERSCare 8 2 3 0 13
PERSChoice 44 27 75 0 146
PORAC 15 11 34 0 60
WAIVED 0 0 0 63 63
Grand Total 168 99 327 63 657
City of Culver City
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11 07/01/2007 Actuarial Valuation Report
VI Participant Information (cont.)
Distribution of Participants by Medical Plan – Retirees
Police Single Dual Family None Grand Total
BlueShield 2 3 5 0 10
Kaiser 3 6 4 0 13
PERSCare 14 12 1 0 27
PERSChoice 6 7 9 0 22
PORAC 1 7 7 0 15
WAIVED 0 0 0 8 8
Total 26 35 26 8 95
Fire Single Dual Family None Grand Total
BlueShield 0 3 2 0 5
Kaiser 6 6 0 0 12
PERSCare 12 10 1 0 23
PERSChoice 4 20 6 0 30
PORAC 0 0 1 0 1
WAIVED 0 0 0 0 0
Total 22 39 10 0 71
Miscellaneous Single Dual Family None Grand Total
BlueShield 9 11 7 0 27
Kaiser 41 38 23 0 102
PERSCare 41 29 2 0 72
PERSChoice 27 42 15 0 84
PORAC 0 0 0 0 0
WAIVED 0 0 0 32 32
Total 118 120 47 32 317
Total Retirees Single Dual Family None Grand Total
BlueShield 11 17 14 0 42
Kaiser 50 50 27 0 127
PERSCare 67 51 4 0 122
PERSChoice 37 69 30 0 136
PORAC 1 7 8 0 16
WAIVED 0 0 0 40 40
Grand Total 166 194 83 40 483
City of Culver City
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12 07/01/2007 Actuarial Valuation Report
VII Summary of Principal Plan Provisions
The following plan provisions are the basis for the calculations in this actuarial valuation.
1. Benefit Eligibility
The City of Culver City provides retiree healthcare benefits for employees who retire
with CalPERS pension benefits immediately upon termination of employment from the
City. Employees hired after January 1, 2007 require 5 years of service, or 10,400 hours.
Eligible retirees must elect medical coverage through the City’s contract for healthcare
coverage through CalPERS.
2. Benefits / Plans Covered
City employees are eligible to elect coverage in the following plans:
Blue Shield
Kaiser
PERS Choice
PERS Care
PORAC
Eligible retirees and dependents receive lifetime benefits. For employees who retire
before January 1, 2007, the City pays 100% of the medical premium, up to the City’s cap.
The City’s cap is the average of the Kaiser and PERSCare premiums in the Los Angeles
region.
For employees who retire on and after January 1, 2007, the City pays 70% of the
premium under PERSCare and 95% of the premium for all other plans.
3. Retiree Contributions
Retirees pay the portion of premiums not paid by the City.
4. Dependent Coverage
The retirement health benefit continues for the lifetime of surviving spouses.
City of Culver City
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13 07/01/2007 Actuarial Valuation Report
VIII Actuarial Assumptions
1. Actuarial Cost Method
The costs shown in the report were developed using two different funding methods:
Under the Aggregate cost method, the ARC equals an amortization of the unfunded
present value of future benefits, based on the following:
Period equal to the average future working lifetime of active participants
Level percentage of future payroll amounts
The Entry Age Normal (EAN) – Level Percent of Pay cost method 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 this method, the plan’s normal cost is developed
as a level percentage of payroll spread over the participants’ working lifetime. The
Actuarial Accrued Liability (AAL) is the present value of all projected benefits less the
present value of all future normal costs. For retirees, the AAL is simply 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 (10, 20, or 30 years are shown)
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.
2. Discount Rate
4.0% - This is based on the assumption that benefits will be paid from general City
assets, or paid from a separate trust where assets are invested relatively conservatively.
7.75% was used for the illustration of results assuming the City pre-funds benefits in a
trust with a mix of assets classes.
3. 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.
City of Culver City
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14 07/01/2007 Actuarial Valuation Report
VIII Actuarial Assumptions (cont.)
4. Mortality
Mortality rates developed in the CalPERS 1997-2002 Experience Study were used in the
valuation. The rates for selected ages are as follows:
Pre-retirement Mortality
Police Fire Misc
Age Male Female Male Female Male Female
45 0.00130 0.00088 0.00130 0.00088 0.00110 0.00068
50 0.00179 0.00125 0.00179 0.00125 0.00156 0.00102
55 0.00248 0.00178 0.00248 0.00178 0.00221 0.00151
60 0.00344 0.00256 0.00344 0.00256 0.00314 0.00226
65 0.00480 0.00369 0.00480 0.00369 0.00447 0.00336
Post-retirement Mortality
Police Fire Misc
Age Male Female Male Female Male Female
50 0.00245 0.00136 0.00245 0.00136 0.00245 0.00136
55 0.00429 0.00253 0.00429 0.00253 0.00429 0.00253
60 0.00721 0.00442 0.00721 0.00442 0.00721 0.00442
65 0.01302 0.00795 0.01302 0.00795 0.01302 0.00795
70 0.02135 0.01276 0.02135 0.01276 0.02135 0.01276
75 0.03716 0.02156 0.03716 0.02156 0.03716 0.02156
80 0.06256 0.03883 0.06256 0.03883 0.06256 0.03883
85 0.10195 0.07219 0.10195 0.07219 0.10195 0.07219
5. Disability
Disability rates developed in the CalPERS 1997-2002 Experience Study were used in the
valuation. Sample rates are as follows:
Age Police Fire
30 0.0058 0.0022
35 0.0087 0.0032
40 0.0116 0.0042
45 0.0145 0.0053
50 0.0175 0.0067
55 0.0594 0.0611
60 0.0601 0.0616
City of Culver City
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VIII Actuarial Assumptions (cont.)
6. Turnover
Turnover rates developed in the CalPERS 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
Entry 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
Entry 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
Years of Service
Entry 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
City of Culver City
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VIII Actuarial Assumptions (cont.)
7. Retirement Age
Retirement rates developed in the CalPERS 1997-2002 Experience Study were used in
the valuation. Sample rates are as follows:
Public Agency – Police 3% at 50
Years of Service
Attained Age 5 10 15 20 25 30 35 40
50 0.0435 0.0435 0.0435 0.0821 0.1208 0.1559 0.1910
51 0.0385 0.0385 0.0385 0.0728 0.1071 0.1382 0.1693
52 0.0614 0.0614 0.0614 0.1159 0.1705 0.2200 0.2695
53 0.0689 0.0689 0.0689 0.1303 0.1916 0.2472 0.3028
54 0.0710 0.0710 0.0710 0.1342 0.1974 0.2547 0.3120
55 0.0898 0.0898 0.0898 0.1698 0.2497 0.3222 0.3947 0.3947
56 0.0687 0.0687 0.0687 0.1299 0.1910 0.2465 0.3019 0.3019
57 0.0803 0.0803 0.0803 0.1518 0.2232 0.2880 0.3528 0.3528
58 0.0791 0.0791 0.0791 0.1495 0.2198 0.2837 0.3475 0.3475
59 0.0820 0.0820 0.0820 0.1549 0.2279 0.2940 0.3602 0.3602
60 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Public Agency – Fire 3% at 55
Years of Service
Attained Age 5 10 15 20 25 30 35 40
50 0.0024 0.0024 0.0024 0.0035 0.0055 0.0065 0.0065
51 0.0048 0.0048 0.0048 0.007 0.011 0.0128 0.0218
52 0.0147 0.0147 0.0147 0.0215 0.0339 0.0396 0.0396
53 0.0425 0.0425 0.0425 0.0621 0.0979 0.1142 0.1142
54 0.0567 0.0567 0.0567 0.0828 0.1306 0.1523 0.1523
55 0.0915 0.0915 0.0915 0.1337 0.2109 0.2459 0.2459 0.2459
56 0.0811 0.0811 0.0811 0.1184 0.1868 0.2178 0.2178 0.2178
57 0.0996 0.0996 0.0996 0.1455 0.2295 0.2676 0.2676 0.2676
58 0.0814 0.0814 0.0814 0.1189 0.1874 0.2185 0.2185 0.2185
59 0.0775 0.0775 0.0775 0.1131 0.1784 0.2080 0.2080 0.2080
60 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
City of Culver City
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VIII Actuarial Assumptions (cont.)
Public Agency – Miscellaneous 2.5% at 55
Attained Age Female Male
50 0.07 0.05
51 0.05 0.02
52 0.05 0.03
53 0.05 0.03
54 0.05 0.04
55 0.09 0.08
56 0.07 0.06
57 0.07 0.07
58 0.10 0.08
59 0.09 0.09
60 0.12 0.16
61 0.10 0.15
62 0.21 0.26
63 0.18 0.22
64 0.13 0.15
65 0.25 0.25
66 0.15 0.14
67 0.14 0.12
68 0.11 0.12
69 0.13 0.09
70 1.00 1.00
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
2007 11.0%
2008 10.0%
2009 9.0%
2010 8.0%
2011 7.0%
2012 6.0%
2013+ 5.0%
City of Culver City
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18 07/01/2007 Actuarial Valuation Report
VIII Actuarial Assumptions (cont.)
9. Monthly Premiums
The monthly premiums valued were based on the CalPERS 2008 “Los Angeles” Area
Health Premiums.
Age Blue Shield Kaiser
PERS
Choice PERSCare PORAC
Weighted
Blend (for
Active
Waivers)
Not Medicare Eligible $392.01 $359.30 $449.04 $697.87 $452.00 $408.48
Medicare Eligible 341.44 273.36 349.11 404.60 308.00 $319.28
The weighted blend is used for actives currently waiving coverage who are assumed to
elect retiree medical plan coverage in the same proportion as those actives currently
covered. See the Plan Coverage at Retirement section below for these rates.
10. Participants Valued
Only current active and retired participants are valued. No future entrants are considered
in this valuation.
11. Plan Participation
95% of future eligible retirees (from active status) are assumed to elect coverage.
12. Plan Coverage at Retirement
Current and future retirees are assumed to continue in the same medical plan.
Actives currently waiving coverage were assumed to elect coveage in the Blue Shield,
Kaiser, PERS Choice, and PERSCare plans at the rate of 30%, 40%, 25%, and 5%,
respectively.
13. Medicare Eligibility
Except for 102 Police and Fire members who are not eligible for Medicare upon
retirement, all other participants are assumed to be eligible for Medicare.
14. Spouse Age Assumption
Males are assumed to be three years older than their female spouses.
15. Dependents Coverage at Retirement
Current plan elections are used. For actives currently waiving coverage, 65% are
assumed to elect spousal coverage at retirement, and 35% are assumed to elect dependent
coverage at retirement.
City of Culver City
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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 Culver City
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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.
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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).
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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 Normal 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.
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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.
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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.
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IX Glossary (cont.)
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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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.
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