Actuarial Valuation Report - Berkeley, California€¦ · Aon Hewitt’s relationship with the Plan and the Plan Sponsor is strictly professional. There are no aspects of the relationship

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Actuarial Valuation Report City of Berkeley

Safety Members Pension Fund

As of July 1, 2014

Risk. Reinsurance. Human Resources.


Executive Summary

Background The Safety Members Pension Fund (SMPF) is a single employer defined benefit pension plan for fire and police officers who retired before March 1973. In March 1973, all active fire and police officers were transferred from SMPF to CalPERS. The purpose of this actuarial valuation is to:

Determine the Plan’s funded status and annual costs

Provide information for Government Accounting Standards Board financial statement disclosure. GASB In June 2012, GASB released statements No. 67 (financial reporting for pension plans) and No. 68 (employer accounting and financial reporting for pension plans), effective for the City for fiscal years ending June 30, 2014 and June 30, 2015, respectively. As part of the 2014 actuarial valuation, we will continue to provide GASB 27 financial statement information, as well as the necessary information to enable the City to comply with the new reporting requirements under GASB 67. In addition, we provide sample GASB 68 for fiscal year ending 2015 financial reporting in the appendix. More complete information will be provided when we prepare the update for the July 1, 2015 valuation. ARC Development for Fiscal Year ending June 30, 2014 GASB 27 requires an Annual Required Contribution (ARC) to be developed each year based on the plan’s assets and liabilities. Although GASB 27 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 City amortizes the unfunded liability over the lesser of the period ending June 30, 2017 and the average remaining lifetime of participants. The ARC is set equal to the greater of this amortized unfunded liability and the actual contributions paid during the year from the General Fund. Funding Policy for Fiscal Years ending after June 30, 2014 GASB 68 does not prescribe a funding policy. The funding method adopted by City of Berkeley is independent from the determination of the annual expense and may be prepared using any reasonable method. We assume the City will continue to make contributions from the General Fund equal to benefit payments not covered by the annual distributions from the MassMutual GIC, hereafter referred to as the Funding Contribution.

City of Berkeley Safety Members Pension Fund 07/01/2014 Actuarial Valuation Report i


Executive Summary (cont.)

Summary of Results The GASB 68 pension expense for the fiscal year ending June 30, 2015 is $613,038. This is the City’s annual expense for this pension plan and could be compared to the GASB 27 Annual Pension Cost (APC) for the fiscal year ending June 30, 2014 of $864,021. The primary reason for the decrease is that the unfunded liability, which was previously recognized under GASB 27 through the APC over time, will be immediately recognized at implementation of GASB 68 and not through the annual expense. The Funding Contribution for the fiscal year ending June 30, 2015 is expected to be approximately $539,000 and is based on expected benefit payments not covered by the MassMutual GIC. The following table summarizes the current valuation results compared to the previous valuation update:

July 1, 2014 July 1, 2013

Participant count 18 19

Total periodic benefits (13 payments per year) $ 76,840 $ 79,958

Actuarial accrued liability:

Present value of benefits being paid 4,393,148 4,743,393

Present value of cost of living adjustments 435,027 351,354

Actuarial accrued liability 4,828,175 5,094,747

Plan assets 1,254,005 1,564,995

Unfunded actuarial accrued liability 3,574,170 3,529,752

GASB 27 Annual Required Contribution (ARC) N/A $ 929,434

GASB 68 Annual Pension Expense $ 613,038 N/A Liabilities are higher than what would be expected from the prior valuation in 2012, which is a net result of the following offsetting factors:

Discount rate was reduced from 5.24% to 4.75% in 2013, which reflects implicit anticipation of full pay-as-you-go funding after MassMutual GIC assets are depleted, resulting in an increase in liabilities. The discount rate was unchanged from 2013 to 2014;

Participant experience related to mortality resulted in more retirees surviving than expected and an actuarial loss;

Mortality assumptions were updated to reflect the most recent base table and projection improvement methodology, which increased liabilities;

Annual cost of living increases were less than expected, resulting in an actuarial gain; and

The cost of living increase assumed for full-fluctuating retirees was changed from 5.00% to 2.75% in 2013 to better reflect future expectations, resulting in a liability increase.

City of Berkeley Safety Members Pension Fund 07/01/2014 Actuarial Valuation Report ii


Table of Contents

I Actuarial Valuation Certificate ...................................................................................................... 1

II Plan Assets ..................................................................................................................................... 3

III Plan Liabilities and Amortizations ............................................................................................... 4

IV Plan Funding .................................................................................................................................. 5

V Accounting Expense ...................................................................................................................... 6

VI GASB 67 Disclosure Information for Year Ended June 30, 2014 .............................................. 8

VII GASB 27 Disclosure Information for Year Ended June 30, 2014 ............................................ 14

VIII Forecast of Benefit Disbursements ........................................................................................... 17

IX Development of Funding Levels ................................................................................................. 18

X Participant Data ............................................................................................................................ 19

XI Plan Summary .............................................................................................................................. 21

XII Actuarial Methods and Assumptions ......................................................................................... 22

XIII Appendix ....................................................................................................................................... 23

City of Berkeley Safety Members Pension Fund 07/01/2014 Actuarial Valuation Report iii


I Actuarial Valuation Certificate

This report presents the results of the actuarial valuation for the City of Berkeley Safety Members Pension Fund as of June 30, 2013 for the development of the Annual Required Contribution and disclosure items under Governmental Accounting Standards Board (GASB) Statements No. 25, 27, 50, 67, and 68, where relevant. This report has been prepared using generally accepted actuarial practices and methods. The actuarial assumptions used in the calculations are individually reasonable and reasonable in aggregate. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following:

Plan experience differing from that anticipated by the economic or demographic assumptions

Changes in economic or demographic assumptions

Increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan’s funded status)

Changes in plan provisions or applicable law Due to the limited scope of our assignment, we did not perform an analysis of the potential range of such future measurements. In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by the City of Berkeley as of the valuation date. Aon Hewitt 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 are for purposes of fulfilling plan and 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. This report is intended for the sole use of the City of Berkeley. It is intended only to supply information for the City of Berkeley 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 Berkeley, 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 Hewitt. Funded status measurements may not be appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations, and funded status measurements for company and plan disclosure and reporting purposes may not be appropriate for assessing the need for or the amount of future contributions.

City of Berkeley Safety Members Pension Fund 07/01/2014 Actuarial Valuation Report 1


I Actuarial Valuation Certificate (cont.)

In determining the Annual Required Contribution and Funding Contribution for the City of Berkeley Safety Members Pension Fund and information relating to plan disclosure and reporting requirements, Aon Hewitt may be assisting the appropriate plan fiduciary as it performs tasks that are required for the administration of an employee benefit plan. Aon Hewitt also may be consulting with the employer/plan sponsor (City of Berkeley) as it considers alternative strategies for funding the plan, or as it evaluates information relating to employer reporting requirements. Thus, Aon Hewitt potentially will be providing assistance to City of Berkeley (and/or certain of its employees) acting in a fiduciary capacity (for the benefit of plan participants and beneficiaries) and to City of Berkeley (and/or its executives) acting in a settlor capacity (for the benefit of the employer sponsoring the City of Berkeley Safety Members Pension Fund).

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. Aon Hewitt’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, EA Partner (213) 996-1729 [email protected] Aon Hewitt 707 Wilshire Boulevard Suite 2600 Los Angeles, CA 90017 October 30, 2014 U:\City of Berkeley\Pension Plan\2014\Reports\City of Berkeley 2014 Report - Final.docx



II Plan Assets

In February 1989, the Berkeley Civic Improvement Corporation (BCIC) purchased, on behalf of the City, a Guaranteed Income Contract (GIC) from MassMutual with the following provisions:

Considered part of the Plan assets.

Guaranteed 9.68% rate of return (net of expenses).

Provides stated annual payments through 2018.

Risk Agreement may provide additional payment amounts after 2012 based on difference between SMPF payments and MassMutual anticipated amounts. This valuation makes no provision for these future payments.

The MassMutual GIC is set aside for pension benefits and constitutes the entirety of the Plan’s assets. The fund value was $1,254,005 as of June 30, 2014 and $1,564,995 as of June 30, 2013. The benefit payments to Plan participants were made from the following sources for the years ended on June 30:

2014 2013

MassMutual GIC $ 435,000 $ 484,000

General Fund 568,620 683,401

Total City benefit payments $ 1,003,620 $ 1,167,401



III Plan Liabilities and Amortizations

The following table summarizes the current valuation results compared to the valuation update as of July 1, 2013: Valuation Date July 1, 2014 July 1, 2013 1. Actuarial Accrued Liability

Present value of benefits being paid $ 4,393,148 $ 4,743,393 Present value of cost of living adjustments 435,027 351,354 Total actuarial accrued liability 4,828,175 5,094,747

2. Plan assets 1,254,005 1,564,995 3. Unfunded actuarial accrued liability $ 3,574,170 $ 3,529,752 4. Years of amortization remaining (lesser of the period

remaining until 2017 or the average remaining lifetime of participants)

N/A

4.00

5. Amortization of unfunded actuarial liability N/A $ 929,434 6. Discount Rate 4.75% 4.75% Development of Liability Gain / Loss Amortization for GASB 68 The following table summarizes the development of the actuarial gain or loss on liability, and corresponding amortization, which will be used in the GASB 68 expense determination for the fiscal year ending June 30, 2015: 1. Discount Rate 4.75% 2. Actuarial Accrued Liability at July 1, 2013 $ 5,094,747 3. Actual benefit payments during the year (1,003,620) 4. Interest at the discount rate effective for prior year 218,441 5. Expected actuarial accrued liability at July 1, 2014, (2)+(3)+(4) 4,309,568 6. Actual actuarial accrued liability 4,828,175 7. (Gain)/Loss on actuarial accrued liability $ 518,607 8. Years of Amortization 1.00 9. Amortization of liability (gain)/loss (7)÷(8) $ 518,607 The actuarial loss was the net result of the following offsetting factors:

Participant experience related to mortality resulted in more retirees surviving than expected and an actuarial loss; and

Annual cost of living increases were less than expected, resulting in an actuarial gain.



IV Plan Funding

Funding Contribution for the Fiscal Year Ending June 30, 2015 GASB 68 does not prescribe a funding policy. The funding method used by City of Berkeley is independent from the determination of the annual expense and may be based on any reasonable method. The City may continue to use a pay-as-you-go funding policy or select another method. We assume the City will continue to make contributions equal to benefit payments in excess of the annual payments from the MassMutual GIC. The following develops the expected contributions for the fiscal year ending June 30, 2015:

Total expected benefit payments $935,275 MassMutual GIC distributions 397,201 Expected contribution from General Fund $538,074



V Accounting Expense

GASB 27 Reporting for Financial Statements for Fiscal Year Ending June 30, 2014 Development of Annual Pension Cost (APC) The APC is the accrual basis measure of the periodic cost recognized by the City, as developed below for the fiscal year ending June 30, 2014:

Net Pension Obligation, July 1, 2013 $303,100

Annual Required Contribution, FYE June 30, 2014 929,434

Interest on Net Pension Obligation 14,397

Adjustment to the ARC (77,277)

Annual Pension Cost (APC), FYE June 30, 2014 $864,021 Development of Net Pension Obligation (NPO) The NPO is the measure of the cumulative difference between the Annual Pension Cost and the City’s contributions to the plan, as developed below: Net Pension Obligation, July 1, 2013 $303,100

Annual Pension Cost (APC) 864,021

City Contributions paid (568,620)

Net Pension Obligation, June 30, 2014 $598,501



V Accounting Expense (cont.)

GASB 68 Reporting for Financial Statements for Fiscal Year Ending June 30, 2015 Development of the Annual Expense The following expense amount has been prepared based on a Valuation Date of July 1, 2013 and Measurement Date of June 30, 2014. Other GASB 68 implementation information will be included in next year’s expense disclosure report. Unfunded Actuarial Accrued Liability, as of July 1, 2013

1. Actuarial Accrued Liability as of 7/1/2013 $5,094,747

2. Actuarial Value of Plan Assets as of 7/1/2013 1,564,995

3. Unfunded Actuarial Accrued Liability (UAAL), (2)-(1) ($3,529,752)

4. Actual Benefit Payments, FYE June 30, 2014 $1,003,620

Annual Expense, FYE June 30, 2015

1. Service Cost $0

2. Interest Cost 218,441

3. Expected Return on Assets (124,010)

4. Amortization of Asset (Gain)/Loss 0

5. Amortization of Liability (Gain)/Loss 518,607

6. Annual Expense, (1)+(2)+(3)+(4)+(5), not less than 0 $613,038



VI GASB 67 Disclosure Information for Year Ended June 30, 2014

This section provides plan information to assist the City in preparing the required financial statement disclosure information under GASB 67 for the fiscal year ended June 30, 2014.

The City’s financial statements should include certain information, including the following: Summary of Significant Accounting Policies Investments

Investment Policies Description of determination of fair value of investments Identification of investments representing 5% or more of plan’s fiduciary net position Rate of Return (money-weighted)

Other Items

Receivables o Information about any receivables from long-term contracts with the employer for

contributions Allocated Insurance Contracts

o Information about any allocated insurance contracts that are excluded from plan assets Reserves

o Information about policies related to setting aside reserves Deferred Retirement Option Program (DROP)

o Information about terms and account balances in a DROP program offered by the employer. Other information directly related to the determination of expense and disclosure items should also be disclosed. Sample material follows: Plan Description Plan Administration

The City maintains the Safety Members Pension Fund (SMPF). This plan is a single-employer defined benefit pension plan for fire and police officers who retired before March 1973. In March 1973, all active fire and police officers were transferred from SMPF to CalPERS. Plan Membership

At July 1, 2014, pension plan membership consisted of the following:

Actives 0 Inactive not Yet Receiving Benefits 0 Retirees 18 Total 18

The pension plan is not open to new entrants.



VI GASB 67 Disclosure Information for Year Ended June 30, 2014 (cont)

Benefits Provided

Service and disability retirement benefits are based on a percentage of salary at retirement, multiplied by years of service. Benefits are adjusted annually by either:

(1) current active salary increases (based on the same rank at retirement) or

(2) the increase in the California Consumer Price Index (with a 1% minimum and a 3% cap). SMPF also provides surviving spouse benefits. Contributions

The City has Plan assets in a Guaranteed Income Contract (GIC). The City will pay any benefit payments not paid from the GIC.

Net Pension Liability The components of the net pension liability of the City at June 30, 2014, were as follows:

Total Pension Liability $4,828,175

Plan Fiduciary Net Position ($1,254,005)

City’s Net Pension Liability $3,574,170

Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 25.97%




Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of July 1, 2014, using the following actuarial assumptions, applied to all periods included in the measurement:

General Inflation 2.75%

Investment Rate of Return 4.75%, net of pension plan investment expense, including inflation Mortality assumptions based on the 1997-2011 CalPERS experience study with projected improvement using scale MP-2014. The benefit terms included ad hoc postemployment benefit changes. Cost-of-living adjustments (COLA) are provided at the discretion of the City – a 2.75% annual average increase is assumed in the valuation for retirees eligible for the Full Fluctuating COLA and 2.75% for other retirees. The long-term expected rate of return on pension plan investments of 9.68% was determined based on the terms of the GIC from MassMutual. Discount Rate

The discount rate used to measure the total pension liability was 4.75%. The projection of cash flows used to determine the discount rate assumed that payments in excess of the income from the GIC will be made by the City. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make projected future benefit payments of current plan members through 2018. Therefore, the long-term expected rate of return on pension plan investments of 9.68% was applied to periods of projected benefit payments covered by annual income distributions from the GIC to determine the total pension liability through 2018. A municipal bond rate of 4.00% was applied to all projected cash flows not expected to be covered by the GIC. Municipal bond rates are based on rates provided by the Bond Buyer Index, general obligation, 20 years to maturity.

Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City, calculated using the discount rate of 4.75 percent as of June 30, 2014, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (3.75 percent) or 1-percentage point higher (5.75 percent) than the current rate:

1% Decrease

(3.75%) Current Rate

(4.75%) 1% Increase

(5.75%)

Total Pension Liability $5,022,449 $4,828,175 $4,648,659

Plan Fiduciary Net Position ($1,254,005) ($1,254,005) ($1,254,005)

Net Pension Liability $3,768,444 $3,574,170 $3,394,654




Changes in the Net Pension Liability

Increase (Decrease)

Total Pension Liability

(a)

Plan Fiduciary Net

Position

(b)

Net Pension Liability

(a) – (b)

Balances at 06/30/2013 $5,094,747 $1,564,995 $3,529,752

Changes for the year:

Service Cost $0 $0

Interest Cost $218,441 $218,441

Differences Between expected and actual experience $518,607 $518,607

Contributions – Employer $568,620 ($568,620)

Contributions – Employee $0 $0

Net Investment Income $124,010 ($124,010)

Benefit Payments, including refunds of employee contributions ($1,003,620) ($1,003,620) $0

Administrative Expenses $0 $0

Other Changes $0 $0

Net Changes ($266,572) ($310,990) $44,418

Balances at 06/30/2014 $4,828,175 $1,254,005 $3,574,170




Schedule of Changes in the Net Pension Liability and Related Ratios Last 10 Fiscal Years Year Ending June 30,

2014

Total Pension Liability Service Cost $0 Interest Cost $218,441 Changes of Benefit Terms $0 Differences Between Expected and Actual

Experiences $518,607 Changes of Assumptions $0 Benefit Payments, Including Refunds of

Member Contributions ($1,003,620) Net Change in Total Pension Liability ($266,572) Total Pension Liability (Beginning) $5,094,747 Total Pension Liability (Ending) $4,828,175

Plan Fiduciary Net Position Contributions—Employer $568,620 Contributions—Member $0 Net Investment Income $124,010 Benefit Payments, Including Refunds of

Member Contributions ($1,003,620) Administrative Expense $0 Other $0 Net Change in Plan Fiduciary Net Position ($310,990) Plan Fiduciary Net Position (Beginning) $1,564,995 Plan Fiduciary Net Position (Ending) $1,254,005 Net Pension Liability (Ending) $3,574,170 Net Position as a % of Pension Liability 25.97% Covered-Employee Payroll N/A Net Pension Liability as a % of Payroll N/A

Notes to Schedule:

No changes have been made over the 10 year history since GASB 67 has become effective.




Schedule of Contributions Historically, the plan has been funded based on contributions necessary to pay benefits not provided by the MassMutual GIC. Funding is not based on actuarially determined contributions and contributions are neither statutorily nor contractually established. Schedule of Investment Returns Last 10 Fiscal Years

Year Ending June 30,

2014

Annual Money-Weighted Rate of Return, Net of Investment Expense 9.68%

These schedules are presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, pension plans should present information for those years for which information is available.



VII GASB 27 Disclosure Information for Year Ended June 30, 2014

The Governmental Accounting Standards Board (GASB) issued Statement Number 27 (November 1994) to establish measurement, recognition, and display standards for pension expenditures/expense and related liabilities, assets, note disclosures, and, if applicable, required supplementary information in the financial reports of state and local governmental employers. The statement was amended by Statement 50 effective in 2008. Employers that sponsor single-employer defined benefit pension plans report an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer’s actual plan contribution. The cumulative difference is called the Net Pension Obligation (NPO). The APC equals the ARC: plus one year’s interest on the NPO, minus an amortization of past contribution deficiencies (or plus an amortization of past excess

contributions) already included in the ARC - the amortization equals the beginning of year NPO divided by a present value factor (provided by the actuary).

For the City of Berkeley’s Safety Members Pension Fund, the NPO at the adoption of the Statements was zero. However, any contributions different from the ARC in subsequent years generate an NPO. The ARC will be based on the greater of: Amortization of the unfunded actuarial accrued liability, calculated as a level percentage of payroll

over the lesser of the period ending June 30, 2017 or the average remaining lifetime of participants, and

actual benefits paid during the year from the General Fund ARC for the Fiscal Year Ending June 30, 2014 The ARC for the fiscal year ending June 30, 2014 was $929,434. Since the actual benefit payments from the General Fund were smaller than this amount, the difference between the ARC and the actual benefit payment from the General Fund ($614,588) is recognized as an addition to the Net Pension Obligation (NPO) as of June 30, 2014. Following is a sample footnote disclosure: Plan Description:

The City maintains the Safety Members Pension Fund (SMPF). This plan is a single-employer defined benefit pension plan for fire and police officers who retired before March 1973. In March 1973, all active fire and police officers were transferred from SMPF to CalPERS. At July 1, 2014, the date of the most recent actuarial valuation, there were 18 retired members and surviving spouses. Service and disability retirement benefits are based on a percentage of salary at retirement, multiplied by years of service. Benefits are adjusted annually by either:

(1) current active salary increases (based on the same rank at retirement) or

(2) the increase in the California Consumer Price Index (with a 1% minimum and a 3% cap). SMPF also provides surviving spouse benefits. City of Berkeley Safety Members Pension Fund 07/01/2014 Actuarial Valuation Report 14


VII GASB 27 Disclosure Information for Year Ended June 30, 2014 (cont)

Funding Policy:

The City pays SMPF benefits primarily on a pay-as-you-go basis. In February 1989, the Berkeley Civic Improvement Corporation (BCIC) purchased, on behalf of the City, a Guaranteed Income Contract (GIC) from MassMutual. This GIC is considered a Plan asset and provides annual payments through 2018 and an annual guaranteed 9.68% rate of return (net of expenses). The City pays the difference between actual benefit payments and contract provided annual payments, from the General Fund. Additional amounts may be paid, in 2012 through 2017, under a Risk Agreement to compensate the City for the difference between the amounts paid by the City to its pensioners and the actuarially determined amounts. Government Accounting Standards Board Statement No. 27 (Statement 27), as amended by GASB No. 50, requires the City to determine the plan’s annual pension cost (APC) based on the most recent actuarial valuation. The APC equals the plan’s annual required contribution (ARC), adjusted for historical differences between the ARC and amounts contributed. The actuary has determined the City’s ARC is the greater of (a) a 20-year amortization of the unfunded actuarial liability beginning July 1,1997 (or shorter period if the average remaining lifetime of participants is less than the remaining portion of the 20 years), or (b) actual benefit payments made from the General Fund for the year. For the year ended June 30, 2014, the City’s ARC was $929,434. The City contributed $568,620 from the General Fund. The actuarial liability was determined using the unit credit actuarial cost method. The actuarial assumptions included (a) 4.75% interest rate, (b) Mortality using 1997-2011 CalPERS Experience Study with projected improvement using scale MP-2014, (c) projected annual benefit increases of 2.75% a year for full fluctuating and 2.75% a year for CPI COLAs. Both (a) and (c) include a 2.75% annual inflation component. The following table provides historical information of the Annual Pension Cost:

Schedule of Funding Progress ($ Amount in Thousands)

Fiscal Year

Annual Pension Cost

(APC)

Percentage of APC

Contributed

Net Pension Obligation 6/30/12 $831 96% $31 6/30/13 $956 72% $303 6/30/14 $864 66% $599



VII GASB 27 Disclosure Information for Year Ended June 30, 2014 (cont)

Required Supplementary Information

Development of Net Pension Obligation (NPO) and Annual Pension Cost (APC) ($ Amount in Thousands)

Fiscal Year

ARC Actual

Contribution

NPO at End of Year

Interest on

NPO

Adjustment

to ARC

Annual Pension

Cost (APC) Interest

Rate Salary Scale

Amortization Factor

11/12 $ 831 $800 $ 31 $ 0 $ 0 $831 8.00% 5.00% 4.41 12/13 961 683 303 2 7 956 5.24% 5.00% 4.37 13/14 929 568 599 14 77 864 4.75% 2.75% 3.80

Schedule of Funding Progress ($ Amount in Thousands)

Actuarial

Valuation Date

Actuarial Value of Assets

Actuarial Accrued

Liability

Unfunded Actuarial Accrued Liability

Funded Ratio

Covered Payroll

UAAL as a % of Covered

Payroll (A) (B) (B - A) (A / B)

6/30/12 $1,896 $6,095 $4,199 31.1% N/A N/A 6/30/13 1,565 5,095 3,530 30.7 N/A N/A 6/30/14 1,254 4,828 3,574 26.0 N/A N/A

Schedule of Employer Contributions ($ Amount in Thousands)

Fiscal Year

Annual Required Contribution (ARC)

Percentage of ARC Contributed

6/30/12 $ 831 96% 6/30/13 961 72% 6/30/14 929 61%

The 2014 actuarial results have been based on the following actuarial methods and assumptions:

Actuarial Funding Method Unit Credit Actuarial Assumptions:

Mortality 1997-2011 CalPERS Experience Study with projected improvement using scale MP-2014

Interest Rate 4.75% Cost of Living:

Full Fluctuating 2.75% CPI 2.75%

UAL Amortization Method Level percentage of pay over 20 year period beginning July 1, 1997 (or shorter period if the average remaining lifetime of participants is less than the remaining portion of the 20 years).



VIII Forecast of Benefit Disbursements

The table below illustrates projected benefits under the following assumptions:

Current benefit levels

Increased benefits with 2.75% for COLA eligible or 2.75% for Full Fluctuating eligible

Expected Disbursements (000s omitted) Year Ending

June 30 0% COLA /

Full Fluctuating 2015 935 935 2016 802 823 2017 680 718 2018 571 619 2019 475 529 2020 391 448 2021 319 376 2022 258 312 2023 206 257 2024 164 209 2025 128 168 2026 99 133 2027 75 104 2028 56 80 2029 41 60 2030 30 45 2031 21 33 2032 15 24 2033 10 17 2034 7 11 2035 4 7 2036 2 4 2037 1 2 2038 0 1 2039 0 0 2040 0 0 2041 0 0 2042 0 0



IX Development of Funding Levels

The following shows the development of the projected funding levels for all future years:

FY Ending June 30

Beginning Fund

Balance1

General Fund Contributions

Interest

Earnings

Benefit

Payments

Ending Funding Balance

Projected Actuarial Liability

Projected Funded

% 2015 $1,254,005 $538,074 $96,508 $(935,275) $953,312 $4,828,175 20% 2016 953,312 463,627 69,713 (823,718) 662,934 4,096,537 16% 2017 662,934 388,945 43,310 (717,945) 377,244 3,444,668 11% 2018 377,244 321,423 17,690 (619,423) 96,934 2,870,442 3% 2019 96,934 429,306 3,066 (529,306) 0 2,370,122 0% 2020 0 448,012 0 (448,012) 0 1,938,607 0% 2021 0 375,509 0 (375,509) 0 1,570,107 0% 2022 0 311,918 0 (311,918) 0 1,258,602 0% 2023 0 256,551 0 (256,551) 0 997,650 0% 2024 0 208,733 0 (208,733) 0 781,203 0% 2025 0 167,846 0 (167,846) 0 603,624 0% 2026 0 133,101 0 (133,101) 0 459,639 0% 2027 0 103,939 0 (103,939) 0 344,532 0% 2028 0 79,872 0 (79,872) 0 253,942 0% 2029 0 60,418 0 (60,418) 0 183,799 0% 2030 0 45,065 0 (45,065) 0 130,337 0% 2031 0 33,120 0 (33,120) 0 90,133 0% 2032 0 23,802 0 (23,802) 0 60,311 0% 2033 0 16,549 0 (16,549) 0 38,659 0% 2034 0 10,983 0 (10,983) 0 23,442 0% 2035 0 6,804 0 (6,804) 0 13,230 0% 2036 0 3,852 0 (3,852) 0 6,836 0% 2037 0 1,958 0 (1,958) 0 3,181 0% 2038 0 878 0 (878) 0 1,307 0% 2039 0 337 0 (337) 0 460 0% 2040 0 105 0 (105) 0 132 0% 2041 0 25 0 (25) 0 29 0% 2042 0 4 0 (4) 0 4 0%

1 Fund Balance represents MassMutual GIC.

Projections are based on the July 1, 2014 actuarial valuation census data and related assumptions.



X Participant Data

Participant Counts / Benefit Amounts

Full Fluctuating Cost of Living Total No. Amount No. Amount No. Amount

Fire

Service Retirements: Single Life 0 $ 0 0 $ 0 0 $ 0 Joint & Survivor 0 0 0 0 0 0 Total 0 0 0 0 0 0

Disability Retirements: Single Life 0 0 0 0 0 0 Joint & Survivor 0 0 2 4,632 2 4,632 Total 0 0 2 4,632 2 4,632

Beneficiaries: Single Life 8 39,105 3 5,382 11 44,487

Fire Total 8 39,105 5 10,014 13 49,119

Police

Service Retirements: Single Life 0 0 0 0 0 0 Joint & Survivor 1 10,419 0 0 1 10,419 Total 1 10,419 0 0 1 10,419

Disability Retirements: Single Life 0 0 0 0 0 0 Joint & Survivor 0 0 0 0 0 0 Total 0 0 0 0 0 0

Beneficiaries: Single Life 3 14,802 1 2,498 4 17,300

Police Total 4 25,221 1 2,498 5 27,719

Grand Total 12 $ 64,326 6 $ 12,512 18 $ 76,838 Since the prior valuation, the average periodic annuity decreased from $4,641 per pay period to $4,269 per pay period and total periodic benefits decreased from $102,090 to $76,838. Periodic benefits are paid thirteen (13) times per year.



X Participant Data (cont.)

Participant Age Distribution

Fire Police Grand Age Male Female Total Male Female Total Total

60 – 64 0 0 0 0 0 0 0 65 – 69 0 0 0 0 0 0 0 70 – 74 0 0 0 0 0 0 0 75 – 79 0 0 0 0 0 0 0 80 – 84 2 1 3 0 0 0 3 85 – 89 0 2 2 0 1 1 3 90 – 94 0 2 2 0 2 2 4

95+ 0 6 6 1 1 2 8 Total 2 11 13 1 4 5 18

Periodic Annuity Distribution (13 payments per year)

Fire Police Grand Age Male Female Total Male Female Total Total

60 – 64 0 0 0 0 0 0 0

65 – 69 0 0 0 0 0 0 0

70 – 74 0 0 0 0 0 0 0

75 – 79 0 0 0 0 0 0 0

80 – 84 4,632 5,422 10,054 0 0 0 10,054

85 – 89 0 9,037 9,037 0 2,498 2,498 11,535

90 – 94 0 11,356 11,356 0 11,144 11,144 22,500

95+ 0 18,670 18,670 10,419 3,658 14,077 32,747

Total 4,632 44,485 49,117 10,419 17,300 27,719 76,836

Notes: Average age: 87.7 years for participants and 92.8 years for spouses. Proportion of males/females: 17%/83%



XI Plan Summary

A. Eligible Participants

Closed group of public safety members and their survivors, not participating in PERS, who retired before March 1973.

B. Retirement Benefit

Service retirement benefits are based on a percentage of salary at retirement multiplied by years of service. Disability retirement benefits are 50% of salary at retirement.

C. Cost of Living Increases

After retirement, participants are eligible for adjustments in retirement benefits to account for Cost of Living increases. Benefits are adjusted annually by one of the following:

1. Full Fluctuating: current active salary increases (same rank at retirement).

2. CPI: increase in the California Consumer Price Index (with 1% minimum and 3% cap).

D. Death Benefits

Benefits continue to a surviving eligible spouse at participant's death. Continuation benefits are generally 33-1/3% of current active salaries for spouses of service retirement participants and 50% of current active salaries for spouses of disability retirement participants. No other death benefits are payable.



XII Actuarial Methods and Assumptions

A. Actuarial Methods

Actuarial Accrued Liability: Actuarial accrued liability was determined by multiplying pension benefits accrued at the valuation date by present value cost factors, based on applicable actuarial assumptions shown below. Note that future cost of living increases are included in this calculation. This calculation is based on the Unit Credit Actuarial Cost Method.

Actuarial Present Value of Benefits Being Paid: Actuarial present value of benefits being paid was determined by multiplying current pension benefit amounts at the valuation date by present value cost factors, based on applicable actuarial assumptions below. Future cost of living increases are not included in this calculation. This calculation is based on the Unit Credit Actuarial Cost Method.

The unfunded actuarial liability is amortized based on a level percent of future payroll, assuming aggregate payroll increases 5% each year.

B. Actuarial Assumptions

Interest rate 4.75% a year

Cost of living increases: Full Fluctuating 2.75% a year CPI 2.75% a year

Mortality 1997-2011 CalPERS Experience Study with projected improvement using scale MP-2014

C. Changes in Actuarial Assumptions

The following assumptions were changed from the prior valuation: 1) Interest Rate:

4.75% as of 06/30/2013 and 06/30/2014 5.24% as of 06/30/2012 The interest rate was updated to reflect the most recent expected return on plan assets with an allowance for the MassMutual GIC fund to cease in November 2018.

2) Mortality:

1997-2011 CalPERS Experience Study with projected improvement using scale MP-2014 as of 06/30/2013 and 06/30/2014. 1997-2007 CalPERS Experience Study with projected improvement using scale AA as of 06/30/2012.

3) Full Fluctuating Cost of Living Increases: 2.75% as of 06/30/2013 and 06/30/2014 5.00% as of 06/30/2012



XIII Appendix

In June 2012, GASB released statement No. 68 (employer accounting and financial reporting for pension plans), effective for the City for the fiscal year ending June 30, 2015. In this appendix, we provide certain GASB 68 information for the 2015 financial statements for illustration purposes. The disclosure information will be finalized in the update valuation as of July 1, 2015 and the information will replace the reporting under GASB 27. Please note: In order to allow GASB 68 expense information to be available before the end of the applicable reporting period, a measurement date one prior to the end of the reporting period is used (e.g. June 30, 2014 measurement date for Fiscal Year Ending June 30, 2015). As a result, the GASB 68 information shown below for Fiscal Year Ending June 30, 2015 is the same as the information shown for GASB 67 for Fiscal Year Ending June 30, 2014. GASB 68 Prior-Period Adjustment to Net Pension Liability (Balance Sheet) as of July 1, 2014 The prior-period adjustment to the balance sheet occurring on the initial effective date, July 1, 2014, follows: Applicable Valuation Date 07/01/2013 Applicable Measurement Date 06/30/2014 1. Net Pension Obligation removal at July 1, 2014 ($598,501) 2. Net Pension Liability at July 1, 2014

a. Total Pension Liability at Valuation Date $5,094,747 b. Plan Fiduciary Net Position at Valuation Date 1,564,995

Net Pension Liability (a)-(b) 3,529,752 3. Deferred Outflow of Resources (568,620) 4. Prior-period Adjustment (1)+(2)+(3) $2,362,631

GASB 68 Projected Net Pension Liability as of June 30, 2015 1. Net Pension Liability at July 1, 2014 $2,961,132 2. Annual Pension Expense, FYE June 30, 2015 613,038 3. Deferred Inflow of Assets 0 4. Deferred Outflow of Assets 0 5. Net Pension Liability at June 30, 2015 (1)+(2)+(3)+(4) $3,574,170



XIII Appendix (cont.)

2015 GASB 68 Notes to Financial Statements (Estimates) Schedule of Changes in the Net Pension Liability and Related Ratios GASB 68 is effective for fiscal year ending June 30, 2015. The follow exhibit is a 10 year history of change in Net Pension Liability. This Exhibit is not required to be reported on the June 30, 2014 CAFR. Please note: In order to allow GASB 68 expense information to be available before the end of the applicable reporting period, a measurement date one prior to the end of the reporting period is used (e.g. June 30, 2014 measurement date for Fiscal Year Ending June 30, 2015). As a result, the GASB 68 information shown below for Fiscal Year Ending June 30, 2015 is the same as the information shown for GASB 67 for Fiscal Year Ending June 30, 2014. Year Ending June 30, 2015 Total Pension Liability

Service Cost $0 Interest Cost $218,441 Changes of Benefit Terms $0 Differences Between Expected and Actual

Experiences $518,607 Changes of Assumptions $0 Benefit Payments, Including Refunds of

Member Contributions ($1,003,620) Net Change in Total Pension Liability ($266,572) Total Pension Liability (Beginning) $5,094,747 Total Pension Liability (Ending) $4,828,175

Plan Fiduciary Net Position Contributions—Employer $568,620 Contributions—Member $0 Net Investment Income $124,010 Benefit Payments, Including Refunds of

Member Contributions ($1,003,620) Administrative Expense $0 Other $0 Net Change in Plan Fiduciary Net Position ($310,990) Plan Fiduciary Net Position (Beginning) $1,564,995 Plan Fiduciary Net Position (Ending) $1,254,005 Net Pension Liability (Ending) $3,574,170 Net Position as a % of Pension Liability 25.97% Covered-Employee Payroll N/A Net Pension Liability as a % of Payroll N/A

Notes to Schedule:

No changes have been made over the 10 year history since GASB 68 has become effective.



XIII Appendix (cont.)

2015 GASB 68 Notes to Financial Statements (Estimates)

Schedule of Contributions Historically, the plan has been funded based on contributions necessary to pay benefits not provide by the MassMutual GIC. Funding is not based on actuarially determined contributions and contributions are neither statutorily nor contractually established.

Schedule of Investment Returns

GASB 68 is effective for fiscal year ending June 30, 2015. The follow exhibit is a 10 year history of Investment Returns. This Exhibit is not required to be reported on the June 30, 2014 CAFR.

Year Ending June 30,

2015

Annual Money-Weighted Rate of Return, Net of Investment Expense 9.68%

These schedules are presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, pension plans should present information for those years for which information is available


Documents

Actuarial Valuation Report - Berkeley, California€¦ · Aon Hewitt’s relationship with the Plan and the Plan Sponsor is strictly professional. There are no aspects of the relationship