Barry C. Faison Chief Financial Officer, Virginia Retirement System Drew Corbett Assistant City Manager and Finance Director, City of San Mateo, CA Leslie Thompson, FSA, FCA, EA, MAAA Senior Consultant, Gabriel, Roeder, Smith & Company Julie Underwood Chief Financial Officer, San Bernardino County Employees’ Retirement Association Understanding Your Actuarial Report www.gfoa.org • #GFOA2018 112 th Annual Conference May 6-9, 2018 • St. Louis, Missouri Moderator/Speakers: 2:40 – 3:55 • May 7, 2018 • Room 230 Complex
Transcript
Barry C. FaisonChief Financial Officer, Virginia Retirement System
Drew CorbettAssistant City Manager and Finance Director, City of San Mateo, CA
Leslie Thompson, FSA, FCA, EA, MAAASenior Consultant, Gabriel, Roeder, Smith & Company
Julie UnderwoodChief Financial Officer, San Bernardino County Employees’ Retirement Association
Understanding Your Actuarial Reportwww.gfoa.org • #GFOA2018
112th Annual ConferenceMay 6-9, 2018 • St. Louis, Missouri
Moderator/Speakers:
2:40 – 3:55 • May 7, 2018 • Room 230 Complex
www.gfoa.org • #GFOA2018
Key Actuarial Metrics
Your Actuarial Valuation Report:Key Actuarial Metrics
The benefit promise Funding the benefit promise Forecasting future events Using taxpayer dollars wisely Risks in a defined benefit plan
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Why do a valuation? Need to figure out all the payments that will be made
There are all sorts of different amounts; for different reasons; commencing at different times
That is why we “discount” to one date (the valuation date) Investment returns will pay for a part of the promise How do you value all those differing benefits with different
start dates? Use a funding method to figure out how to pay for the
benefits Basic equation the sum of past and future contributions
must equal the present value of the benefits
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Setting the Assumptions
Economic assumptions Inflation Real return Administrative expenses
Actuarial value of assetsMost plans employ a smoothing method The returns are “smoothed” or averaged over a
period of time (typically 5 years) This is done to manage “noise” in the investment
returns So that the decision making is smooth.
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Normal CostCurrent Year’s Cost For Accruing Benefits
Funding method tells the actuary how to calculate this year’s normal cost
A normal cost is calculated for each active employee (retirees have no normal cost since they no longer accrue benefits)
The normal cost for the plan is the sum of the individual normal costs
Normal cost has nothing to do with assets
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Accrued Liability
The liability earned as of the valuation dateOften viewed as “the desired amount of assets” Used in measuring the funded status of the plan The funded ratio is the Assets/Accrued Liability Accrued liability has nothing to do with assets
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Unfunded Accrued Liability
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Unfunded Accrued Liability
Changes in the accrued liability can create changes in the UAL Experience of the plan different than assumed Retroactive plan changes Assumption updates Missed (or excess) contributions
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Paying off the Unfunded Accrued Liability
“Amortization” Many ways to amortize, or pay down this debt Open vs closed amortization
Just “rollin” along, or not Single base vs layered
Managing volatility? Use layered As a flat dollar amount or tracking as a level percent of pay The years to amortize
Watch for negative amortization! What you choose depends on your funding policy
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Other Actuarial reports
Experience Study Economic Assumption study Projections
Especially useful for tiered plans with new hire benefit Strongly encouraged to look at projections every year
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A Plan’s Perspective
Your Actuarial Valuation Report:A Plan Administrator’s Perspective
Julie UnderwoodChief Financial Officer
San Bernardino County Employees’ Retirement Association
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The Plan’s Perspective Long term commitment to provide benefits to
members as promised by employers Actuarial Valuation is a tool to understand the
financial health of the plan
Plan Trustees make decisions long before the valuation report is developed
Plan Trustees’ Policy Considerations Level percentage of pay vs level dollar Negative Amortization Closed/Rolling/Resetting Amortization layers Asset Value Used to set contributions Market Value = point in time = volatile Smoothing offsets volatility but defers cost impacts of
Data From Employers Employers role is critical Accurate Reliable Timely
Pensionable Compensation Service CreditsMember Status (Active, On-Leave, Terminated)
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Results
Actuarial Value of Assets
Actuarial Accrued Liability
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Results
Funded Status• AAL - AVA
Contribution Rates• Normal Cost• UAAL
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Causes of Growth in UAAL Granting initial benefits or granting benefit increases
for service already rendered. Actual experience which is less favorable than
assumed. Such as: Higher salary increases Earlier retirement date(s) Lower death rates Lower rates of investment earnings Lower rates of non-death terminations
Changing Assumptions Lower assumed rate of return Longer mortality
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Take Away Understand the inputs of the Valuation Report Cost Method Amortization Period Smoothing Member Data Financial Data Plan Provisions
Valuation Results provide a current look at the financial position of the plan Contribution Rates Funded Ratio
Be Aware of Employment Agreement terms that affect pension benefits
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An Employer’s Perspective
Your Actuarial Valuation Report:An Employer’s Perspective
Drew CorbettAssistant City Manager
City of San Mateo, California
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The Employer’s PerspectiveWhy is understanding your actuarial valuation
report important? Budgeting
• What is the cost next year? Forecasting/long-term planning
• What are the costs over the next 5 to 10 years?• What is the trend?
Policy making• Are we paying enough?• Can we do more?
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Valuation Reports – Areas of Focus Required contributions Funded status of the plan Projected contributions Accrued and unfunded liabilities Schedule of amortization bases Amortization schedule alternatives Analysis of investment return scenarios
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Required ContributionsFiscal Year 2017-18
Fiscal Year 2018-19
Normal Cost as a Percentage of PayrollTotal Normal Cost 26.992% 27.878%Employee Contribution 9.123% 9.167%Employer Normal Cost 17.869% 18.711%
Projected Annual Payroll for Contribution Year
$24,480,674 $26,575,606
Estimated Employer ContributionsTotal Normal Cost $6,607,822 $7,408,747Employee Contribution $2,233,372 $2,436,186Employer Normal Cost $4,374,450 $4,972,561
Present Value of Projected Benefits $395,327,255 $419,528,145Normal Accrued Liability $341,550,961 $359,246,328Market Value of Assets $221,389,368 $216,794,797Unfunded Accrued Liability $120,161,593 $142,451,531Funded Ratio 64.8% 60.3%
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Projected ContributionsRequired
ContributionProjected Contribution
Fiscal Year
2018-19 19-20 20-21 21-22 22-23 23-24 24-25
Normal Cost %
18.71% 19.5% 21.1% 21.1% 21.1% 21.1% 21.1%
UAL Payment
$8.5M $9.7 $10.7 $11.9 $13.0 $13.8 $14.5
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Accrued and Unfunded LiabilitiesJune 30,
2015June 30,
2016Normal Accrued Liability
Active Members $97,608,994 $103,171,202Transferred Members $12,504,999 $13,635,899Terminated Members $2,516,911 $1,996,640Current Beneficiaries $228,920,057 $240,442,587Total $341,550,961 $359,246,328
Market Value of Assets $221,389,368 $216,794,797Unfunded Accrued Liability $120,161,593 $142,451,531Funded Ratio 64.8% 60.3%
