HomeMy WebLinkAboutC27400 California Employer's Retiree Benefit Trust Program Contract No. C27400
CITY OF PALM DESERT
FINANCE DEPARTMENT
STAFF REPORT
REQUEST: Appropriate Funds, Authorize signing of California Employer's Retiree
Benefit Trust Program Agreement and Election and authorize the
transfer of funds to California Employer's Retiree Benefit Trust.
SUBMITTED BY: Paul S. Gibson, Finance Director/City Treasurer
DATE: March 13, 2008
ATTACHMENT: 1.) Agreement and Election of City of Palm Desert to prefund other
post employment benefits through CaIPERS.
2.) Certification of OPEB Funding Policy.
3.) Delegation of Authority to request disbursements.
4.) CaIPERS Assumption Model.
5.)Summary of Actuarial Information required for CaIPERS
6.) GASB Actuarial Valuation Report.
7.) CaIPERS Investment Policy
Recommendation:
By Minute Motion, authorize the Mayor to:
1. Appropriate $6,481,631 plus the first year Annual Required
Contribution of$759,139 from Fund 576 —Retiree Health Fund.
2. Authorize staff to sign all necessary agreements to implement funding
our retiree health program with CaIPERS Trust.
3. Authorize staff to transfer the funds to CaIPERS Trust.
Discussion:
On November 2007, the Audit, Investment and Finance Committee reviewed and approved
staff recommendation to transfer the Retiree Health funds from the City to CaIPERS to
enhance the City's investment of those benefits. On February 28, 2008 City Council
approved the Memorandum of Understanding with the Palm Desert Employees
Organization which included language to have the City transfer the assets and liabilities to a
Trust fund like CaIPERS.
Appropriate Funds and Authorize the Signing of CaIPERS agreement
Page 2 of 2
March 13, 2008
City contracted with The Epler Company to perform the required GASB Actuarial Valuation.
Their report indicates that we should transfer $6,481,631 (based on a discount rate of
7.75%) to CaIPERS in order to fully fund our current retiree health program liability. Our
June 30, 2007 cash balance for retiree health fund is $10,211,296. Our yearly premium is
currently estimated at $759,139.
I attached all the necessary documents required to execute the transfer of funds to
CaIPERS trust.
Therefore, staff recommends that City Council, by Minute Motion:
1. Appropriate $6,481,631 and the first year deposit of$759,139 from the
Retiree Health Fund and;
2. Authorize staff to sign all necessary agreements to implement 100%
funding our retiree health program with CaIPERS Trust and;
3. Authorize staff to transfer the funds to CaIPERS Trust.
Prepared By:
Finance Director/City Treasurer
Paul S. Gibson
pro al: �
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CM for Communit rvices City Ma g r
Sheila Gilligan Carlos L. O ga
CITY COUNCIL TIOIv:
APPROVED ,� DENIED
RECBIVBD OTHER
M88TING DATE ' � I,�- �
AYES: �yl Y �' �^ te✓� _ �
NOBS:
ABSEN'I': �"" ----
ABSTAIN: �--�
VERIFIED BY: � m hi �
Original on File wit Ci.��;� C1erk's pffic�
C:IUserslpgibsonlDocumentslRetire Health Memo authorizing transfer of funds.doc
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CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ("CERBT")
AGREEMENT AND ELECTION
OF
CITY OF PALM DESERT �
(NAME OF EMPLOYER)
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CaIPERS
WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the
Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for
annuitants (Prefunding Plan); and
WHEREAS (2) The Califomia Public Employees' Retirement System (CaIPERS) Board
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to (i) receiving contributions
� from participating employers and establishing separate Employer Prefunding Accounts
in the Prefunding Plan for the performance of an essential govemmental function (ii)
investing contributed amounts and income thereon, if any, in order to receive yield on
the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for
costs of administration of the Prefunding Plan and to pay for health care costs or other
post employment benefits in accordance with the terms of participating employers'
plans; and
CITY OF PALM DESERT
WHEREAS (3)
(NAME OF EMPLOYER)
(Employer) desires to participate irt the Prefunding Plan upon the terms and conditions
set by the Board and as set forth herein; and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by �
the Board and (ii)filing a duly adopted and executed Agreement and Election to Prefund
Other Post Employment Benefits (Agreement) as provided in the terms and conditions
of the Agreement; and
WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an
essential govemmental function within the meaning of Section 115 of the Intemal
Revenue Code as an agent multiple-employer plan as defined in Govemmental
Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of
� single-employer plans, with pooled administrative and investment functions;
Rev Ol/09/2008
NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
�
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND
EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS:
A. Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of
Califomia or an entity whose income is excluded from gross income under Section 115
(1) of the Intemal Revenue Code.
� B. Adoption and Approval of the Agreement; Effective Date; Amendment
(1) Employer's goveming body shall elect to participate in the Prefunding Plan by
adopting this Agreement and filing with the CaIPERS Board a true and correct original
or certified copy of this Agreement as follows:
Filing by mail, send to: CaIPERS
Constituent Relations Office
CERBT (OPEB)
P.O. Box 942709
Sacramento, CA 94229-2709 •
Filing in person, deliver to:
CaIPERS Mailroom
Attn: Employer Services Division
400 Q Street �
Sacramento, CA 95814
(2) Upon receipt of the executed Agreement, and after approval by the Board, the
Board shall fix an effective date and shall promptly notify Employer of the effective date
of the Agreement.
(3) The terms of this Agreement may be amended only in writing upon the agreement
of both CaIPERS and Employer, except as otherwise provided herein. Any such
amendment or modfication to this Agreement shall be adopted and executed in the
same manner as required for the Agreement. Upon receipt of the executed amendment
or modification, the Board shall fix the effective date of the amendment or modification.
(4) The Board shall institute such procedures and processes as it deems necessary to
administer the Prefunding Plan, to carry out the purposes of this Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
. �
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C. Actuarial Valuation and Employer Contributions
(1) Employer shall provide to the Board an actuarial valuation report on the basis of the
actuarial assumptions and methods prescribed by the Board. Such report shall be for
the Board's use in financial reporting, shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
. (a) prepared and signed by a Fellow or Associate of the Society of Actuaries
. who is also a Member of the American Academy of Actuaries or a person
with equivalent qualifications acceptable to the Board;
� (b) prepared in accordance with generally accepfed actuarial practice and
GASB Statement Nos. 43 and 45; and,
(c) provided to the Board prior to the Board's acceptance of contributions for
the valuation period or as otherwise required by the Board.
(2) The Board may reject any actuarial valuation report submitted to it, but shall not
unreasonably do so. In the event that the Board determines, in its sole discretion, that
the actuarial valuation report is not suitable for use in the Board's financial statements or
� if Employer fails to provide a required actuarial valuation, the Board may obtain, at
Employer's expense, an actuarial valuation that meets the Board's financial reporting
needs. The Board may recover from Employer the cost of obtaining such actuarial
valuation by billing and collecting from Employer or by deducting the amount from
Employer's account in the Prefunding Plan.
(3) Employer shall notify the Board of the amount and time of contributions which
contributions shall be made in the manner established by the Board.
(4) Employer contributions to the Prefunding Plan may be limited to the amount
necessary to fully fund Employer's actuarial present value of total projected benefits, as
supported by the actuarial valuation acceptable to the Board. As used throughout this
document, the meaning of the term "actuarial present value of total projected benefits"
is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in
the Prefunding Plan to exceed the amount required to fully fund the actuarial present
value of total projected benefits, the Board may refuse to accept the contribution.
(5) Any Employer contribution will be at least $5000 or be equal to Employer's Annual
Required Contribution as that term is defined in GASB Statement No. 45. Contributions
can be made at any time following the seventh day after the effective date of the
Agreement provided that Employer has first complied with the requirements of
Paragraph C.
� .
Rev Ol/09/2008 3
in fA on In �
D. Administrat o o cc u ts, Investments, Allocation of come
(1) The Board has established the Prefunding Plan as an agent plan consisting of an
aggregation of single-employer plans, with pooled administrative and investment
functions, under the terms of which separate accounts will be maintained for each .
employer so that Employer's assets will provide benefits only under employer's plan. �
(2) All Employer contributions and assets attributable to Employer contributions shall be
separately acc�unted for in the Prefunding Plan (Employe�s Prefunding Account).
(3) Employer's Prefunding Account assets may be aggregated with prefunding account
assets of other employers and may be co-invested by the Board in any asset classes
appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the
investment income or Employer's Prefunding Account in a manner determined by the
Board.
(5) Investment income shall be allocated among employers and posted to Employer's
Prefunding Account as determined by the Board but no less frequently than annually.
(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund �
the actuarial present value of total projected benefits, the Board, in compliance with
applicable accounting and legal requirements, may retum such excess to Employer.
E. Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and
containing the information prescribed by the Board.
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account
at least annually reflecting the balance in Employer's Prefunding Account, contributions
made during the period and income allocated during the period, and such other
information as the Board determines.
F. Disbursements
� (1) Employer may receive disbursements not to exceed the annual premium and other
costs of post employment healthcare benefits and other post employment benefits as
defined in GASB 43.
(2) Employer shall notify CaIPERS in writing in the manner specified by CaIPERS of the
persons authorized to request disbursements from the Prefunding Plan on behalf of �
Employer.
Rev Ol/09/2008 4
�
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will
be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3)
that are received on or after the first of a month will be processed by the 15"' of the
following month. (For example, a disbursement request received on or between March
1 st and March 31 st will be processed by April 15th; and a disbursement request
received on or befinreen April 1 st and April 30th will be processed by May 15th.)
� (5) CaIPERS shall not be liable for amounts disbursed in error if it has acted upon the
instruction of an individual authorized by Employer to request disbursements. In the
event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the
actual dollar amount of the disbursement, plus interest at the actual eamings rate but
not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the
balance in Employer's Prefunding Account.
� G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as
determined by the Board.
H. Termination of Employer Participation in Prefunding Plan
(1) The Board may terminate Employer's participation in the Prefunding Plan if:
(a) Employer gives written notice to the Board of its election to terminate;
(b) The Board finds that Employer fails to satisfy the terms and conditions of
this Agreement or of the Board's rules or regulations.
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing
reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding
Plan, except as otherwise provided below, and shall continue to be invested and accrue
income as provided in Paragraph D.
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not
make contributions to the Prefunding Plan.
,
Rev o l/09/2()08 rJ
r Em lo er' artici at' in Pr n in Plan ermi s ' n �
(4) Afte p y s p p ion the efu d g t nate , disburseme ts
from Employe�'s Prefunding Account may continue upon Employer's instruction or
otherwise in accordance with the terms of this Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of this Agreement:
(a) Employer may request a trustee to trustee transfer of the assets in
Employer's Prefunding Account. Upon satisfactory showing to the Board
that the transfer will satisfy applicable requir.ements of the Intemal
Revenue Code and the Board's fiduciary duties, then.the Board shall
effect the transfer within one hundred twenty (120) days. The amount to
be transferred shall be the amount in the Employer's Prefunding Account
as of the disbursement date and shall include investment eamings up to
the investment eamings allocation date immediately preceding the
disbursement date. In no event shall the investment eamings allocation
date precede the transfer by more than 120 days.
(b) Employer may request a disbursement of the assets in Employer's
Prefunding Account. Upon satisfactory showing to the Board that all of
Employer's obligations for payment of post employment health care
benefits and other post employment benefits and reasonable
administrative costs of the Board have been satisfied, then the Board shall �
effect the disbursement within one hundred twenty (120) days.� The
amount to be disbursed shall be the amount in the Employer's Prefunding
Account as of the disbursement date and shall include investment
eamings up to the investment eamings allocation date immediately
preceding the disbursement date. In no event shall the investment
eamings allocation date precede the disbursement by more than 120
days.
(6) After Employer's participation in the Prefunding Plan terminates and at such time
that no assets remain in Employer's Prefunding Account, this Agreement shall
terminate.
(7) If, for any reason, the Board terminates the Prefunding Plan, the assets in
Employer's Prefunding Account shall be paid to Employer after retention of(i) amounts
sufficient to pay post employment health care benefits and other post employment
benefits to annuitants for current and future annuitants described by the employer's
current substantive plan (as defined in GASB 43), and (ii) amounts sufficient to pay
reasonable administrative costs of the Board.
(8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if
no provision has been made by Employer for ongoing payments to pay post
employment health care benefits and other post employment benefits to annuitants for •
current and future annuitants, the Board is authorized to and shall appoint a third party
administrator to carry out Employer's Prefunding Plan. Any and all costs associated
Rev O1/09/2008 6
�
with such appointment shall be paid from the assets attributable to contributions by
Employer.
(9) If Employer should breach the representation and warranty set forth in Paragraph
A., the Board shall take whatever action it deems necessary to preserve the tax-exempt
status of the Prefunding Plan.
I. General Provisions
(1) Books and Records.
� Employer shall keep accurate books and records connected with the performance of
this Agreement. Employer shall ensure that books and records of subcontractors,
suppliers, and other providers shall also be accurately maintained. Such books and
records shall be kept in a secure location at the Employer's office(s) and shall be
available for inspection and copying by CaIPERS and its representatives.
• (2) Audit.
(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CaIPERS, and its authorized
, representatives, and such consultants and specialists as needed, at all
_ reasonable times during normal business hours to inspect and copy, at the
expense of CaIPERS, books and records of Employer relating to its
performance of this Agreement.
(b) Employer shall be subject to examination and audit by the Bureau of State
Audits, CaIPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of this Agreement
and for three years after final payment under this Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of this Agreement, including, but not (imited to, the costs of
administering this Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CaIPERS, and its authorized representatives, and
such consultants and specialists as needed, in connection with any
examination or audit. All adjustments, payments, and/or reimbursements
deteRnined to be necessary by any examination or audit shall be made
promptly by the appropriate party.
(3) Notice.
(a) Any notice, approvai, or other communication required or permitted under
this Agreement will be given in the English language and will be deemed
� received as follows:
Rev O 1/09/2008 7
1. Personal delive . When ersonall delivered to the reci ient. �
rY P Y P
Notice is effective on delivery.
2. First Class Mail. When mailed first class to the last address of the
recipient known to the party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
3. Certified mail. When mailed certified mail, retum receipt requested.
Notice is effective on receipt, if delivery is confirmed by a retum
receipt.
4. Ovemight Delivery. When delivered by an ovemight delivery
service, charges prepaid or charged to the sender's account, Notice
is effective on delivery, if delivery is confirmed by the delivery
service.
5. Telex or Facsimile Transmission. When sent by telex or fax to the
last telex or fax number of the recipient known to the party giving
notice. Notice is effective on receipt, provided that (i) a duplicate
copy of the notice is promptly given by first-class or certified mail or
by ovemight delivery, or (ii) the receiving party delivers a written �
confirmation of receipt. Any notice given by telex or fax shall be
deemed received ornthe next business day if it is received after
5:00 p.m. (recipient's time) or on a nonbusiness day.
6. E-mail transmission. When sent by e-mail using software that
provides unmodifiable proof(i) that the message was sent, (ii) that
the message was delivered to the recipient's information processing
system, and (iii) of the time and date the message was delivered to
the recipient along with a verifiable electronic record of the exact
content of the message sent.
Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger
or ovemight delivery service.
(c) Any party may change its address, telex, fax n.umber, or e-mail address by
giving the other party notice of the change in any manner permitted by this �
Agreement.
Rev Ol/09/2008 $
r
(d) All notices, requests, demands, amendments, modifications or other
communications under this Agreement shall be in writing. Notice shall be
sufficient for all such purposes if personally delivered, sent by first class,
registered or certified mail, retum receipt requested, delivery by courier
with receipt of delivery, facsimile transmission with written confrmation of
receipt by recipient, or e-mail delivery with verifiable and unmodifiable
proof of content and time and date of sending by sender and delivery to
recipient. No�ice is effective on confirmed receipt by recipient or 3
business days after sending, whichever is sooner.
(4) Modification
This Agreement may be supplemented, amended, or modified only by the mutual
agreement of the parties. No supplement, amendment, or modfication of this
Agreement shall be binding unless it is in writing and signed by the party to be charged.
(5) Survival
All representations, warranties, and covenants contained in this Agreement, or in any
instnament, certificate, exhibit, or other writing intended by the parties to be a part of
� their Agreement shall survive the termination of this Agreement until such time as all
amounts in Employer's Prefunding Account have been disbursed.
(6) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained.in or
granted by the provisions of this Agreement shall be effective unless it is in writing and
signed by the party waiving the breach, failure, right, or remedy. No waiver of any
breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure,
right, or remedy, whether or not similar, nor shall any waiver constitute a continuing
waiver unless the writing so specifies.
(7) Necessary Acts, Further Assurances
The parties shail at their own cost and expense execute and deliver such further
documents and instruments and shall take such other actions as may be reasonably
required or appropriate to evidence or carry out the intent and purposes of this
Agreement.
,
Rev o 1/09/2008 g
' v f Em lo er's Govemin Bod at a ublic meetin held on the �
A ma�onty ote o p y g y p 9
day of the month of in the year , authorized entering
into this Agreement.
Signature of the Presiding Officer:
Printed Name of the Presiding Officer:
Name of Goveming Body:
Name of Employer:
Date: �
,
' BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BY •
KENNETH W. MARZION
ACTUARIAL AND EMPLOYER SERVICES BRANCH
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CaIPERS
The effective date of this Agreement is:
�
Rev Ol/09/2008 �Q
CERTIFICATION OF OPEB FUNDING POLICY �
� - ��� GASB 43/45 REPORTING COMPLIANCE
Ca1PERS
As the employer, I certify that our funding policy is to contribute consistently an
amount at least equal to loo % of the ARC.
The Califomia Employers' Retiree Benefit Trust (CERBT) fund plan includes
more than 200 members. We understand that, under GASB 43, paragraph 33, as
an employer participating in the CaIPERS CERBT, we must obtain an actuarial
valuation on at least a biennial basis.
We understand that we will be asked to provide accounting information to
CaIPERS as required in order to facilitate CaIPERS compliance with GASB 43
reporting requirements, and we agree to make any information requested
available to CaIPERS on a timely basis. Our contact information is noted below.
We understand that CaIPERS will provide us with our Statement of Plan Net
Assets and our Statement of Changes in Plan Net Assets, which can be used to
prepare our GASB 45 reporting. CaIPERS will report aggregated GASB 43
information pertaining to the Funded Status and Funding Progress.
i
CITY OF PALM DESERT .
Name of Employer .
Printed Name and Title of Person Signing the Form
Signature � Date
Designated Employer Contact Name for GASB Reporting
Phone # Email Address
M
Rev 01/28/2008
CERTIFICATION OF OPEB ACTUARIAL •
� ��, • INFORMATION
Ca1PERS
As Actuary of the plan, I certify that the valuation upon which the enclosed
summary of actuarial information is based meets the following criteria:
• The valuation was prepared on the basis of the OPEB assumption model
prescribed by the CaIPERS Board and in effect at the time of the
valuation.
• The valuation has been prepared and signed by a Fellow or Associate of
the Society of Actuaries who is also a Member of the American Academy
of Ac#uaries.'
• The vafuation has been prepared in accordance with generally accepted
actuarial principles.
• In the case where the actuarial valuation is to be performed every two
years, this valuation includes information that covers two fiscal years.
• The valuation has been prepared in accordance with the requirements set
forth in Govemmental Accounting Standards Board (GASB) Statements
No. 43 and No. 45.
• If employer assets to pre-fund other post-employment benefits are
invested in an irrevocable OPEB trust other than the Califomia Employers'
Retiree Benefit Trust, the liabilities associated with those assets are not
included in the summary of actuarial information.
I further certify that the discount rate is consistent with the anticipated level of
funding pursuant to the relevant section of GASB 43, and the employer's
certification.
Name of Employer
Valuation Date
Printed Name of Actuary and Designation
Signature Date
' In cases where the actuary performing the work does not meet these criteria, the valuation may
be acceptable if the person has equivalent qualifications that are acceptable to the CaIPERS
Board. Please provide the qualifications of the actuary performing the valuation.
Rev 01/25/2008
�� DELEGATION OF AUTHORITY
�E� TO REQUEST DISBURSEMENTS
RESOLUTION
OF 11-IE
CITY COUNCIL OF PALM DESERT
N B )
OFTHE
CITY OF PALM DESERT
(NAME F MPL YER
The CITY couNczL delegates to the incumbents in
(GOVERNIN B
the positions of FINANCE DIRECTOR/CITY TREASURER and
c���
ASSISTANT FINANCE DIRECTOR aUthO�l�/t0 �eqUeSt Ofl b@Ilalf
�nn�
of the Employer disbursements from the Other Post Employment Prefunding
Plan and to certify as to the purpose for which the disbursed funds will be used.
By
Title
Witness
Date
OPEB Delegation of Authority(2I07)
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February 25, 2008
PRIVATE
Mr. Paul Gibson
Director of Finance/City Treasurer
City of Palm Desert
73-510 Fred Waring Drive
Palm Desert, CA 92260-2578
Re: GASB Actuarial Valuation
Dcar Mr. Gibson:
We are presenting our report of the actiiarial valuation conducted on behalf of the City of Palm
Desert (the "City") for its retiree health program as of July l, 20U7. The purpose of the report is to
measure the City's liability for retiree health benefits and to estimate the City's accountin� requirements
under the Government Accounting Standard Board Statements No. 43 8i 45 (GASB 43 & 45) in regard
to unfunded liabilities for retiree health benefits.
This report reflects the application of the required assumptions and metl�ods under the California
Employers' Retiree Benefit Trust (CERBT) OPEB Assumption Model. The results using a 7.75%
discount rate are based on the City annually fwlding at least the annual required contribution (ARC)
under GASB 45 through CERBT. Should the City adopt a different funding policy where the ARC
would not be fully fiinded, the results reported in this report may be inappropriate for GASB 45 aiid the
tnist's com�liance.
We have set forth the results of our valuation in this report and are available to answer any
questions the City may have concerning the contents of the report.
Sincerely,
THE LER COMP�}`
_�
Marily� Jones, ASA, MAAA, �A
Vice Pr sident and Actuary
MKJ:as
Enclosure
As required by U.S. Treasury Regulations governing tax practice, IRS Circular 230 Tax Advice Disclaimer, yo❑ are hereby
advised that any written tax advice contained hereiu was not written or intended to be used (and cannot be used) hy any
taxpayer for the purpose of avoiding penalties that may be imposed under d�e L'.S. Intemal Revenue Code.
The City of Palm Desert
Actuarial Valuation
As of July 1, 2007
Prepared by:
The Epler Company
45� "B" Street, Suite 750
San Diego, CA 92101
(619) 239-0831
February 2008
The City of Palm llesert
Actuarial Valuation as of July 1, 2Q07
Table of Contents
Pa�e
Section I. Executive Summary............................................................................................. 1
SectionII. Financial Results................................................................................................. 4
Section III. Projected Casli Flows ......................................................................................... 8
Section IV. Funding Analysis...................................
.............................................................
Section V. Benefit Plan Provisions....................................................................................... 11
SectionVI. Valuation Data.................................................................................................... 13
Section VII. Acivarial Assumptions and Methods .................................................................. 14
Section Vfll. Actuarial Certification........................................................................................ 18
G:RctMcd PALMDFS 2(lUR Puhn[h>�rt Acivarial Valuatiun Rrpon f INAL.doc
Section I. Executive Summary
Back round
The City of Palin Desert (the "City") selected Thc Epler Compan} to perform an actuarial
valuation of its retiree health program. T'he purpose of the actuarial valuation is to measure the
City's liability for retiree heal�h bcnefits and to estimate the City's accountin� requirements ior
other postemployz��ent benefits (OPEB) under the recently issued Governmental Accounting
Standards �3oard Statements No. 43 & 45 (GASB 43 and GASB 45). GASB 45 requires accrual
accounting fo►• tlie expensing of OPEB Benefits. The expense is generally acerued over the
working career of employees, rather than on a pay-as-you-go basis, which has been the practice
for most governmental entities and public sectoi• organizations. OPEB generally includes post-
emp]oyment health benefits (medical, dental, vision, prescription drug and mental health), life
insurance, disability benefits and long term care benefits, GASB 43 requires additional financial
disclosure requireinents for funded OPEB Plans.
The City currently provides retiree medical benefits t��rough tl�e Ca1PERS Healtt�
Prograin to approximately 173 active and 27 retired employees. Employees with at least 10 years
of continuous service with tl�e City vvho retire from the City and under Ca1PERS are eligible to
continue medical coverage through the Ca1PERS Health Plan and are eligible foi• a Retiree
Sei-�ice Stipend. The amount of the stipend varies based on date of hire and years of service of
service with the City. Employees with at lcast S years of service at retirement may also continue
medical coverage and the City will pay the rec�uired minimum contribution ($80.80 per mo�lth in
2007 arid $97.00 per month in 2008). Section V of the report details the plan provisions that
were included in the valuation and the current premium costs for coverage.
i
G:Rrt�1�d PAL�1DE52(iQ8 Palm Dc�,rrt Actuarial Valuatinn R��uii FItiAl..doc
Results of the Retiree Healtli Valuation
We l�ave determined that the amount of the actuarial liability for the City's retiree health
benefits program as of July l, 2007, the measurement date, is �15.1 million. This value is based
on an assumed discount rate of 5%. Tl�e aiilount repi•esents the present value of all conti•ibutions
towards retiree medical benefits projected to be paid by the City for current and futur•e retirees. If
the City were to place this amount in a fund earning intei•est at the rate of 5% per year, and al]
other actuarial assumptions were exactly met, the fund would have exactly enough to pay all
expec;ted benefts. This includes benefits foi• the current retirees as well as the current active
employees expected to retire in the future. The valuation does not consider employees not yet
hired as of the valuation date. If the amount of the actuarial liability is apportioned into past
service, current service and future service components; the past service component (actuarial
acci-ued liability) is $]0.2 million, the cui-��ent service crnnponent (normal cost or current year
acerual) is $0.7 million and the future service component (not yet accrued liability) is
$4.2million.
Acci-ual Expense
Under GASB 45, the City is i•equired to adopt accrual accounting for the expensing of its
retiree health benefits, If the City adopts acerual accounting under GASB 45 for its current fiscal
yeai•, its acci-ual expense or annual required contribution under GASB tei•minology is $1.1
million. The $1.1 million is comprised of the present value of benefits accruing in the current
year (nonnal cost) plus a 3U-year amortization (on a level-perceritage of pay basi5) of the
unfunded actuarial accrued liability (past service liability) at July 1, 2007. Thus, it represents a
�neans to expense the plan's liabilities in an orderly inanner. By contrast, the estimated pay-as-
you-go expense and payment amount for the 2007/2008 �scal year is approximately $181,U00
(net of any required retiree contributions). This ainount includes payments for employees
expected to retire durilig the 2007/2008 fiscal year. The net OPEB obligation at the end of the
fiscal year will i•eflect any actual retiree health payments and any GASR eligible pre-funding
amounts made during the period.
z
G:RrtMcd PAI.�tUES 20uR Palm D���71 Acwarial Valuation Kr�it FINAL.d�x;
Fundin
Although the City has pre-funded for its retiree health benefits, the fi�nds are cunently not
eligible plan assets under GASB 45. Under GASB 45, assets cannot be considered as employer
contributions or plan assets unless tl�ey are segregated for exclusive use for ►•etiree health benefit
payments and secured from creditoi•s of the City. If the City were to fully-fund its plan thi•ougl� a
GASB eligible trust with a target rate-of-return of' 7.75%, the discount rate could be raised to
7.75%. accordingly. A comparison of usii�g a 7.75% versus a 5°/o discount rate on tlie liabilities
and annual reyuii-ed contribution is provided below:
5% Discount Rate 7.75% Discount Rate
Present Value of Projected Beilefits: $]5.1 Million $8.5 Million
Actuarial Accrued (I'ast Service) Liability: $10.2 Million $6.5 Million
Unfunded Actuarial Accrued Liability: $10.2 Millioti $6.5 Million
Normal Cost (Current Service) Liability: $ 0.7 Million �0.3 Million
Annual Required Contribution: $1,142,000 $759,000
The City currently (as of July l, 2007) has $10.1 inillion set aside for its retiree health
beneiits. It is the Cit��'s intention to pre-fund its unfunded actuarial accrued liability through a
GASB eligible trust. This pre-funding, when done, will be accounted for in futui•e annual
required contributions.
�
G'R�KM�YI PALMDE-S?008 Pelm[hxn Acivarial Valunlicm Rrpcat FI�AI_,duc
Section II. Financial Results
A. Valuatio�i Results as of July 1, 2007
The table below presents the employer liabilities associated with the City's retiree health
benefits determined in accor�dance with GASB 43 8c 45. The actuarial liability is the present
value of all benefits projected to be paid under the program. The actuarial accrued liability
reflects the amount attributable to the past service of current employees and retirees. The normal
cost reflects the accrual attributahle for the current period. The results using the 5% discount rate
reflect the City maintaining its cui-rent funding policy. The 7.75% results reflect the City
adopting a policy to fuliy-fund the benefits through the California Employers' Retiree Benetit
Trust (CERBT). The results using a 6% discount rate are provided for co�nparison purpose to the
prior actuarial valuation.
Discount Rate
Prior Valuation
---5.00%--- ---6.00%--- ---7.75%---
l. Actuarial Liability (AL)
Actives $12,025,145 $ 9,349,947 �6,254,2Q9
Retirees 3,069,71 I 2,734,312 2i 78,217
Total AI. $15,094,85b $12,084,259 $8,532,426
2. Actuarial Accrued I.iability (AAL)
Actives $ 7.150,071 $ 5,840,712 $4,203,414
Retirees 3�,711 2,734,312 2,278,217
Total AAL $10,219,782 $ 8,575,024 �6,481,631
3. Nonnal Cost at July I, 2007 � fi71,450 � 520,027 $ 341,371
No. of Active Employees 173 173 173
Average Age/Average Past Service 44/8 44/8 44/8
No. of Retired F.mployees 27 27 27
Average Age 63 63 b3
Average Retirement Age 58 58 58
a
G Rrt'�1��d�'ALMDES 20(18 Pahn(7��ri1 Aciu:�rial Valuation Rc�x�rt FINAL.Juc
B. Development of Unfunded Actuarial Acci�ued Liability
The table below presents the development of the unfunded actuarial acerued liability. The
unfunded actuarial accrued liability (UAAL) is the excess of the actuai•ial accrued liability
(AAL) over the actuarial value of eligible plan assets'. Eligible assets under GASB 45 must be
segregated and secured for the exclusive purpose of paying for the retiree health benefits. The
results using the 5% discount rate reflect the City maintaining its current funding policy. The
7.75% results reflect the City adopting a policy to fully-fund the benefits through CERBT. The
results using a 6% discount rate are provided for comparison purpose to the prior actuarial
valuation.
Discocu7t Rate
Prior Valuation
---5.00%--- ---6.00%--- ---7.75%---
l. Actuarial Accrued Liability (AAL) $10,219,782 $ 8,575,024 $ 6,481,631
2. Actuarial Value of Assets� 0 0 0
3. Unfunded AAL (UAAL) $10,219,782 � 8,575.024 $ 6,481,631
C. Amortization of Unfunded Actuarial Accrued Liabilitv
The amortization of the UAAL component of tlie annual required conti•ibution (ARC) is
being amortiTed over the maximuin acceptable amortization period of 30 years on a level-
percentage of pay basis.
D�scounl Rate
Prior Valuation
---5.00%--- ---6.00%--- ---7.75%---
1. Unfunded AAL (UAAL) $]0,219,782 $ 8,575,024 $ 6,481,631
2. Amortization Period 30 30 30
3. Amortization of UAAL $437394 $418,675 $391,312
� The City has not reported any eligiblc pian assets under CiASB 43 R 45:however,the City has set a�ide 510.l million in
assets for retiree health be�ietits with the intention of pre-funding the UAAI. itiroubh CFRBT by the fi�cal year end.
5
G Rrt'.�i��d PALMDFS 2ti08 Pahn D�Scn Actuanal Valuation Rc�x�n FINALduc
D. Annual Required Contribution (ARC)
The table below presents an estimate of the annual required contribution under GASB 45
if the City adopts �accrual accounting for it� 2007/2U08 fiscal year. The t�esults using the 5%
discount rate reflect the City maintaining its current funding policy. The results using the 5%
discount i•ate reilect the City maintaining its curi•ent funding policy. Tlie 7.75% results reflect the
City adopting a policy to fully-fund the benefits through CERBT. T}ie results using a 6%
discount rate are provided foi- comparison purpose to the prior actuarial valuation.
Uiscotmr Rarc�
Prior Valuation
---5.00%--- ---6.00%--- ---7.75%---
1. Nonnal Cost at End of Year $ 705,023 $551,229 $367,827
2. Amortization of UAAL 437,394 418,675 391,312
3. Annual Required Contribution (ARC) $1,142,417 $969.904 $759,139
4. Estimated Payroll $13,800,864 $13.800.864 $I 3,800,864
5. Normal Cost as % of Payi•oll 5.1% 4.0% 2.7%
b. Amortization of UAAL as % of Payroll 3.2% 3.U`% 2.8%
7. ARC as % of Payrol] 8.3% 7.0% 5.5°�0
c,
G RctM�d PALMDES 2(I(Ik Pahn fk5rrt Acluanal\'alualion R�pc»t F[NAL.duc
E. Estimated Net OPEB Obligation at 6,�30/08
The table below sliows an estimate of the net OPEB obligation at the end of the current
�scal year. The scenario using the 5% discount rate assumes the City co�itinues to not pre-fund
for its retiree health benefits. Tlie scenario using the 7.75% discount rate assumes the City
transfei•s to CERBT an amount equal to the UAAL by June 30. 2008. "The secnario using the 6%
discount rate asswnes the City partially funds the ARC (funds the nornlal cost plus retiree
henefit payments).
Discvunr Ratc�
Prior Valuation
---5.00%--- ---6.00%--- ---7.75%---
1. Annual Required Contribution (ARC) � $1.142,417 $969,904 $ 759,139
2. Interest on Net C)PEB Obligation $ 0 $ 0 $ U
3. Adjustment to ARC $ 0 $ U �_ __ 0
4. Annual OPEB Cost $1,142,417 �969,904 $ 759,139
5. Employer Contributions (Inclusive of Benefit I 80 683� 731 912 ($6,481,631�
Payments & Pre-funding)
6. Increase/(Decrease) in Net OPEB Obligation $ 961,734 $237,992 ($5,722,492)
7. Net OPEB Obligation/(Asset) - 13eginning of' � U $ 0 $ 0
Year
8. Net OPEB Obligation/(Asset) - End of Ycar $ 961,734 $237,992 ($5,722.492)
�
G RcQvlcd PAL'viDES.'.f1U8 Palm U�wr�t Actuarial�'aluatiun R�puii FINAL doc
Section III. Projected Cash Flows
The valuation }�rocess includes the projection of the expected benefits to be paid by the
City under its retiree ]�ealth benefits program. This expected cash f7ow takes into account the
likelihood of each employee reaching age for eligibility to i�etire and receive healtl� benefits. The
projection is perfonned by applying the turnover assumption to each active employee for the
period between the valuation date and the expected retirement date. Once the employees reach
their retiremeiit date. a certain percent are assumed to enter the retiree group eacll year.
Employees already over the latest assumed retirement age as of the valuation date are assu�ned to
i•etire immediately. The per capita cost as of the ��aluation date is projected to i�icrease at tlie
applicable healthcare trend rates both before and after the employee's assumed retirement. "1'he
projected per capita costs ai•e multiplied by the nuinber of expected future retirees in a given
future year to arrive at the cash flow for that year. Also, a certain number of retireeti will leave
tl�e group each year due to expected deaths and this group will cease to be included in the cash
flow fi•om that point forward. Because this is a closed-group valuation, the number of retirees
dying each year will eventually exceed the number of new retirees, and the size of the cash flow
will begin to decrease and eventually go to zero.
The expected e�nployer cash flows for selected future years are provided in the following
table:
s
G Rc�'vted PALM DES 2UUR P11m D��crt Ac�uanal Valuation RcTon FINAL.duc
Projccted Employer Cash Flows - Representative Years
Fiscal Futurc Retired (,ity
Year Retirees EmQlovees Total
2007/08 $l 2,690 $t 67.993 $180.G83
2{)08/09 �34,927 �177.784 �',2l 2.71 1
2009/1 Q 554,444 �182,672 $237,116
2010/1 1 �73,918 $187,230 $261,148
20l 1/I Z 598,735 $191,626 $290,36 I
2012/13 $12G,932 $193,G04 $320,536
2013/14 �160,243 $191,45G $351,699
2()14/15 $200,084 $188,880 $388,964
?U15/1 C �247,5?4 $188,025 $435,549
2O1 G/17 �298.391 $186.394 �,4R4.785
2017/18 �345,72G $]88,41 ] $534,137
2018/19 5400,630 $187,837 $588,467
2O]9/20 �458,934 $190,528 $649,4G2
202U/21 �513,638 $192,810 $706,448
2021!22 $568,508 $194,G25 $763,133
2022/23 $632,993 $193,949 $826,942
2023/24 �695,086 $194,608 $889,G94
2U24/25 5750,440 $193,322 $943,762
2025/26 58l 9,915 $191,053 $l,010,968
2026/27 �,883.619 $189,817 �1,073.436
2027/28 �938.847 $187.851 �I.l 2G.69�
2028/29 $I,004.270 $185,I 13 �I,189,383
2029/30 $I,067,727 $181,578 $1,249,305
2030/31 $1,127,803 $177,219 $1,305,022
2031/32 $1,193,245 $171,998 �I,365,243
2Q32/33 $1,252,234 �165,908 �1,418,142
2033/34 $1,291,612 $158,979 �,1,450,591
2Q34/35 $1,340,330 $151,273 �1,49 l,603
2U35/36 $1,385,880 $142,888 $1,528,768
203G/37 $1,414,717 �a 133,924 $],548,G41
2037/3 8 �,1,445,803 $124,487 $1,570,290
2U3b/39 $1,459,106 $114,690 $1,573,796
2039/40 �,1,487,068 $104,663 $1,591,731
2040,'41 �1,508,215 $94,547 �1,602,762
2045/46 �I,477,008 $48,419 $1,525,4?7
2055/SG $1,057,705 $6,090 $1,063,795
20G5/G6 $SOU,507 �0 $500,507
2075/76 �131,958 $0 $131,958
2085/8G $9,519 $0 $9,519
All Years $SG,288,395 $6,410,8G4 �b2,699,259
��
G:Rct�1rd PALMDES 20(iR Palm Drxn Actunrial�'aluatiun Rc�rt FINAL.dor
Section IV. Funding Analysis
There are multiple ways to approach the funding of a retiree health plan. The expense
(annual reyuired contributioii) is one method, of many, that could be used to pre-fund benefits.
The annual expense amount will fluctuate from year to year based on the asset performance and
as the population inatures. Presented below ai•e sample alternatives to pre-fund the entire City
obligation (the present value of projected benefits — actuarial accrued liability) for its current
active e�nployees and retirees using both level-dollar and level-percentage of pay methods.
Level Dollar Equivalent Level Percentage of Payf`
20 Years 25 Years 30 Years 20 Years 25 Years 3U Years
5% Discount Rate
Fund Present Value of
Projccted Benetits (5l 5.1
million) at July l, 2007: $1,154,000 $1,020,000 $935,000 6.6% 5.5% 4.8%
6% Discount Rate
Fund Present Value of
Projected Benefits (�12.1
million) at July I, 20p7: �,994,0O0 $892,000 �828,000 5.7% 4.9% 4.3'%
7.75% Discount Ratc
Fund Present Value of
Projected Benelit5 ($8.5
million) at July l, 2007: $792,000 $72G,000 $687,000 4.6% 4.1% 3.i%
*Eligibles only
We have listecl below some fina�icial advantages that may be achieved pre-funding retiree
health benefits. Of course, pre-funding will have to be weighed against alternative uses of the
conh�ibution amounts.
• "['he earlier contributions are made, the less contributions in aggregate will have to be
made to fulfill its obligations.
• Depending on the investment strategy for funds, a higher discount rate may be used
for the actuarial valuation resulting in lower OPEB liabilities.
• Pre-funding can mitigate any resutting adverse impact on cr•edit rating thai could result
from disclosure of OPEB liabilities,
• Pre-funding may provide additional benefit security to cun•ent and future retirees.
tu
G Rrt�9rd PALti1DES 2UU8 Palm D��,ert Actuarial Vahialion Rc�xih FINAL.Joc
Section V. Benefit Plan Provisions
This study analyzes the postretirement health benefit plans provided by the City. The City
provides post-employment medical benefits to eligible employees at retirement through the
"Retiree Sei•vice Stipend Pro�ram". All fiill-time or part-time employees wl�o meet the eligibility
requirements for this program may continue their medical coverage through the CaIPERS Health
Plan and receive reimbursement from the City for a poi�tion of the costs for the coverage.
Emplot�ees Hirerl Prior to Jn�iva�.�• 1, 2U1J8
Eligibility for the stipend requir•es retirement simultaneously from the City anci Ca1PERS
on or after age 50 with at least 10 consecutive years of service with the City. Eligible employees
must be covered under the Ca1PERS Health Plan at the time of retireinent and elect to participate
in the stipend program �i•ithin 30 days of' retircment. The City�s contribution to���ards the
coverage is based on years of service as follow:
Consecutive Years of Service
With the Citv at Retirement City's Contribution Percenta.�e
10 Years of Service SO%
I 1 Years of Service 55%
12 Years of Service 60%
13 Years of Service 65°/o
l4 Years of Service 70%
15 or Moi•e Years of Service 75%
EmplovPes Hired On oj-After Jancrarl� 1, 2OO8
Eligibility for the stipend requires retirement simultaneously fi•om the City and Ca1PERS
on or after age 50 with at least 15 consecutive years of service with the City. Eligible employees
must be covered under the CaIPERS Health Plan at the time of retirement and elect to participate
in the stipend program within 30 days of'retirement. The stipend is discontinued when the retiree
reaches Medicare eligibility age. The City's contribution to�vards the coverage w�ill be applied to
the lowest cost plan and is based on age at retirement and consecutive yeai•s of service with the
City as outlined in the following table:
ii
G: RctM�d PALi�1DE5 2008 PaLn Dr>�n Actuarial Valuaticm Rr�+rn1 FIVAL.doc
Consecutive Years of Service at Retirement
AAgee 15 16 17 18 19 20 21 22 23 24 25+
50 0% 5% 10°�0 15% 20% 25°/� 30% 3S% 40% 45% 50%
51 10% 15% 20% 25% 30% 35'% 4U% 45% 50% 50% 50%
5? 20% 25% 30°/u 35% 40°/� 45°�0 50% 50°'0 50% 50% 50%
53 30% 35% 40% 45% 50% 50% 50% 50% 50% 50% 50%
54 40% 45% 50% 50% 50% 50% 50% 50% 50% SU% 50%
55+ 50% 50% 50% 50% 50% SU% 50% 50% 50% 50% 50%
Employees with at least 5 years of service, not meeting the eligibility rcquirements for the
stipend program, who retire simuitaneously from the City and CaIPERS are eligible to continue
inedical coverage through the CaIPERS I-Iealth Plan. The City is required to pay the Ca1PERS
minimum employer contribution ($80.80 in 2007 and $97.00 in 2008) for these employees.
I'remium rates
The City participates in the Ca1PERS Health Program, a cominunity-rated progratn for its
medical coverage. The following table summarizes the current monthly medical premiums for
the primary medical plans in which the retirees have enrolled. All premiums ai•e effective for tlle
calendar year.
Retiree Onl $393.63 $447.97 $712.71 $458.59 $525.47
Retiree Plus S ouse $787.26 $895.94 $1,425.42 $917.18 $1,050.94
Retiree Onl - Medicare ; �273.36 $341.44 $4U4.60 $349.11 $349.1 1
Itetiree Plus S ouse- Medicare i �546.72 $682.88 $$09.2o $698.22 $698.22
-- - -�----- .- _ ....
Retiree Plus S ouse- Mixed $66b.99 $789.41 $1,117.31 $807.70 $874.58 !
- -�-- . . _._ �
Retiree Onl $360.60 $407.02 $731.40 $432.64 $495.74
Retiree Plus S ouse $721.2U $814,04 $1,462.80 $865.28 $991.48
Retiree Onl - Medicare $289.68 $318.95 $371.68 $341.75 $341.75
IZetiree Plus S ouse- Medicare $579.36 $637.90 $743.36 $683.50 ; $683.50
Retiree Plus S ouse - Mixed � $650.28 $725.97 $1,103_08 $774.39 $837.49 J
�2
G Rrl!vtcd PALMUES 2UU8 Pulm Dcsciti Acluaritd Valualiun Rr�xm FIhAL.d�x:
Section VI. Valuation Data
Active and Retiree Census
The valuation was based on the census furnished to us by the City. The following tables
display the age distribution for retirees and the age/sei•vice distribution for active employees as
of the Measurement Date.
A�e Uistribution of�li�tible Retired Pairticipants & I3eneticiaries
<55 1
55-59 13
60-64 5
65-69 3
70-74 S
75-79 0
80+ 0
Total: 27
Avera�e Retirement Age: 58.2
Average Age: 63.5
Age/Service Distrihution of Active Participants
�
2Q-24 3 3
25-29 11 2 13
� 30-34 11 10 3 24
35-39 12 13 2 1 28
4d-44 7 6 2 3 3 21
45-49 9 7 3 3 3 2 27
SU-54 14 10 0 4 2 2 � 32
55-59 ? 3 1 3 2 0 � � 12
60-64 2 a o 0 1 a o 0 0 ��
65-69 0 0 1 0 0 0 � � � 1
70+ 0 U 1 0 2 0 0 0 0 3
Total: 71 55 13 14 l3 4 0 p 0 173 I
Average Age: 44.4
Avera e Service: 8.2
i;
G R�9Mcd PALMpES 20U8 Nalm U��.�it Actuarial Valuation RcFx,it FINAL.d�n
Section VII. Actuarial Assumptions and Methods
Tlie liabilities set forth in this report are based on tlle actuarial assumptions described in
this section.
Fiscal Year: .luly 1 S` to June 30`�,
Measure�nent Date: July 1, 2007
Discount Rate: Results using discount rates associated witll alternative funding
arrangements are presented in the valuation report as follows:
5.0°/o per annum. This di5count rate assumes the City continues to
pre-fund for its retiree health benefits outside of a GASB eligible
trust under its current investment policy.
7.75% per ai�num. This discount rate assumes the City pre-funds at
least the annual required contribution within the California
�mplo}•ers' Retiree Benefit Trust (a GASB eligible trust).
6.0% per annum. f'rovided for comparison purposes only.
Salaiy Incrcases: 3.25% per annum, in aggregate
Pre-retirement T'ur-nover: According to the termination rates under the Ca1PERS pension plan.
Sample rates for Miscellaneous employees are as follows:
0 17.6% 16.2% 14.8% 13.5%
5 7.7% 6.3% 4.9% 1.3%
1 U 5.7% 4.4% 1.0% 0.5°/a
15 4.5% 3.1% 0.5% 0.1%
20 3.2% 0.4% 0.1% O.U%
25 1.9% 0.1% 0.0% 0.0%
30 0.1% 0.0% 0.0% 0.0%
Note: 0.0% includes rates less than '/z of 1°/o.
14
G: RctNlcd PALMDFS 2i)OK Palm Dc:crt Actuarial Valuacion Report FINAL.doc
Pre-retii•einent Mortality: According to the pre-retirement mortality rates under tlie CaIPERS
pension plan. Saiiiple deaths pei• 1,000 employees applicable to
Miscellaneous e�nployees are as follows:
25 0.3 0.1
30 0.4 0.2
35 0.5 0.3
40 O.R 0.5
45 1.I 0.7
50 1.6 I.0
55 2.2 1.5
60 3.1 2.3
Post-retirement Mortality: According to the post-retirement inortality rates under the CaIPERS
pension plan. Sample deaths per 1,000 employees applicable to
Miscellaneous are as follows:
55 4.3 2.5
60 7.2 4.4
65 13.0 � 8.0
70 21.4 12.8
j 75 37.2 21.6
� 80 62.6 38.8
85 I 02.0 72.2
90 l 73.8 125.9
j5
G Rct�lyd PALMDES 2Ui18 P�Im Ur,an Artuanal Valuation Rc�wrt FWAL.duc
Retirement Age: According to the retirement rates under the CaIPERS pension plan.
Sample retirement rates are as follows:
50 5.0% 7.0%
51 2.0% 5.0%
52 3.U% 5.0%
53 3.0% 6.0%
�
54 4.0% 6.0%
55 9.0% ]0.0%
56 7.U% 8.0%
57 8.U% 7.0%
� 58 � 8.0% 10.0% �
59 � 10.0% 9.0%
60 17.0% 13.0%
61 16,0% 1 l.0%
62 28.0°/a 23.0%
b3 23.0% , 20.0% �
64 � 16.0% � 14.0%
65 � 27.0% 27.0%
66 � 15.0% 1 b.0%
67 ' 13.U% 16.U%
68 13.0% 12.0%
69 10.0% 14.0%
70 100.0%% ]00.0%% ;
Participation Rates: 90% of eligible active employees are assumed to elect i�iedical
coverage at retirement. Of those electing coverage, 20% of tl�ose
electing coverage are assuined to elect HMO coverage and the
remaining 80°/o are assumed to elect PPO coverage. Of those electing
the PPO coverage approxiinately 30% are assutned to reside out-of-
state (California). Actual plan coverage is used for current retirees.
Spouse Coverage: 70% of future retirees are assumed to elect coverage for their spouse.
Male spouses are assumed to be 3 years older than female spouses.
Actual spouse coverage and spause ages are used for current retirees.
Minimum Contribution: The CaIPERS minimum required contribution is assumed to increase
5% per year.:
i�
G RolMrd PALMDES 20ux Palm D��e�1 Actua�ial Valualion R.p��i7 FIKAL J<x
Claiin Cost Development: The valuation claim costs are based on the premiums paid for
medical insurance coverage. The City participates in the Ca1PERS
Health Plan, a community rated plan. The valuation assumes the City
is exempt fi•om the valuation of any medical plan rate subsidy.
Medical Ti•end Rates: Medical costs are adjusted in future years by the following ti•ends:
2Q09 10.0% 9.5%
2010 9.0% 8.5% �
2011 8.5% 8.0%
2012 8.0% 7.5%
2013 7.5% 7.0%
2014 7.0% 6.5%
2015 � 6.5% 6.0%
, 2016 6.0% 5.5%
f2017 ; 5.5% S.U%
2018+ I 5.0% 5.0%
Actuarial Cost Method: The actuarial cost method used to determine the allocation of the
retiree health actuarial liability to the past (accrued}, current and
f'uture periods is the Entry Age Normal ("EAN") cost method. The
EAN cost method is a pr�iected benefit cost method which means
the "cost" is based on the projected benefit expected to be paid at
retirement.
The EAN no»na! cost equals the level annual amount of contribution
from the emplo}�ee's date of hire (entry date) to their retirement date
that is sufficient to fund the projected be�lefit. For plans unrelated to
pay, the normal cost is calculated to remain level in dollars; for pay-
�•elated plans the normal cost is calculated to remain level as a
percentage of pay. Tt�e EAN actuarial accrued liability equals the
present value of all future benefits for retired and current employees
and their beneficiaries les� the portion expected to be funded by
future norcnal costs.
Actuarial Value of Assets: Any GASB eligible assets of the plan will be valued on a market
value basis.
i�
G: RcK�IeJ PALM1IDES 201IR Palm Dcscn Arivarial YTIualiun Ri�o��FWAI doc
Section VIII. Actuarial Certification
Tlie results set forth in this report are based on the actuarial valuation of the retiree health
benefits program of the City of Palm Desert (the "City") as of July 1, 2007.
The valuation was performed in accordance �vith generally accepted actuarial principles
and practices and in accordance witli GASB Statements No. 43 & 45. We relied on census data
for active einployces and retirees provided to us by the City. We also made use of plan
infonnation, preinium infonnation, and enrollment information provided to us by the City.
The assumptions used in perfonning the valuation, as summarized in this repoirt, and the
,•esults based thereupon, represent our best estimate of anticipated experience and actuarial cost
of the retiree health benefits program.
Certified by:
%� �
Marilyn Jones, ASA, EA, MAAA Date: Z- Z G�
Vice President and Actuary
ix
G:RctM�tii PAL!v1DE5 2008 PaLn Dr,cti1 Actuaiial�'alualion Rcpnn F'INAL dnc
, CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
STATEMENT OF INVESTMENT POLICY
FOR
ANNUITANTS' HEALTHCARE COVERAGE FUND
December 18, 2006
This Policy is eflective immediately upon adoption.
I. PURPOSE
This document sets forth the investment policy ("the Policy") for the Annuitants'
� Healthcare Coverage Fund ("the Fund"). The design of this Policy ensures that
investors, managers, consultants, or other participants selected by the Califomia �
Public Employees' Retirement System ("the System") take prudent and careful
action while managing the Fund. Additiona((y, use of this Poiicy provides
assurance that there is sufficient flexibility in controlling investment risks and
returns associated with this Fund.
II. STRATEGIC OBJECTNE
Ensure that the Fund has liquidity adequate to meet its projected cash flow needs,
� while at the same time keeping its cash balances fully invested, so as to achieve the
highest total rate of retum possible, consistent with a prudent level of risk.
The Fund shall be managed to accomplish the following:
A. Provide sufficient liquidity to meet all cash needs;
B. Enhance the Fund's total rate of return by ensuring that all cash balances are
fully invested at all times until they are needed by the Fund;
C. Maintain sufficienf diversification to avoid large losses and preserve capital;
and
D. Consider solely the interest of the Fund's participants and their beneficiaries
in accordance with Califomia State Law.
III. RESPONSIBILITIES AND DELEGATIONS
A. The System's Investment Committee ("the Investment Committeen) is
responsible for approving and amending the Policy. The Investment
Committee delegates the responsibility for administering the Fund to the
Investment Staff through the Delegation of Authority (Delegation Nos. 89-
13 and 95-50).
, , .
Copyright O 2006 by CaIPERS. Reproducfion of any part of this manual is permissible if neproducGon confains notice
of Ca1PERS'copyright as follows:'Copyright O 2006 by Ca1PERS"
ANNUITANTS'HEALTHCARE COVERAGE FUND Pa_qe�of 4
� B. The System's Investment'Staff("the StafP') is responsible for.
1. Implementing and adhering to the Policy; �
2. Reporting internally to senior management concerning the
' implementation of this Policy. This report shall be prepared at least
monthly to include, but is not limited to, the current market value and
allocations by asset class compared to the asset allocation targets.
C. The General Pension Consultant ("the ConsultanY� is responsible for
monitoring, evaluating, and reporting to the Investment Committee, at least
quarterly, the Fund's performance relative to the benchmarfc and Policy
guidelines.
IV. PERFORMANCE OBJECTIVE '
The Fund, at a minimum, shall generate a long-term total retum that meets or
exceeds the Fund's actuarial interest rate assumption.
V. INVESTMENT APPROACHES AND PARAMETERS
A. Philosophy and Approach - .
The Fund shall be managed in accordance with the CaIPERS Statement of
Investment Policy for Asset Allocation Strategy approved by the Investment •
Committee and in a manner consistent with each individual Board-Approved
Policy goveming each asset class. Such policies shall specify the method
and parameters for implementation and provide for the ongoing monitoring of
that asset class.
B. Fund Structure/Parameters
The System shall manage the Fund in accordance with the following
strategic asset allocation. In order to increase the investment opportunities,
the Fund shall hold an interest in pooled funds managed by the System. The
System's Master Custodian shall employ a unitized fund structure to maintain
separate and distinct historical records and to produce individual net asset
values (NAV's)for each asset class in the Fund.
�
Copyright O 2006 by CaIPERS. Reproduction of any part of this manual is permissible if reprodudion confains no6ce
of CaIPERS'copyrighf as follows:`Copynght O 2006 by CalPERS.
ANNUITANTS'HEALTHCARE COVERAGE FUND Pa4e 3 of 4 �
, The Annuitants' Healthcare Coverage Fund
Strategic Asset Aliocation
Asset Class Policy Allocation Policy Range
U. S. Equity 35% 30% -40%
Int'I Equity 29% 24% -34%
REITs 10% 7% - 13%
U. S. Fixed Income 20% 17% -23%
High Yield 6% 3%_g%
Cash Equivalent 0% 0%
Expected Retum: 7.75%
Expected Risk: 11.91%
Retum/Risk: 0.65
, C. Restrictions, Prohibitions and Permissible Securities
Restrictions, Prohibitions and PeRnissible Securities of the Fund are defined
in the Board-Approved Policy goveming each asset class, as follows:
U. S. Equity: Pooled S8�P 500 Equity Index Fund— Intemally Managed
(nYf Equity: Equity Index Funds— Internally Managed
REITs: Enhanced CORE Index Public Real Estate Equity Securities —
Intemally Managed
U. S. Fixed Income and High Yield: Dollar-Denominated Fixed Income
Program
Cash: Dollar-Denominated Short-Term Program— Intemally Managed
�
Copyrighi O 2006 by Ca/PERS. Reproduction of any part of this manual is permissible if reproduction confains nofice
of CaIPERS'copyrrght as follows:"Copyright O 2006 by CaIPERS.
ANNUITANTS'HEALTHCARE COVERAGE FUND � Paqe 4 of 4
VI. BENCHMARK �
The benchmark for each of the Fund's asset class investments is defined in the
Board-Approved Policy governing each asset class. The benchmark for the Fund
as a whole shall be a weighted asset class benchmark based on asset class index
returns weighted by asset class policy targets.
VII. GENERAL
Investors, managers, consultants, or other participants selected by the System
shall make all calculations and computations on a market value basis, as recorded
by the System's custodian.
� VIII. GLOSSARY OF TERMS , .
Definitions of key words used in this policy are located in the Miscellaneous
Investment Policies Glossary of Terms which is included in the System's Master
Glossary of Terms.
Annuitants' Healthcare CoveraQe Fund
Approved by the Policy Subcommittee: December 95, 2006 •
Adopted by the Investment Committee: December 18, 2006
. �
Copyright O 2006 by CaIPERS. Reproducfion of any part of this manual is permissible if reproducfion contains no6ce
of CaIPERS'copyright as follows:`Copyright O 2006 by CaIPERS.
� Frea uentiv � Asked Questions
What is the Governmental Accounting Standards Board (GASB)?
GASB is a non-profit organization that fonnulates accounting standards for State and local
governments. GASB standards are not law but aze accounting principles that improve the
relevance of financial reporting.
What are Other Post Employment Benefits (OPEB)?
OPEB consists of post employment healthcare benefits, including medical, dental,vision, and
other health-related benefits,whether provided separately or through a defined benefit pension
plan. OPEB also includes post employment benefits such as life insurance, disability�and long
term care benefits if provided separately from a defined benefit pension plan.
What is GASB 45 or Statement No. 45?
Statement No. 45 of the Governmental Accounting Standards Board(GASB 45),titled
Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than
Pensions, establishes standazds for the measurement,recognition, and display of OPEB
expense/expenditures, and related liabilities (assets),note disclosures, and,if applicable,required
supplementary information in the financial reports of State and local governmental employers.
, Who can enter into an agreement to prefund OPEB?
Ca1PERS administers the California Employers' Retiree Benefit Trust Fund (CERBT).
California govemment agencies, including schools,may enter into an agreement with Ca1PERS
to participate in the CERBT. There are no longer any restrictions related to being a participant of
Public Employee's Medical and Hospita] Care Act(PEMHCA),this requirement was eliminated
with the passage of AB 554.
What is required to prefund OPEB through Ca1PERS?
If you are interested in participating in the CERBT,you must obtain an actuarial valuation using
the actuarial assumptions and methods prescribed by Ca1PERS. Once the valuation is completed,
you must adopt and execute an agreement and submit the agreement, along with the valuation,to
us for approval.
Who should the employer contact to obtain an actuarial valuation?
You will need to hire an actuarial consulting fum to perform the valuation work. A list of
consulting actuaries who have declared themselves able to provide OPEB valuations for
California public agencies, which meet the criteria specified in the Agreement, is available on the
Ca1PERS website. Ca1PERS does not endorse or recommend the work of any consulting actuary
or group of consulting actuaries. You may also contact the American Academy of Actuaries
M (http://www.actuary.org),the American Society of Pension Professionals &Actuaries (ASPPA)
(http://www.aspa•or�), or the Society of Actuaries (http:/1www.soa.or�/ccm/content)to obtain a �
list of actuarial firms.
Will Ca1PERS perform GASB 45 actuarial valuations for employers?
No,we have no current plans to perform actuarial valuations for employers who elect to
participate in the CERBT.
Can Ca1PERS give ball-park figures of employers' OPEB liabilities?
No,we recommend that you contact an actuarial consulting firm to obtain this information.
Must each employer submit its actuarial valuation to Ca1PERS?
Yes, Ca1PERS requires a copy of the valuation reports. The reports must be prepazed and signed
� by an actuary who is both a member of the American Academy of Actuaries and either a fellow
or associate of the Society of Actuaries, or a person with equivalent quatifications acceptable to
the Board.
When should the employer submit copies of the actuarial valuation?
The valuation must be provided to CaIPERS (1) at the same time you submit an
executed Agreement for approval by Ca1PERS; and(2) for the subsequent valuation periods,
before contributions for that period are made to the CERBT. Contributions to the CERBT will
not be accepted until after CaIPERS approves the signed agreement. �
In addition to the report, do we need to send anything else?
Yes, along with t12e valuation report, you must submit the Certification of OPEB Actuarial
Information and Certification of Funding Policy certifying the OPEB actuarial valuation and the
agency's funding policy. You must also submit a disk or CD containing the Summary of
Actuarial Information Required for Ca1PERS Financial Statements.
Who can sign the Certification of OPEB Actuarial Information and Funding Policy form?
The certification of the OPEB actuarial valuation can be signed by the employer and the actuary
who performed the OPEB actuarial valuation.
How often are the actuarial valuations required?
Actuarial valuations are required biennially or as otherwise required by GASB 45 and directed
by Ca1PERS.
' Which employers must have valuations?
All employers electing to participate in the CERBT must obtain an actuarial valuation.
�
, Do we need to send the Certification of OPEB Actuarial Information and Funding Policy
and the summary of actuarial information each ti.me we provide Ca1PERS with a valuation
report?
Yes, you must provide the Certification of OPEB Actuarial Information and Certification of
Funding Policy and the Summary of Actuarial Information to Ca1PERS each time you provide a
copy of a valuation report.
How can employers enter into an Agreement to prefund their OPEB through Ca1PERS?
The Agreement and Election to Prefund Other Post Employment Benefits is available online at
www.calpers.ca. o�v or by calling the Employer Contact Center at 888 Ca1PERS (or 888-225-
7377). The required information should be entered into the Agreement. The Agreement must
then be adopted at a public meeting by the goveining body of the public entity electing to
participate in the CERBT and submitted to Ca1PERS for review and approval.
Who can sign the Agreement?
The presiding officer of the employer's governing body can sign the Agreement.
Is the employer required to provide Ca1PERS with the original Agreement?
An original Agreement or a certified copy of the Agreement is acceptable. If the employer
wishes to have an oziginal signed copy of the Agreement for its records, it should send two
� copies with original signatures to Ca1PERS..After approval, Ca1PERS will sign both copies and
return one to the employer for its records.
Where should the Agreement be filed?
The Agreement may be filed by mail or by personal delivery.
If filing by mail, send to:
Ca1PERS
Constituent Relations Office
CERBT(OPEB)
P.O. Box 242709
Sacramento, CA 94229-2709
If filing in person,deliver to:
Ca1PERS Mailroom
Attn: Constituent Relations Office
' CERBT(OPEB)
400 Q Street
Sacramento, CA 95811
�
Are employers required to use the Ca1PERS Agreement document to elect to participate in •
the CERBT?
Yes,the Agreement developed by Ca1PERS must be used to elect to participate in the Prefunding
Plan.
What will be the effective date of our participation in the CERBT?
The effective date of the Agreement and of the employer's participation in the CERBT will be
the date Ca1PERS approves the Agreement.
What is the earliest date contributions may be made? .
Contributions will be accepted as early as seven days after the date the Agreement is approved
by Ca1PERS.
Do employers Lave to fund the full amount shown in the valuation?
No, employers are not required to fund the full amount shown in the valuation.
What is the minimum contribution amount Ca1PERS wi,ll accept?
The minimum contribution will be the lesser of$5,000 or the annual required contribution as that
term is defined in GASB Statement No. 45.
How often may employers contribute?
Employers may contribute as frequently as they wish,but not less than$5,000 per contribution. �
How should employers remit contributions?
If paying by check the employer will submit the Contribution by Check Transmittal Form,
available online at www.calpers.ca.gov and mail with your check payable to Ca1PERS at the
following address:
Ca1PERS
Fiscal Services Division
P.O. Box 942703
Sacramento, CA 94229-2703
If paying by wire transfer:
Contact the Employer Contact Center at 888 Ca1PERS (or 888-225-7377). A Remittance by
Wire Transfer form, including wire instructions,will be faxed to you. The Remittance by Wire
Transfer form must be returned to Ca1PERS before the wire transfer is initiated to ensure proper
crediting to your prefunding account. Note: Transfers greater than $5 million require 72 hours
notice prior to sending the transfer.
�
� Who may request disbursements from the trust?
The employer must notify Ca1PERS by completing a Delegation of Authority to Request
Disbursements form, available online at www.calpers.ca.gov,indicating the persons authorized
to request disbursements from the CERBT.
How should requests for disbursements be made and to whom should they be directed? -
All requests for disbursement must be submitted on the Disbursement Request Form, found
online at www.calners.ca.�o_v, certifying that the monies will be used for the purposes of the
CERBT. The requests must be signed by an individual authorized by the employer to request
disbursements from the Plan. In an effort to keep the cost of this program down, we suggest
disbursements be requested no more frequently than on a quarterly basis.
Mail requests for disbursement to:
CalPERS
Constituent Relations Of�'ice
CERBT(OPEB)
P.O. Box 242709
• Sacramento, CA 94229-2709
What about a Private Letter Ruling?
� Historically, private sector companies have relied on Private Letter Ruling(PLR) from the
Internal Revenue Service (IRS) to raise consumer confidence that the trust plans mazketed by
private sector companies may enjoy tax qualified status.
The IRS does not require a PLR and Ca1PERS has not sought a PLR regazding the CERBT, our
OPEB pre-funding trust. Ca1PERS is a State agency and not a private sector company. The trust
administered by Ca1PERS has been established under California law by legislative act.
The design of and administrative compliance of the Ca1PERS OPEB pre-fiunding trust plan with
IRS Section I 15 requirements is simpie and unexceptional. Ca1PERS retains highly qualified
outside tax counsel who,working in conjunction in with the Ca1PERS Legal Of�"ice, guided
establishment and administration practice of the California Employers' Retiree Benefit Trust
plan. Ca1PERS paid cazeful attention to the details required to establish and to maintain tax
qualified status under IRS Section 115.
A PLR does not guazantee tax qualified plan status. Tax qualified plan status is maintained by
cazeful administration, not by a PLR. The unfortunate consequences of ignoring this fact were
illustrated during 2007 in the case of a trust program marketed to local public agencies in Orange
County by a nationally recognized trust administrator. This trust fund had received a favorable
PLR from the IRS. Nevertheless, later the IlZS found the trust program to be non-compliant due
to improper administration.
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I3ow much does it cost to participate in the CERBT?
The CER.BT is a public sector, not-for-profit OPEB service provider, operating in a competitive ,
marketplace. That is good news for participating employers. It means that the CERBT will
provide trust administration for a lower cost.
The CERBT is a self-funded program, in which the participating employers pay for the program
costs. In this regazd,the CERBT is exactly like the Public Employees Retirement Fund(PERF).
Fees vary from year to year and are determined at the end of the operating yeaz.
The CERBT is administered following the same principles as the Public Employees Retirement
Fund (PERF). At the end of the year, all costs aze compiled and deducted from the investment
return of the fund. Subsequently,the investrnent return,net of expenses,is credited to the fund
accounts of the participants. The fees must equal the cost because Ca1PERS, a government
agency,has no capital of its own by which to fund fees.
What keeps the CERBT from overcharging the participating employers? Competition;public
sector law and regulations; acrive oversight from an Administrative Board,the composirion of
which is set by statute to represent all stakeholders; the institutional transparency legally required
of public governance meetings and public records; and the fact that Ca1PERS cannot retain a
profit.
Based on our conversations with employers about their plans to pre-fund OPEB liabilities and �
our strong efforts to minimize inirial operation costs, we believe that the total cost of the CERBT
will be about 50 basis points per year,withiri an expected range of 40-60 basis points - similaz to
that of the PERF.
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