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TO: Honorable City Council
FROM: Johnny Ea, Finance Director �-
DATE: February 7, 2008 (City Council Meeting of February 20, 2008)
SUBJECT: Consider Award of Contract for Professional Services Agreement to
Bartel Associates, LLC to Perform Actuarial Consulting Services
Related to Governmental Accounting Standards Board (GASB)
Statement No. 45
BACKGROUND
In June 2004, the Governmental Accounting Standards Board (GASB) issued
Statement No. 45, the accounting standards for Other Post - Employment Benefits
(OPEB). This statement governs pubic employer accounting of any benefits, other than
pensions, promised by an employer to their employees into retirement. The purpose of
GASB 45 is to provide better financial information and to ensure that the costs related to
providing employees with Other Post - Employment Benefits are accounted for over the
working careers of plan members.
GASB 45 requires public employers to report the cost of providing these other post -
employment benefits as well as information on any unfunded liability. As with most
public employers, the City of Moorpark does not pre -fund retiree medical benefits and
instead pays for such benefits on a pay -as- you -go basis. While GASB 45 does not
require public employers to pre -fund health benefits, employers may wish to pre -fund
these benefits and accumulate assets to offset these liabilities.
Implementation dates for GASB 45 are based on the size of the government as
measured by fiscal year 1998/1999 annual revenues. The City of Moorpark is a phase
2 Government with annual revenues of $10 million to $100 million. As such, the City is
required to implement the new standard as of June 30, 2009. The City is taking an
early adoption approach to determine it's OPEB liabilities and to avoid competing with a
t X000'74
Honorable City Council
February 20, 2008
Page 2
number of other agencies for actuarial consultants as most cities will fall under phase 2
for implementation requirements.
DISCUSSION
On November 21, 2007, staff issued a Request for Proposal (RFP) that was sent to nine
(9) qualified actuarial firms, hereinafter referred to as the "Consultant ", to perform
actuarial consulting services. The proposal requires the Consultant to value the City's
OPEB unfunded liability and related required annual contribution to comply with the
provisions of GASB 45. A total of two (2) well qualified proposals were received by the
due date of December 14, 2007. The results are as follows:
Firm Name
Not to Exceed Fee
Additional Meeting
(includes 2
Fees if Necessary
meetings with staff)
(e.g. to attend HCC
meeting)
Bartel Associates, LLC
$11,000
$1,500 /meeting
EFI Actuaries
$9,730
$950 /meeting
Both proposals were evaluated by the Finance Director and the Finance /Accounting
Manager. Interviews were conducted by the Finance Director and Finance /Accounting
Manager on January 9, 2008, with EFI Actuaries (via phone conference) and January
10, 2008, with Bartel Associates, LLC (on site). References were verified, which
resulted in positive feedback for both firms. After careful consideration staff
recommends that the firm of Bartel Associates, LLC be awarded the contract to provide
actuarial consulting services to the City of Moorpark.
Although the firm of Bartel Associates, LLC submitted a bid with a fee that is $1,270
higher than EFI Actuaries' proposal, Bartel Associates, LLC specializes in providing
actuarial consulting services to California clients. They have completed over 150 GASB
45 studies and their list of clients on pages 4 to 6 of their proposal clearly indicates that
they are a leader of the industry.
FISCAL IMPACT
The Fiscal Year 2007/08 Budget already includes $10,000 for the GASB 45 actuarial
study. The difference in the proposed fee and the budget is minimal, which can be
absorbed by other operating savings within the Finance Department.
'100075
Honorable City Council
February 20, 2008
Page 3
STAFF RECOMMENDATION
Authorize the City Manager to execute an agreement with Bartel Associates, LLC,
subject to final language approval by the City Manager and City Attorney.
Attachment: Bartel Associates, LLC Proposal for Actuarial Consulting Services.
`0000'76
a
City of Moorpark
Proposal for Governmental Accounting
Standards Board Statement No. 45
Actuarial Study
December 13, 2007
Bartel Associates, LLC
411 Borel Avenue, Suite 445
San Mateo, California 94402
Phone: 650- 377 -1600
Fax: 650- 345 -8057
Email: jbartel @bartel - associates.com
"0000ii
1'0000'78
Contents Page
Transmittal Letter
Section 1
Introduction........................................................................................ ............................... 1
Section 2
BartelAssociates ................................... ...............................
Section 3
Qualifications and References ............... ...............................
Section 4
WorkPlan ............................................. ...............................
Section 5
ProjectTeam ........................................ ...............................
Section 6
.............................. 3
..... ............................... 4
.. ............................... 8
Fees........................................................................... ...............................
Section 7
Data........................................................................... ...............................
Appendices
A. Bartel Associates' Services
B. Project Team Member Biographies
C. GASB 45 Summary
D. Certificate of Liability Insurance
12
13
.................. 17
1000'79
`)OOOSO
December 13, 2007
Johnny Ea
Finance Director
City of Moorpark
799 Moorpark Avenue
Moorpark, CA 93021
Re: Proposal for GASB 45 Actuarial Study
Dear Mr. Ea:
We are pleased to provide our response to the City of Moorpark's Request for Proposal for
Governmental Accounting Standards Board Statement No. 45 (GASB 45) actuarial
consulting services.
Our proposal includes our firm's background and qualifications, references, the project
scope, our estimated fee, the personnel assigned to the project, and our proposed timetable.
Bartel Associates is uniquely qualified to prepare the City's GASB 45 valuation:
• Bartel Associates was established to provide quality and cost effective services to
California public agencies. Our services include retiree medical and other
postemployment benefit actuarial valuations, pension plan valuations and
administration, retiree medical plan and pension plan design, actuarial audits, and
Ca1PERS retirement plan consulting.
• As a member of the special task force which assisted GASB in drafting Statement No.
45, I have consulted with many counties, cities, districts, and other public agencies on
GASB 45 issues. I am also currently serving as a consultant to Governor
Schwarzenegger's Public Employee Post - Employment Benefits Commission. With
over 150 GASB 45 studies completed since 2004, we are experts in this field.
• We regularly present the results of our actuarial studies to county boards of supervisors,
city councils, and district boards of directors. Our presentations are clear, concise, and
understandable to non - actuaries.
• Our GASB 45 actuarial studies include a comparison of the costs and liabilities with
other public sector GASB 45 actuarial studies that we have completed.
We are prepared to work on the City's project immediately and can complete the GASB
actuarial valuation within the timeframe presented in this proposal. Our proposal is valid
for 90 days after the closing date for submission of proposals.
We carefully reviewed the City's benefit promise and requested projects so that our
proposal, work plan, and fees properly reflect the RFP. It is important to us that you
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1 ,1000$1
Johnny Ea
December 13, 2007
Page 2
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understand the scope of the project and the process needed to provide thoughtful and
useful results and not be surprised by any hidden fees. The City should be certain that it is
comparing similar deliverables (meetings, presentation outlines, assumption sets, results
breakdowns, etc.) when evaluating proposals received in response to the RFP.
Please contact me at 650- 377 - 1601 obartel @bartel - associates.com) or my associate Doug
Pryor at 650- 377 -1602 (dpryor @bartel- associates.com) if you have any questions
regarding our proposal.
We look forward to hearing from you.
Sincerely,
1
E-so,
'►;
John E. Bartel
President
c: Doug Pryor
o: \prospects \city of moorpark \ba proposal 07 -12 -04 garb 45 city of moorpark.doc
main: • %ax; n • web: w
J100082
SECTION 1
INTRODUCTION
Retiree Healthcare Plan
The City participates in Ca1PERS providing employees the 2 % @55 benefit. The City also
provides medical benefits through the CalPERS healthcare program ( PEMHCA). The City
provides the PEMHCA minimum contribution ($80.80 for 2007) for all employees who
retire from the City under Ca1PERS. Retirees pay the remainder of the premium. The City
does not provide contributions for retiree dental, vision, or life benefits.
The City has approximately 100 active employees (fulltime, part time, and council
members) and 3 retirees currently receiving healthcare benefits. The City currently
accounts for retiree healthcare costs on a pay -as- you -go basis.
GASB 45
The Governmental Accounting Standards Board (GASB) approved Statement No. 45
(GASB 45), "Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions" in 2004. GASB 45 provides accounting standards for non -
pension postemployment benefits, primarily postretirement medical benefits. (GASB 43
covers reporting and disclosure requirements for "OPEB" plans.) Under GASB 45:
• Obligations are measured on an accrual, rather than on a pay -as- you -go basis.
• Assets can be recognized for GASB 45 only if they are set aside in an irrevocable trust
set up exclusively to pay plan benefits.
Accounting for OPEB benefits under GASB 45 can have a significant impact on the City's
financial statements. GASB 45's effective dates are phased in similar to GASB Statement
No. 34:
Government
1998/99 Revenue
Fiscal Year Effective
Phase 1
> $100 million
2007/08
Phase 2
$10 to $100 million
2008/09
Phase 3
< $10 million
2009/10
The City intends to implement GASB 45 for the 2007/08 fiscal year.
GASB 45 requires that an actuarial valuation be performed at least biennially for retiree
healthcare plans with 200 or more members and at least triennially for plans with less than
200 members. (The City currently has less than 200 members.) However, a new valuation
must be done if any significant changes have occurred since the last valuation, for
example, to plan membership, benefit provisions, or the basis of any long -term actuarial
assumptions.
The City must include GASB 45 disclosures in its financial statement for years when a
new valuation is not required. GASB 45 allows the use of a valuation for a fiscal year if
Bartel Associates, LLC
City of Moorpark
X00083
SECTION 1
INTRODUCTION
performed not more than 24 months before the beginning of the fiscal year if there have
been no significant changes. Therefore, the City may be able to use a single valuation for
several years by performing "roll- forward valuations" rather than complete actuarial
valuations for the intervening years.
The City has requested proposals for an actuarial study and valuation to determine the
GASB 45 costs and liabilities for its retiree healthcare plan.
A summary of GASB 45 is provided in Appendix C.
Bartel Associates, LLC 2
City of Moorpark
=100084
SECTION 2
BARTEL ASSOCIATES
Bartel Associates, LLC is an actuarial consulting firm specializing in providing California
counties, cities, districts, and other public agencies with actuarial consulting including
retiree medical valuations, pension plan valuations, retirement plan design, actuarial audits,
and CalPERS retirement consulting.
The firm's founder, John Bartel, has over 30 years of experience as a retirement consultant
and practice leader with major consulting firms. John founded Bartel Associates to
provide public sector clients high quality actuarial services at reasonable fees, focusing on
personal attention and clear results.
Our services include:
■ OPEB Plans - We have prepared "Other Postemployment Benefit" actuarial studies and
valuations for over 150 California counties, cities, districts, and agencies to assist with
compliance with GASB Statements Nos. 43 and 45. We also prepare valuations for
compensated absence plans for compliance with GASB 16.
■ Ca1PERS - We provide Ca1PERS pension consulting services and have made
presentations to county boards of supervisors, city councils, district boards of directors,
employee bargaining groups, and agency staff on Ca1PERS contribution rates and
benefit design issues.
■ Pension Plans - We prepare actuarial valuations and assist with the administration of
defined benefit pension plans for California governments and agencies.
■ Plan Design - We assist public agencies redesign existing retirement plans and
implement new retirement benefit programs including retiree medical plans and pension
plans.
■ Retirement System Audits - We review actuarial valuations, experience studies,
actuarial assumptions, and actuarial methods for state, county, and other agency
retirement systems.
Bartel Associates was established in July 2003 and is organized as a Limited Liability
Corporation. We currently have 16 employees including 8 credentialed actuaries. Seven
of our actuaries are Fellows or Associates of the Society of Actuaries, 7 are Enrolled
Actuaries, 8 are Members of the American Academy of Actuaries, and 4 are Fellows of the
Conference of Consulting Actuaries.
Bartel Associates is licensed to do business in California. Our certificate of liability
insurance in included in Appendix D.
Bartel Associates, LLC
City of Moorpark
SECTION 3
QUALIFICATIONS AND REFERENCES
John Bartel was a member of the special task force which assisted the Governmental
Accounting Standards Board (GASB) in drafting Statement No. 45, "Accounting and
Financial Reporting by Employers for Postemployment Benefits Other Than Pensions"
(GASB 45). He was directly involved in the statement's development and has assisted
numerous public agencies quantify and understand the impact of this new accounting
standard. Bartel Associates also completed a review for GASB of proposed alternative
financial reporting actuarial issues under the new statement.
Each GASB 45 study that we prepare includes a review of plan provisions, a summary of
plan participants, the selection of actuarial methods and assumptions, the determination
and communication of GASB 45's financial impact, and a projection of costs and funding
alternatives. Many of these studies also include a discussion of plan design alternatives.
We present results using plain, easily understood language. We will understand your
objectives and you will understand the results of our work.
Following is a partial list of clients for whom we have prepared or are currently preparing
GASB 45 actuarial valuations.
Alameda County Water District
City of San Rafael
Alameda Corridor Transportation Authority
City of Santa Clarita
Aptos /La Selva Fire Protection District
City of Santa Clara
Association of Bay Area Governments
City of Santa Cruz
Bay Area Air Quality Management District
City of Santa Fe Springs
Calleguas Municipal Water District
City of Santa Rosa
CalOptima
City of Solana Beach
Chino Valley Independent Fire District
City of South Lake Tahoe
City of Alameda
City of South San Francisco
City of Antioch
City of Stockton
City of Belmont
City of Sunnyvale
City of Bishop
City of Torrance
City of Brea
City of Union City
City of Brentwood
City of Vallejo
City of Brisbane
City of West Sacramento
City of Burbank
City of Westlake Village
City of Burlingame
City of Westminster
City of Cathedral City
City of Yuba City
City of Chula Vista
Coachella Valley Water District
City of Compton
Community Redevelopment Agency of LA
Bartel Associates, LLC 4
City of Moorpark
f #00086
SECTION 3
QUALIFICATIONS AND REFERENCES
City of Concord
Contra Costa Transportation Authority
City of Corona
County of Madera
City of Costa Mesa
County of Monterey
City of Cupertino
County of Napa
City of Daly City
County of Nevada
City of Davis
County of Orange
City of Duarte
County of Placer
City of Dublin
County of Santa Cruz
City of El Centro
County of Solano
City of El Segundo
County of Sutter
City of Encinitas
County of Tulare
City of Fairfield
County of Tuolumne
City of Fort Bragg
County of Yolo
City of Foster City
County of Yuba
City of Fremont
Cucamonga Valley Water District
City of Glendale
Dublin San Ramon Services District
City of Glendora
East Bay Regional Park District
City of Hermosa Beach
Eastern Municipal Water District
City of Huntington Park
Helix Water District
City of Inglewood
Ironhouse Sanitation District
City of La Puente
Irvine Ranch Water District
City of Livermore
Los Altos Unified School District
City of Lompoc
Los Angeles County Sanitation District
City of Long Beach
Marin Municipal Water District
City of Madera
Menlo Park Fire Protection District
City of Menlo Park
Metropolitan Water District of Southern
California
City of Merced
Moraga - Orinda Fire District
City of Mill Valley
Mt. Diablo Unified School District
City of Mission Viejo
North Coast County Water District
City of Monrovia
North Orange County Community College
District
City of Napa
North Tahoe Fire Protection District
City of Newark
Otay Water District
City of Newport Beach
Palo Alto Unified School District
Bartel Associates, LLC
City of Moorpark
POOQ8'7
SECTION 3
QUALIFICATIONS AND REFERENCES
City of Ontario
Peralta Community College District
City of Petaluma
Placer County Water Authority
City of Pittsburg
Rancho Cucamonga Fire District
City of Pleasanton
Redwood Empire Municipal Insurance Fund
City of Pomona
Riverside County Transportation Commission
City of Rancho Cucamonga
Rodeo Hercules Fire Protection District
City of Redding
Sacramento Metropolitan Fire Protection District
City of Redondo Beach
San Diego County Water Authority
City of Redwood City
San Mateo County Transit District
City of Richmond
San Ramon Valley Fire Protection District
City of Riverside
Scotts Valley Fire Protection District
City of Rocklin
South County Fire Protection Authority
City of Rohnert Park
Southern California Association of Governments
City of Roseville
Southern California Regional Rail Authority
City of Sacramento
Stanislaus County Housing Authority
City of Salinas
State of Maine
City of San Bernardino
Stege Sanitary District
City of San Carlos
Sweetwater Authority
City of San Jose
Town of Los Altos Hills
City of San Leandro
Tamalpais Union High School District
City of San Luis Obispo
Tuolumne Utilities District
City of San Mateo
West & Central Basin Municipal Water District
Bartel Associates, LLC
City of Moorpark
SECTION 3
QUALIFICATIONS AND REFERENCES
We recommend that the City contact our references to understand the quality of our work.
Client
Project
Contact
City of Torrance
GASB 45 Actuarial Study
Mary K. Giordano
CalPERS Consulting
Assistant District Manager
Pension Valuations
3031 Torrance Blvd.
Torrance, CA 90503
Phone: 310 - 618 -5880
City of Burbank
GASB 45 Actuarial Study
Roger. Brennan
CalPERS Consulting
Management Services Department
275 East Olive Avenue
Burbank, CA 91510 -6459
Phone: 818 - 238 -5044
City of Glendale
GASB 45 Actuarial Study
Ron Ahlers
CalPERS Consulting
Finance and Administrative
Sick Leave Conversion
Services
141 North Glendale Ave
Room 346
Glendale, CA 91206 -4998
Phone: 818 -548 -2085
City of Mission Viejo
GASB 45 Actuarial Study
Irwin Bornstein
CalPERS Consulting
Assistant City Manager- Director
Plan Design
of Administrative Services
Pension Obligation Bonds
200 Civic Center ,.
Mission- Viej",CA 92961
Phone: '949 -970 -3059
City of Newport Beach
GASB 45 Actuarial Study
Richard Kurth
CalPERS Consulting
Administrative Services, Deputy
Plan Design
Director
3300 Newport Blvd.
P.O. Box 1768
Newport Beach, CA 92658 -8915
Phone: 949 - 644 -3241
County of Orange
GA SB� 45,Actuarial�Study . Path Gorczye
Flan Design Changes County EK Cutive Of%ce ,
1.0 Civic, Center i3 3rd Floor
Santa A 92701
Phone: _714 -834 3046'
We consider specific information regarding each project to be confidential. However, the
City should feel free to discuss any aspects of the projects with the reference contacts. We
can provide additional references at the City's request.
Bartel Associates, LLC
V/
City of Moorpark
1)00089
SECTION 4
WORK PLAN
Project Approach
We believe that there are two levels to a GASB 45 actuarial valuation. The first level is
technical compliance with GASB 45. Some public employers may hire an actuary to assist
only with technical compliance with the standard, limiting the scope of services to
preparing the required financial reporting and disclosure.
The second level goes beyond reporting and disclosure issues, and includes assisting
management with an understanding of GASB 45, the actuarial assumptions and methods,
the valuation results, and the financial statement impact, including a review of the plan
design and participants.
Our recommended approach to GASB 45 studies includes both consulting levels, meeting
with management in person at least twice during the valuation process. We would first
meet with the City to review employee data, plan provisions, and actuarial assumptions.
This will ensure that we have the proper information to begin the valuation. We would
meet a second time to review the valuation results and their financial impact.
Our actuarial valuation process includes the following steps:
■ Data Collection - The City will provide documentation of plan provisions and employee
census information including individual plan and coverage elections.
■ Data Reconciliation - We will review the plan and participant data and provide a list of
any questions.
Methods & Assumptions Meeting - We will meet with the City for an initial planning
meeting to review the plan design and participant data. We will also review the
actuarial assumptions and funding methods and determine an appropriate project
timetable with the City.
GASB 45 requires that the discount rate be based on the source of funds used to pay
benefits. For funded plans, this means the underlying expected long -term rate of return
on plan assets. Since the source of funds for unfunded plans is usually an agency's
investment fund, and because California and most other state laws restrict what
investments agencies can have in their investment funds, unfunded plans will need to
use a low (for example, 4.5 %) discount rate.
GASB 45 requires that actuarial assumptions be consistent with retirement plan
assumptions. Due in part to our significant experience with Ca1PERS, we have the
ability to clearly communicate the actuarial assumption selection process to our clients.
Healthcare plans funded through CalPERS are required to use certain methods and
assumptions. For example, Ca1PERS currently requires a discount rate of 7.75% for
liabilities funded through the California Employers' Retiree Benefit Trust Fund
(CERBT).
Bartel Associates, LLC
City of Moorpark
{ ±00090
SECTION 4
WORK PLAN
It is important that the City understand the methods and assumptions used and their
impact on GASB 45 results as these are actually assumptions set by the City, subject to
our actuarial guidance and standards of practice.
■ Valuation Processing - We will prepare the actuarial valuation using ProVal software, a
comprehensive and widely used and respected retirement benefit valuation system
developed by Winklevoss Technologies, LLC.
GASB 45 requires that any "implied subsidy" be included in the GASB 45 retiree costs
and liabilities for non - community rated plans. Implied subsidies arise when retiree
premiums do not represent the expected costs of the underlying retiree group, for
example, when the same premium rates are charged for active employees and pre -
Medicare eligible retirees. Retiree health plans covered by the CalPERS healthcare
program are considered community rated and generally not required to value this
subsidy.
Our procedures for quality control include the checking of computer programs and
calculations by a second actuary and the review of results and presentation materials by
senior actuaries.
• Preliminary Results Meeting - We will meet with the City to review the preliminary
valuation results prior to the completion of a formal actuarial valuation report. Our
preliminary results presentation will be in a discussion outline format and will include a
benchmark survey comparing the City's GASB 45 information with other agency
GASB 45 plan studies prepared by Bartel Associates.
• Valuation Report - If the City adopts GASB 45 and uses the actuarial study results as
the basis for reporting and disclosure, we can, at the City's request, prepare a formal
valuation report including an actuarial certification. We can also prepare an executive
summary of the valuation results and a draft GASB footnote, if needed.
We strongly believe that through our years of experience we have developed an efficient
and effective process for preparing and presenting actuarial valuations.
Actuarial Valuation Discussion Outline
Our actuarial valuation discussion outlines are clear, concise and understandable to non -
actuaries. Our outlines include:
• Summary of plan provisions.
• Summary of the data used for the valuation including:
• employee counts and average ages, service, pay, etc. by employee group
• active and retiree coverage elections by healthcare plan
• retiree coverage (single, 2 -party, family) statistics by age
• active age /service distributions
Bartel Associates, LLC
City of Moorpark
J00091
SECTION 4
WORK PLAN
• Summary of actuarial methods and assumptions.
• GASB 45 accounting information, including benefit costs and obligations as outlined
below.
• Comparison of the City's costs and obligations with that of other agencies in our
database.
The discussion outline will include the following GASB 45 information:
■ Actuarial value of benefits, including:
• Present Value of Future Benefits
• Actuarial Accrued Liability (AAL), broken down by active and retired employees
• Plan Assets
• Unfunded Actuarial Accrued Liability (UAAL)
• Normal Cost
• Expected Benefit Payments
■ Annual Required Contribution (ARC), as a dollar amount and as a percentage of
payroll, identifying:
• Normal Cost
• Amortization of the UAAL
■ Annual OPEB Cost (AOC).
■ Net OPEB Obligation (NOO).
• Sensitivity analysis, including:
• 2 investment return scenarios (e.g., not funded and funded)
• Alternative amortization periods for the UAAL (e.g., 20 and 30 years).
• Projected contributions and AOC versus "pay -as- you -go" costs.
Bartel Associates, LLC 10
City of Moorpark
i90U92
SECTION 4
WORK PLAN
Project Schedule
We usually recommend an 8 -week project schedule for the actuarial valuation. For
example, if the City provides census data and plan information on February 11, 2008, a
possible work schedule would be as follows:
Project Steps
1) The City provides participant data and plan information to
Bartel Associates.
2) Bartel Associates meets with the City to review the
employee data, plan design, and actuarial funding method
and assumptions, including the discount rate.
3) Bartel Associates meets with the City to present
preliminary valuation results.
4) Bartel Associates provides a final valuation discussion
outline.
Estimated Dates
February 11, 2008
February 25, 2008
z 2 weeks after (1)
March 24, 2008
4 weeks after (2)
April 7, 2008
2 weeks after (3)
We can complete the valuation within this timeframe if all the information requested is
provided quickly and accurately.
Bartel Associates, LLC
11
City of Moorpark
1100093
SECTION 5
PROJECT TEAM
The project team that will be assigned to work with City will include:
• John Bartel, President
• Doug Pryor, Vice President
• Bianca Lin, Assistant Vice President
John Bartel will function as engagement manager and will be responsible for the
relationship and day -to -day direction of the project. John is an Associate of the Society of
Actuaries, an Enrolled Actuary, a Fellow of the Conference of Actuaries, and a Member of
the American Academy of Actuaries. He has extensive public sector experience with
GASB 45 and retirement consulting with over 120 public entities in California that are
covered by the California Public Retirement System (Ca1PERS). He has appeared before
county boards of supervisors, city councils, and public agency boards of directors and is
known for his clarity.
Doug Pryor and Bianca Lin will provide actuarial and technical support. Doug has 18
years experience in the retirement and employee benefits area. He is an Associate of the
Society of Actuaries, an Enrolled Actuary, and has a Masters Degree in Statistics. Bianca
has 15 years experience in the retirement and employee benefits area. She is a Fellow of
the Society of Actuaries, an Enrolled Actuary, and has a Masters Degree in Statistics.
The project team will be assisted by our actuarial analyst staff. Biographies of project
team members are included in Appendix B.
Bartel Associates, LLC 12
City of Moorpark
X00094
SECTION 6
FEES
Our fees are a function of the hours worked by each professional on a project and their
hourly billing rates. Our hourly rates are as follows:
We have prepared a budget based on the City's retire healthcare plan design and the
number of employees and eligible retirees using the information provided in the RFP. We
expect our fees will be approximately $10,000.
The City should be certain that all responses to the RFP include the same project elements
when comparing estimated fees. If any of these project steps are not needed, our estimated
fee will be lower.
Proiect Elements
Hourly
Team Member
Rate
President & Senior Actuary
$300
Actuary
$225
Consultant
$200
Actuarial Analyst
$175
Actuarial Trainee
$150
Administrative Support
$75
We have prepared a budget based on the City's retire healthcare plan design and the
number of employees and eligible retirees using the information provided in the RFP. We
expect our fees will be approximately $10,000.
The City should be certain that all responses to the RFP include the same project elements
when comparing estimated fees. If any of these project steps are not needed, our estimated
fee will be lower.
Proiect Elements
Estimated Fee
GASB 45 Actuarial Valuation
$5,600
Discount Rate Sensitivity (no- funding and funding discount rates)
600
Results Breakdown (4 employee groups)
800
Methods & Assumptions Meeting
1,500
Preliminary Results Meeting
1.500
Total
$10,000
Note that:
■ Our fee estimate assumes that:
• Post - retirement benefits for the valuation will include medical benefits, but no
City -paid dental, vision, or life insurance benefits and no conversion of sick leave
balances to retiree medical benefits.
• Participant census data will be provided completely and accurately in the format
requested.
• GASB 45 costs and liabilities will be presented for the plan as a whole with
breakdowns for 4 employee groups: City Council, City Manager & Department
Heads, Management employees, and Competitive Service employees.
• Costs and liabilities will be provided using one funding method and one set of
assumptions including 2 investment return scenarios (not funded and funded).
Bartel Associates, LLC
13
City of Moorpark
,100095
SECTION 6
FEES
• We will have 2 meetings with the City: one to review the data, plan provisions,
methods, and assumptions and a second to review preliminary valuation results.
• We will provide 2 discussion outlines for our meetings: a "Methods &
Assumptions" outline for our first meeting with the City and a "Preliminary
Results" outline for our second meeting.
• There will be no additional charges for expenses (e.g., travel, telephone, copying, etc.).
The hourly rates listed above include our costs for these items.
• We based our estimated fee on our best guess of the amount of time required for the
project. While this represents the likely cost of the study, it is possible that unexpected
work or complexities may arise that will require additional time. We understand the
City's budgeting needs and agree not to bill more than $11,000 assuming 2 meetings
unless the scope of the project changes as described below.
■ We will invoice the City monthly based on time incurred, subject to the above
maximum fee.
The above fees might be higher if the scope of the project changes from that described
above, for example:
■ The retiree healthcare promise differs from the information provided in the RFP
• Participant data is not relatively clean and free from internal consistencies or is not
provided in electronic format (Excel worksheet).
• Valuation results are needed for additional actuarial assumption sets, funding methods,
or alternative plan designs.
• The City requests that GASB 45 results be broken down by additional employee or
bargaining groups.
• The City requests additional meetings such as more than 2 meetings to discuss actuarial
methods and assumptions and to present the study results, a presentation to the City
Council, or a meeting with outside auditors. We would base our fee for an additional
meeting on our billing rates and the time needed for the meeting and preparation. For
example, a 2 -hour meeting with 3 hours of preparation time would cost about $1,500. If
the City requests our presence at a City Council meeting where we can use our existing
Preliminary Results outline, our fee would only include time spent at the meeting.
• Our presentation outlines contain the information needed for the City's CAFR. We can
provide additional reports, such as a formal valuation report and financial statement
footnote, at the City's request. We estimate our fees will be $2,000 for a formal
valuation report and $1,000 for a draft financial statement footnote. The cost of
preparing an executive summary, if needed, will be approximately $1,500.
Bartel Associates, LLC 14 City of Moorpark
100096
SECTION 6
FEES
■ If the City pre -funds retiree healthcare benefit through the CERBT, in addition to a
formal valuation report, it will need to submit an actuarial certification and an Excel
spreadsheet containing valuation information to Ca1PERS when it implements GASB
45 and begins funding the plan. Our fee to prepare the certification and Excel
spreadsheet will be approximately $500.
Additional studies, such as to explore alternative assumptions or address potential benefit
design changes, will be billed at our hourly rates. We will provide a fee estimate after the
scope of the project is defined and before work is begun.
Bartel Associates, LLC 15
City of Moorpark
f $ 00 09'7
SECTION 6
FEES
CITY OF MOORPARK Page 7 of 20
RFP for Actuarial Consulting Services
GASB 45 Other Post Employment Benefits
FIRM:
APPENDIX A
COST PROPOSAL FORM
Bartel Associates, LLC
ADDRESS: 411 Borel Ave., Suite 445
San Mateo, CA 94402
TELEPHONE NUMBER: 650- 377 -1600
Total Not to Exceed Amount for the project:
Hourly Rate for Additional Consulting Services
(Beyond the scope of the project)
Position
Partner
Manager
Supervisor
Staff
Bartel Associates, LLC
16
$ 11,000
Actuary Standard_ Hourly Billinq Rates
$300
$ 225
$ 200
$ 175
City of Moorpark
)00098
SECTION 7
DATA
If the City accepts our proposal, we will need the following information:
• Summary of plan provisions and copies of the most recent MOUs for bargained
employee groups and agreements for unrepresented groups.
• Total pay -as- you -go costs for the last 3 complete fiscal years (2004/05, 2005/06,
2006/07) and an estimate for the fiscal year ending June 30, 2008.
• The City's CalPERS healthcare program contract or resolution joining PEMHCA.
• Investment fund annual rates of return for the last 10 years or as many years as are
available, if less. See the attachment below.
• Employee census information, in a single electronic file (Excel spreadsheet) with 1
record per participant, including the information shown on page 19:
• Include any active and retired employees who have waived coverage or receive a
cash reimbursement.
• Include retirees (including surviving spouses) who have retired under CalPERS and
participate in PEMHCA even if they are not eligible for a City contribution under
the retiree healthcare plan.
• The City may request a data extract of its CalPERS PEMHCA database by calling
the CalPERS Employer Contact Center at 888 - 225 -7377. This data extract may be
helpful to the City in assembling the requested employee census information. (We
are available to assist if the City needs our help to merge and reconcile various data
sources, but this will result in additional fees.) The City should only provide us
with one active and retiree data file and not separate files from the City and
CalPERS. The City can:
➢ Prepare its own data file and use the CalPERS data to review and complete the
data requested.
➢ Provide the CalPERS data file after reviewing and correcting any
misinformation in the CalPERS data extract. (We can download the CalPERS
text data into an Excel file for the City's review if requested.) Note that the
CalPERS data extract may not include some of the requested data, such as
compensation, employee classification, and bargaining group. In lieu of
providing individual pay records, the City can provide the average pay for
employees from the last CalPERS contribution report, indicating if the reported
amount is semi - monthly pay (reported 24 times per year) or bi- weekly pay
(reported 26 times per year).
In order to maintain confidentiality, please do not provide Social Security Numbers.
We may need additional data, depending on our review of the City's benefit promise.
Bartel Associates, LLC 17
City of Moorpark
t00099
SECTION 7
DATA
Investment fund Annual Rates of Return
Fiscal Year
City
LAIF
2006/2007
5.12%
2005/2006
3.87%
2004/2005
2.26%
2003/2004
1.53%
2002/2003
2.15%
2001/2002
3.45%
2000/2001
6.10%
1999/2000
5.71%
1998/1999
5.34%
1997/1998
5.70%
Bartel Associates, LLC 18
City of Moorpark
000100
SECTION 7
DATA
GASB 45 Census Information
Data Field
Actives
Retirees
Name
Yes
Yes
Employee Number
Yes
Yes
Gender
Yes
Yes
Birth Date
Yes
Yes
Spouse's Birth Date
Yes (if available)
Yes (if available)
Hire Date
Yes
Yes (if available)
Retirement Date
N/A
Yes
Retirement Type
N/A
Service, Disability
Employee Classification
Full -Time / Part-Time
N/A
Bargaining Group
Yes
Yes
Ca1PERS Pension Plan
Yes
(Misc, Safety)
Yes
(Misc, Safety)
Compensation
Yes
(Base or PERSable Pay)
N/A
Medical Plan
Yes
Yes
Medical Plan Code
Ca1PERS Plan Code
Ca1PERS Plan Code
Medical Coverage
Yes
(Single, 2 -Party, Family)
Yes
(Single, 2 -Party, Family)
Medical Premium — City Paid
N/A
Yes
Medical Premium — Retiree Paid
N/A
Yes
Bartel Associates, LLC 19
City of Moorpark
1 ?001.01.
APPENDIX A
BARTEL ASSOCIATES' SERVICES
Following are the services Bartel Associates provides:
OPEB (Other Post Employment Benefits)
We provide OPEB actuarial services to many California agencies. This work helps
agencies understand the impact of GASB 45 and includes:
• review and determination of plan benefits per MOUs, bargaining agreements, plan
summaries, etc.;
• review of plan demographics and determination of actuarial methods and assumptions;
■ calculation of GASB 45 costs and liabilities;
• review and analysis regarding funding alternatives;
• preparation of draft financial statement reporting and disclosure information;
• alternative plan design cost impact studies;
• analysis of defined benefit and defined contribution plan designs;
• open and closed group projections, including Annual OPEB Cost (AOC) cost and
benefit payout projections; and
• review and analysis of life insurance contracts.
Ca1PERS Consulting
We have worked with over 120 California public agencies consulting on issues related to
the CalPERS retirement system. This work covers a broad spectrum of retirement benefits
issues, and often includes presentations to city councils, boards of directors, employee
bargaining groups, or agency staff. Additional detail of projects we have prepared are as
follows:
• benefit improvement analysis (e.g. 3 % @50 and 3 % @55 for safety and 2.5 % @55,
2.7 % @55, and 3 % @60 for non - safety), including cost allocations for property tax
issues;
• Pension Obligation Bond (POB) issues including cash flow analysis and actuarial
certifications for POB unfunded actuarial liabilities;
• asset - liability analysis including modeling stochastic confidence ranges for various
funding criteria such as asset returns, contribution rates, and plan funded status;
• projections of Ca1PERS contribution rates and related stochastic modeling;
• cost impact studies of actuarial assumption changes; and
• plan review and design issues.
.000102
APPENDIX A
BARTEL ASSOCIATES' SERVICES
Pension Plans
We prepare actuarial valuations of defined benefit retirement plans for public agencies.
This work includes consulting regarding various plan issues, including the following:
■ annual and biennial actuarial valuations;
■ financial statement reporting and disclosure information under Governmental
Accounting Standards Board Statement No. 27 (GASB 27) for public agencies;
■ audits of actuarial valuations and experience studies; and
■ benefit calculations, plan design, and document review.
Bartel Associates always presents results and prepares discussions using plain, easily
understood language. We will understand your objectives and you will understand our
work as well as our recommendations for your plans.
F)00103
APPENDIX B
PROJECT TEAM MEMBER BIOGRAPHIES
JOHN E. BARTEL, President
Experience/Responsibilities
With 30+ years in employee benefits, John focuses on pension consulting for a wide
variety of public and private sector clients. He founded Bartel Associates to serve public
sector agencies — emphasizing quality, personal attention, and clear results at reasonable
fees. Clients rely on John's ability to apply complex regulations in understandable ways.
John specializes in:
• CalPERS public agency consulting
• Helping clients understand actuarial, accounting, and regulatory issues
• Retiree healthcare plan valuation, study, and design
• Retirement plan review, valuation, and design
• Employee benefit merger and acquisition issues
• Publications:
➢ 2003 California Public Retirement Journal "GASB: Other (Than Pensions) Post
employment Benefits Plan Sponsor Reporting and Disclosure" (available soon
online).
➢ June 2001 National Association of State Retirement Administrators (NASRA) "Is
A DROP Plan Right for Your Organization ?" with Chris Bone, Aon's Chief
Actuary (www.nasra.org /curren"opics.php ?action= item &art=10).
➢ January 2001 Western City "Understanding the Impact of the New CalPERS Public
Safety Benefits" with Harriet Commons, City of Fremont,
(www.westernCity.com /JANO 1 CalPERS 13.htm).
➢ GASB 27 (pension disclosure) White Paper, California Committee on Municipal
Accounting with Glenn Steinbrink, City of Fullerton,
(www.calpers.org /employer /actuary /GASB27- 1998 -att l .pdf).
• Speaking at numerous meetings for:
➢ California Society of CPA's
➢ California Public Employee Labor Relations Association
➢ California Society of Municipal Finance Officers
➢ Society of Actuaries
Affiliations /Designations/Education
• Associate of the Society of Actuaries
• Enrolled Actuary
• Fellow of the Conference of Consulting Actuaries
• Member, American Academy of Actuaries
• Member, GASB's OPEB task force
• BS in mathematics, California State University, Chico.
100104
APPENDIX B
PROJECT TEAM MEMBER BIOGRAPHIES
DOUG PRYOR, Vice President
Experience/Responsibilities
With 18 years in employee benefits, Doug specializes in actuarial consulting and other
projects. Clients appreciate Doug's ability to provide concise, pertinent, valuable
information in a timely fashion. His experience includes:
• Actuarial valuations of public, corporate, and multiemployer pension plans.
• Studies analyzing the cost of new benefits and changes to existing programs.
• Design and costing of supplemental retirement benefits for executives.
• Valuations of postretirement medical programs.
• Funding of health and welfare benefits under VEBAs.
• Plan amendments, summary plan descriptions, and other employee communications.
• Plan terminations, calculating benefits, annuity purchase, employee communications,
and government filings.
• Benefit issues related to mergers and acquisitions as well as union negotiations.
Affiliations /Designations/Education
■ Associate of the Society of Actuaries
• Enrolled Actuary
• Member, American Academy of Actuaries
• BS in mathematics, University of California, Davis
• MA Statistics, University of California, Santa Barbara
BIANCA LIN, FSA
Experience/Responsibilities
Bianca's 15 years of actuarial experience includes 11 in employee benefit consulting.
Clients depend on Bianca's ability to coordinate projects with them and prepare results in
an efficient, cost - effective manner. Her work includes:
■ Pension and retiree healthcare actuarial valuations.
• Review and analysis of Ca1PERS valuations.
• Cost analysis and projections of various post employment benefit programs.
Affiliations /Designations/Education
• Fellow of the Society of Actuaries
• Enrolled Actuary
• Member, American Academy of Actuaries
• MS in Statistics, National Tsing Hwa University, Taiwan
it
4100105
APPENDIX C
GASB 45 SUMMARY
On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB
45), accounting standards for other (than pensions) postemployment benefits (OPEB). Accounting for
these benefits — primarily postretirement medical — can have significant impact on state and local
government financial statements. This article summarizes GASB 45 including the basics, some idea of
the magnitude, and action steps you should be taking now. (GASB's Statement No. 43, which sets
uniform financial reporting standards for OPEB plans, is not discussed in this article.)
BACKGROUND
Historically, most public sector entities have
accounted for OPEB using a "pay -as- you -go"
approach; very few have prefunded or even
accrued for these benefits. This means OPEB
costs are ignored while an employee renders
service and recognized only after an employee
retires. GASB argues this delayed recognition
shifts "costs" from one taxpaying generation to
another. The GASB position is that OPEB, like
pension benefits, are a form of deferred
compensation. Accordingly, GASB 45 requires
recognizing OPEB (in the financial statement)
as employees render service (and consequently
earn the benefit), rather than when paid.
EFFECTIVE DATES
GASB 45 effective dates are phased in similar
to GASB's Statement No. 34:
• Fiscal years beginning after December 15,
2006 for GASB 34 phase I governments
(total annual revenue of $100 million or
more)
• Fiscal years beginning after December 15,
2007 for GASB 34 phase 2 governments
(total annual revenue of $10 million to
$100 million)
■ Fiscal years beginning after
December 15, 2008 for GASB 34 phase 3
governments (total annual revenue less
than $10 million).
While these dates seem far away, planning for
transition to the new standards will take time.
Many agencies will want to understand the
implications on their financial statements and
bond ratings well in advance of required
implementation dates.
WHAT BENEFITS ARE OPEB?
OPEB includes most postemployment benefits,
other than pensions, that employees are entitled
to after leaving employment: retiree medical,
dental, prescription drug, vision, life insurance,
group legal, and long -term care benefits. OPEB
also includes disability benefits when not
provided in a pension plan. They do not include
vacation, sick leave, COBRA, or ad hoc early
retirement incentives, which fall under other
GASB accounting statements. Here are a few
OPEB examples:
• Agency pays a retiree's healthcare premium
after retirement if an employee works for
the agency at least 10 years and retires
directly from the agency.
• City allows retirees to continue participating
in the medical plan after retirement, but
charges some retirees the plan's average
per- capita cost (and others less), which is
below the retiree's full cost. The following
chart illustrates how a plan's medical costs
might vary by age.
1 100106
APPENDIX C
GASB 45 SUMMARY
$7,000 - - - -- - -- — —
$6,000
$5,000
— --
$4,000
— —
$3,000
-
$2,000
$1,000
—
$-
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
- - Average Plan Cost —Cost by Age
In this example, retirees charged the average ($3,300) plan cost are getting a benefit worth
substantially more than they're paying. This difference is referred to as the "implied subsidy."
■ District participates in PEMHCA (CaIPERS
Healthcare Program), using a cafeteria plan
to pay active employee premiums. The
district, as generally required under
PEMHCA law, pays the $80.80 minimum
toward retiree's 2007 PEMHCA premiums.
(The $80.80 minimum increases to $97.00
in 2008.)
Action Steps
4 Examine your agency's benefits to identify
OPEB and your degree of compliance
concerns.
4 Summarize your agency's benefit promise
(by gathering information from MOUs,
council or board resolutions, etc.) to greatly
facilitate the valuation and implementation
process.
ACCOUNTING STANDARDS
Under GASB 45, pay -as- you -go accounting is
replaced with accrual accounting. This is
virtually identical to GASB's approach under
M
Statement No. 27, with the key financial
statement components being an Annual
Required Contribution, an Annual OPEB Cost,
and a Net OPEB Obligation. (Before we
describe these 3 terms you might want to refer to
the Actuarial Definitions on page 9.)
■ Annual Required Contribution (ARC):
GASB 45 doesn't require an agency to
make up any shortfall (unfunded Actuarial
Liability) immediately, nor does it allow an
immediate credit for any excess Plan
Assets. Instead, the difference is amortized
over time. An agency's ARC is nothing
more complicated than the employer
current Normal Cost (value of benefits
being "earned" during a year), plus the
amortized unfunded Actuarial Liability (or
less the amortized excess Plan Assets).
Simply put, ARC is the value of benefits
earned during the year plus (or minus)
something to move the plan toward being
on track for funding. GASB 45 allows
actuaries to amortize the unfunded Actuarial
X0010'7
■
■
APPENDIX C
GASB 45 SUMMARY
Liability (or excess Plan Assets) on a level
dollar or level percent of payroll basis. We
believe most agencies will want to use a
level percent of payroll amortization
because it's more consistent with the budget
process and how pension contributions are
usually calculated. ARC must be based on
the underlying OPEB promise (as
understood by the plan sponsor and
employees).
Annual OPEB Cost (AOC): The first year
an agency complies with the new standards,
the AOC equals the ARC. In subsequent
years, the AOC will equal the ARC,
adjusted for prior differences between the
ARC and AOC.
Net OPEB Obligation (NOO): An
agency's NOO is the historical difference
between actual contributions made and the
ARC. If an agency has always contributed
the ARC, the NOO equals zero. However,
an agency has not "made" the contribution
unless it has been set aside and cannot
legally be used for any other purpose.
Implementation Process
The implementation process will be relatively
straightforward: An agency will hire an actuary
to calculate the ARC. The first time an agency
does this, their AOC equals their ARC. The
agency then decides whether to contribute all,
none, or part of the ARC into a Trust that cannot
legally be used for any purpose other than
paying OPEB.
If an agency always contributes the ARC, then
each subsequent year's AOC equals their ARC —
and the NOO is zero. The first year an agency
does not contribute the ARC, they must establish
an NOO equal to the difference between their
actual contribution and the ARC. The
subsequent year's AOC equals the ARC,
adjusted for interest and amortization of the
NOO.
Action Step
+ Gather participant data (your actuary should
be able to tell you what you'll need once
they review your underlying benefit
promise).
GASB 45 REQUIREMENTS
Disclosure Requirements
This may be the most important aspect of GASB
45. When disclosed, some agencies will show
large OPEB unfunded liabilities, while others
will show small or no unfunded liabilities.
These differences may require an adjustment in
an agency's bond rating. Plan sponsors must
disclose in their financial statement footnotes:
■ Basic plan information:
• Plan type
• Benefits provided
• Authority under which benefits were
established
■ Plan funding /contribution policy
information:
• Required contribution rates for active
members and employers shown in
dollars or as a percent of payroll
■ Plan Funded Status information:
• AOC and the dollar contributions
actually made
• If the employer has a NOO, also
➢ Components of the AOC
➢ NOO increase or decrease during
the year
➢ End of year NOO
• 3 -year history of
➢ AOC
➢ Percent of AOC contributed during
the year
➢ End of year NOO
• Most recent year's plan Funded Status
toolos
APPENDIX C
GASB 45 SUMMARY
• Actuarial methods and assumptions
used to determine the ARC, AOC, and
Funded Status.
In addition, plan sponsors must provide 3 years
of historical required supplementary
information:
• Valuation dates
• Actuarial asset values
• Actuarial Liability
• Unfunded Actuarial Liability (excess Plan
Assets)
• Plan funded ratio
• Annual covered payroll
• Ratio of unfunded Actuarial Liability
(excess Plan Assets) to annual covered
payroll
• Factors that significantly affect comparing
the above information across the years.
Defining the Plan
GASB 45 refers to the substantive plan as the
basis for accounting. It may differ from the
written plan in that it reflects the employer's
cost sharing policy based on:
• Past practice or communication of intended
changes to a plan's cost sharing provisions,
or
• Past practice of cost increases in monetary
benefits.
The substantive plan is the basis for requiring
recognition of potential future plan changes.
This approach requires entities to acknowledge
the underlying promise, not just the written plan.
What if retirees participate in the active
healthcare plan, but are charged a rate based on
composite active and retiree experience? (This
was a contentious issue during the statement
drafting, with one of the 7 board members
dissenting from Board adoption of the final
statement.) In general, GASB 45 requires
recognition of the implied subsidy. However, if
benefits are provided through a community rated
plan (premium rates based on experience of
multiple employers rather than a single
employer), and the same premium is charged for
active and retired participants, it may be
appropriate to value unadjusted premiums.
Actuarial Assumptions and Discount Rate
Requirements
Under GASB 45, the actuary must follow
current actuarial standards of practice, which
generally call for explicit assumptions —
meaning each individual assumption represents
the actuary's best estimate.
GASB 45 also requires basing the discount rate
on the source of funds used to pay the benefits.
This means the underlying expected long -term
rate of return on Plan Assets for funded plans.
Since the source of funds for unfunded plans is
usually an agency's investment fund, and
California and most other state law restricts what
investments agencies can have in their
investment fund, unfunded plans will need to
use a low (for example, 4% to 5 %) discount rate.
If an agency sets up a Trust and diversifies Trust
Plan Assets, however, the discount rate might be
much higher (such as 7 %) depending on the
Trust fund's expected long -term investment
return.
Action Step
4 Meet with your actuary to discuss the
underlying actuarial methods and
assumptions. This important meeting can
avoid problems down the road.
Transition Issues
Typically, new accounting standards allow
transition from old to new requirements.
Because historical ARC calculations will rarely
be available, GASB 45 takes a prospective
transition approach: there is no requirement for
an initial transition obligation. But if AOCs,
before transition, were calculated consistently
iv
1 100109
APPENDIX C
GASB 45 SUMMARY
with the standard, a NOO at transition can be
established at an agency's discretion.
Valuation Frequency Requirements and
Small Plans
GASB 45 requires an actuarial valuation at least
every 2 years for plans with more than 200
(active, inactive, and retired) members. Plans
with fewer than 200 members will need a
valuation every 3 years. In a significant
departure from prior standards, though, GASB
45 allows plans with fewer than 100 members to
elect a simplified measurement method — not
requiring an actuarial certification.
HOW BIG IS THE PROBLEM?
Public sector retiree healthcare promises vary
considerably across agencies and can be
measured in several ways, for example:
■ ARC as a percent of payroll
■ Present Value of Benefits (PVB) as a
percent of payroll or perhaps as a percent
of investment fund budget
■ Unfunded liability (in most cases, the
Actuarial Liability — AL) as a percent of
payroll or perhaps as a percent of
investment fund budget.
We believe the biggest issue is GASB 45
requiring agencies to disclose unfunded OPEB
liabilities in financial statement footnotes.
Consequently, unfunded liabilities in relation to
payroll or budget will become important for
bond rating agencies. The table below shows
examples based on recent actuarial studies
we've prepared (although agency
demographics vary widely, all calculations
were prepared in compliance with GASB 45).
V
000110
% Annual Investment fund
% Payroll
Budget
ARC I
PVB
AL
ARC
PVB
AL
Basic OPEB Promise
1 a. Full medical coverage for retiree
and spouse
28%
369%
192%
19%
258%
135%
— Plan Assets not diversified
lb. Full medical coverage for retiree
and spouse
17%
208%
126%
12%
146%
89%
— Plan Assets diversified
2a. Medical coverage, capped at
9%
115%
85%
7%
92%
68%
$450 /month with no increase in cap
2b. Medical coverage, capped at
12%
145%
107%
9%
116%
86%
$450 /month with increase in cap
3. Minimum (2007 $80.80 /month)
2%
30%
20%
2%
23%
15%
PEMHCA payment
V
000110
APPENDIX C
GASB 45 SUMMARY
These examples lead to some interesting
questions and conclusions, providing some
insight on magnitude. For example:
■ la. and lb. show the significant impact of
diversifying Plan Assets (in a Trust,
separate from agency's investment fund
that legally can be used only to pay OPEB)
and not diversifying Plan Assets invested
in agency's investment fund. While this
difference is significant and prefunding
may be fiscally prudent, we do not expect
many agencies will do so. Prefunding will
mean allocating cash and most agencies
will find this challenging.
■ Agency 1's unfunded Actuarial Liability is
quite significant, while Agency 3's is quite
modest. Although we don't know how
bond rating agencies will react to the added
information, it's reasonable to assume that,
with all other things the same, Agency 1
might experience more of an impact than
Agency 3.
■ The addition of a COLA (cost -of- living
adjustment) to Agency 2's promise
increases their ARC and Actuarial Liability
by approximately 1/3. Remember GASB
45 mentions the underlying promise.
Consequently, even if there is no express
agreement to increase the $450 cap in the
future, if it's reasonable to believe it will
increase, the calculations must assume it
will.
■ An older agency (with a high ratio of
retirees to actives) will have higher
vi
percents than shown in the table, while a
younger agency (with very few retirees)
would have lower percents.
Action Step
4 Once you understand how significant your
OPEB issue is, consider discussing these
results with bond rating agencies,
bargaining units, and city councils (or
governing boards). Reviewing liabilities
now gives you time to address the
magnitude before GASB 45 is effective.
GASB 45 SURVEY
The following graphs compare the over 50
Miscellaneous and Safety GASB 45 studies
prepared by Bartel Associates.
The first graph provides sample percentiles for
interpreting the information that follows. All
graphs provide the 0`h, 25`h' 50`x', 75`h and 100`x'
percentiles (the X'h percentile is the level at
which X percent of the data fall below the
given level — for example 25% of the data falls
below the 25`h percentile). As noted on this
chart, the dark shaded area in the middle of the
column includes results between the 25`h and
75`h percentiles representing 50% of the
agencies, with the line in the middle indicating
the 50`h percentile.
The other graphs compare Normal Cost (NC),
Annual Required Contribution (ARC) and
Actuarial Liability (AL) as a percentage of
payroll for Miscellaneous and Safety
employees.
4 4 00111
APPENDIX C
GASB 45 SUMMARY
V11
GASB 45 Survey
GASB 45 Survey
GASB 45 Survey
Sample
Percentile Graph
50'%
(% of Payroll)
25%
100th
40%
0. 15%
w
- - --
0
10%
Percentile
40'%
Cam.
5o /a
0%
75th
35%
Miscellaneous
Safety
100th Percentile
16.2%
22.0%
Percentile
30%--
a
11.4%
50th Percentile
7.5%
50' %, of 100^/ of
25th Percentile
2.8%
2.4%
0th Percentile
results results
e 25 ^/
are are
50th within within
Io°/
Percentile this this
96 20%
range range
15%,
. 25th
Percentile
10'%
Miscellaneous
5'%
100th Percentile
33.2%
42.0%
0th
21.8%
24.4%
50th Percentile
Percentile
ai,
25th Percentile
5.4%
V11
GASB 45 Survey
GASB 45 Survey
Annual Required Contribution
Normal Cost
(% of Payroll)
25%
20%
40%
0. 15%
w
- - --
0
10%
35%
Cam.
5o /a
0%
Miscellaneous
Safety
100th Percentile
16.2%
22.0%
75th Percentile
10.00/0
11.4%
50th Percentile
7.5%
5.1%
25th Percentile
2.8%
2.4%
0th Percentile
0.7%
0.8%
V11
GASB 45 Survey
GASB 45 Survey
Annual Required Contribution
(% of Payroll)
(As % of Payroll)
45%
5000/o-
40%
-
- - --
- - - - -. _-
35%
u
y`v 200%
30%
a
0%
Miscellaneous
Safety
100th Percentile
396%
491%
e
203%
261%
50th Percentile
147%
158%
25th Percentile
48%
51%
0th Percentile
11%
15%
Io°/
5%
Miscellaneous
Safety
100th Percentile
33.2%
42.0%
75th Percentile
21.8%
24.4%
50th Percentile
17.4%
13.4%
25th Percentile
5.4%
5.1%
0th Percentile
1.5%
1.4%
000112
GASB 45 Survey
Actuarial Liability
(As % of Payroll)
600^ /O
5000/o-
4000/o-
300%
d
u
y`v 200%
100%
0%
Miscellaneous
Safety
100th Percentile
396%
491%
75th Percentile
203%
261%
50th Percentile
147%
158%
25th Percentile
48%
51%
0th Percentile
11%
11%
000112
APPENDIX C
GASB 45 SUMMARY
The cost information shown represents
primarily unfunded retiree medical plans since
most of these agencies are in the process of
deciding whether to fund their plans. When a
significant number of our clients have made
that decision, we will be able to separate the
statistics by funded and unfunded plans.
The reader should keep in mind the results are
not a statistical sample of all California
agencies and so results based on all California
agencies will vary from our client base.
CONCLUSION
There's no doubt GASB 45 will cause major
changes for plan sponsor disclosure. The way
to soften the blow is not waiting for the
effective date. Contact your actuary well in
advance to understand the implications, get
started on action steps, and establish a plan for
compliance.
John Bartel is President of Bartel Associates, LLC. For
more details, contact John at 650/377 -1601 or
jbartel @bartel- associates.com. You also can learn
more about GASB and GASB 45 at www.gasb.org.
viii
+00113
APPENDIX C
GASB 45 SUMMARY
ACTUARIAL DEFINITIONS
Present Value of Benefits
Future Normal
Costs
Actuarial Liability
Present Value of Benefits: An actuary
preparing an actuarial valuation first gathers
participant data (active employees, former
employees not in payment status, participants
and beneficiaries in payment status) at the
valuation date (for example June 30, 2005).
Using this data and some actuarial assumptions,
the actuary projects future benefit payments.
(The assumptions predict, among other things,
when people will retire, terminate, die, or
become disabled as well as what salary
increases, general (and healthcare) inflation,
and investment return might be.) Those future
benefit payments are discounted, using
expected future investment return, back to the
valuation date. This discounted present value
is the plan's Present Value of Benefits. It
represents the amount the plan needs as of the
valuation date to pay all future benefit
payments — if all assumptions are met.
Current Normal
Cost
Actuarial Liability: This represents the
Present Value of Benefits portion participants
have earned (on an actuarial, not actual, basis)
through the valuation date.
Funded Status: Once the above amounts are
calculated, the actuary compares Plan Assets to
the Actuarial Liability. When Plan Assets
equal liabilities, a plan is considered on track
for funding. When Plan Assets are greater than
liabilities, the plan has excess Plan Assets.
When Plan Assets are less than liabilities, the
plan has an unfunded Actuarial Liability.
Normal Cost: This represents the Present
Value of Benefits expected to be earned (on an
actuarial, not actual, basis) in the coming year.
Plan Assets: GASB 45 requires that to consider
an OPEB plan funded, assets must be set aside
and cannot legally be used for any purpose
other than to pay OPEB. Most OPEB plans are
not funded.
ix
`000114
APPENDIX D
CERTIFICATE OF LIABILITY INSURANCE
ACRD,w
O CERTIFICATE OF LIABILITY INSURANCE oDATE res/20 9f20 7
07
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
JOHN SARGEANT INSURANCE AGENCY ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
HOLDER THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
P. O. BOX 831 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
GLENDALE CA 91209 INSURERS AFFORDING COVERAGE
-A818) 547 -1975 - --
INsus+lao INSURER& FIRST NAT'L. INSURANCE CO. OF AMERICA
BARTEL - ASSOCIATES, L.L.C. u+HURERR: INDIAN HARBOR INSURANCE COMPANY
INSURERc: AMERICAN STATES INSURANCE COMPANY
411 BOREL AVENUE, SUITE #445 INSURER D:
SAN MAT O CA 94402 INSURER E:
%'V V IM"Auco
THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOO INDICATED. NOTWITHSTANDING
ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR
MAY PFRTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN SS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH
POLICIES. AOOREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAIL) CLAIMS.
PURPOSES ONLY. CERTIFICATE HOLDER
INS R j
PALTE EFDONY1 POLICY EXPIRATION LIMITS
IMPOSE NO OBLIGATION OR UABIUTY OF ANY KIND UPON THE INSURER, ITS AGENTS OR
TYPE OF INSURANCE
POLICY NUMBER
THE NAMED INSURED,
GENERAL LIABILITY
EACHOCCURRFNCF $ _
. -..
0
1,000,000
:.
X ' COMMERCIAL GENERALUABCLfTV 1
I
FIRE DAMAGE (Any one Ike) S
200,000
... CLAIMS MADE X OCCUR .
MED EXP (Any one WWI _'i S
10,000
A
25CC124429 -2 9/1/2007 9/1/2008 PERSONAL$ ADV INJURY $
- .. —__._.
1,000,000
I
GENERAL AGGREGATE f
2,000,000
GEN'L AGGREGATE LIMIT APPLIES PER:
PRODUCTS - GOMP/OP AGO I S
2,000,000
X ; POLICY ; i PRO- ! LOC I
AUTOMOBILE LIABil11'1'
COMBINED SINGLE LIMIT . E
1,000,D00
ANY AUTO
(Fa accldenc)
ALL OWNEO AUTOS ''.
BLHXLY INJURY : f
SCHEDULED AUTOS !
A
Ever peruaq
25CC124429 -2 9/1/2007 9/1/2008
X ; HIRED AUTOS
WUILY INJURY $
X NON -OWNED AUTOS
(Pa, a.rxlrntj
PROPERTY DAMAGE f
!
(Pbr bCp09N)
GARAGE LIABIUTY
AUTO ONI Y - FA Al IOENT $- ___
—
ANY ALTO
OTHER 1 HAN EA ACC i�S
—
AUTO ONLY AGG $
EXCESS LIABILITY
F.A(:H OCCURRENCE 5
OCCUR CLAIMS MADE
I AGGREGATE . S
• �
$
I
OEDUrTIRtF
- ......... S
.. .....
I i RETENTION $
$
WORKERS COMPENSATION AND
X j TORY LIMITS ; I OF! In"
EMPLOYERS' LIABILITY
E L EAGT1 ACCIOENI $
1,000,000
`
C
O1WC145183 20 11/17/2007 11/17/2008
EL DISEASE EA EMPLOYEC S
11000,000
I F1, DISEASE • POLICY LIMIT S
1,000 000
OTHER
j i$1,000,000/CLAIM
IASO`PTM FESSIONAL
�
MPPOO1715203 9/11/2007
9/1/2008 $2,000,00/ANN.AGG.
DESCRIPTION OF OPERATIONSILOCATONSNEHICLESIEXCLUSI ONS ADDED BY ENDORM14ENTISPECIAL PROVIBN)NS
See Supplemental Information Page(s)
41
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
CERTIFICATE ISSUED FOR INFORMATION
DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN
PURPOSES ONLY. CERTIFICATE HOLDER
NOTICETOTHE CERTIFICATE HOLDER NAMEOTOTHE LEFT, BUT FAILURETO DOBOSHALL
IMPOSE NO OBLIGATION OR UABIUTY OF ANY KIND UPON THE INSURER, ITS AGENTS OR
MAY BE NAMED AT THE REQUEST OF
ESENTSWAR.
THE NAMED INSURED,
AllTHOfIiRED REPRE$ENTATN
. ,
1.12 LPW V1.BS M 17/5!07 7;50 0Y USNNeme LP. LPW 0 9.8 m 17/5107 - R:OA M tlaw Nwne 1. / PF 0 0.1
000115