HomeMy WebLinkAbout(2) 10/13/09 MEMORANDUM ASSISTANT CITY MANAGER REBECCA UNDERHILL~ ~-, (--~
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To: Steve Fitzgibbons, City Manager /~
From: Rebecca Underhill, CPA, Assistant City
i
Date: October 13, 2009
Re: GASB 45 -Other Postemployment: Benefits -Retiree Health Insurance
The Government Accounting Standards Board issued Statement 45 requiring governmental
entities to recognize the liability that exists for'other post employment benefits', OPEB. (A
summary of which is enclosed hereto, as Exhibit 1). For the City of Port Arthur, the OP~EB is
retiree health insurance. The health insurance beinefit has been funded `pay as you go', without
recognizing the future cost that is accruing for actiive employees. Under the new accounting
rule, this practice is no longer possible. It is inaccurate and financially unsound. GASB 45 was
implemented because of the growing concern over the potential magnitude of government
employer obligations for post-employment benefits. The total employee cost should lae
recognized at the time that the employee is rendering service to the City. For example, the cost
of the police department today, includes thf~ salaries that the officers are paid, and sufficient
funding for the retirement and health insurance that the current employee will receive after
their service to the City is complete. (This accounting treatment for OPEB has been in place for
non-government entities since 1990.)
GASB 45 1) recognizes the cost of OPEB benefits in the period when the City receives the
services, 2) provides information about the actuarial liabilities for the promised benei~its, and 3)
pravides information useful in assessing potential demands on future cash flows. The' city's
problem is not unique; people are living longer, health care cost increases at twice the rate of
inflation, etc.
Current Retiree Health Insurance Plan
Our City provides the following benefits for retirees under the health insurance program:
• All retirees are eligible to participate. (Employees are eligible to retire at 60 years of age
with 10 years of service, or at any age with 20 years of service)
• The City pays % of the cost of Retirees under 65, without dependents.
• For retirees under 65, with dependents, the City pays'/: of the dependent cost (which is
more than the retiree cost).
• Theoretically, the City pays no cost for the Medicare eligible retiree.*
• If the Medicare retiree has a dependent that is not medicare eligible, the City prays %: of
the dependent's cost.
• In the event of the death of a retiree, the City pays %: of the cost for the surviving
spouse.
The actuarial study, and subsequent review, both concluded that the medicare premium paid
at the time, October 1, 2007, was not fully funding the cost.
GASB 45 Basics
Normal cost is the actuarial present value of t:he benefits allocated to the valuation year. (The
east of the benefit earned by current employees during the one year period of the study).
Actuarial Accrued Liability (AALJ is the actuariial present value of all benefits accrued as of the
valuation date.
Valuation Assets are equal to the market value of assets as of the valuation date, if any.
(Currently, the City has none.)
Unfunded Actuarial Accrued Liability (UALL) is the difference between the actuarial accrued
liability and the valuation assets. The UAAL is amortized over a period not to exceed 3~0 years.
Annual Required Contribution (ARCJ is the actuarially determined annual cost to fund the normal
cost: and the amortization of the UALL.
Step 1-the Actuarial Valuation
In late 2007, the City Council authorized a contract with Milliman, consulting actuaries, to
perform the initial valuation of the plan. That valuation was received in November 2007,
enclosed herewith as Exhibit 2. The numbers were staggering. For this study, dated 10-01-07,
the AAL, the liability incurred by the City for both iretirees and active employees was determined
to be $93 million, at an investment rate of 4'%. The ARC for that year was $10 million, again at
4%. This means that in order to fund the benefit ghat has been promised to both retirees and
active employees, under the exact scenario currently in place, the City would have to ;add $10
million to our annual budget.
While GA56 45 does not require the City to lfund the ARC, the liability will be reported, and
remaining unfunded, will continue to grow. Over time, this situation could pose a serious threat
to the financial well being of the City, and result in negative audit opinions and credit ratings.
There are a variety of ways to limit and/or reduces the OPEB liability, including:
• Extending vesting periods. Currently, city employees vest for purposes of health
insurance coverage after 20 years of service, regardless of age. As we go forward,
the City might consider a lesser benefit for those retirees with a lesser tenure with
the City.
Lowering benefits levels and/or increasing the employee/retiree share of costs is
another method of cost control. The stuff recommendation, adopted by the City
Council on September 22, while increasing retiree and employee costs, did not
lower benefit levels in any way. \Ne have estimates from the actuary that these
changes may impact our UALL as much as 27%.
o Should the City reduce health insurance benefits in any way, increase
deductibles, increase copays, liimit coverage, etc, the liability would be
reduced.
• Changing from a defined benefit to a defined contribution plan is another possible
route to take. The City may consider this option going forward for new hires. By
contributing a set amount for retiree insurance over the career of the employee, at
retirement the employee has a set amount of funding to purchase his/her own
health insurance option. This aplproaclh completely eliminates future obligation and
liability for the City for that group of employees; eventually eliminating they entire
liability.
Step 2-Seek Assistance from Qualified Benefits Professionals
Coming to terms with the enormity of our situatioin, and understanding that we at the staff level
did not have the expertise to grapple with alli of the issues, the City Council authorized a
contract with First Southwest Company, our financial advisors, who assigned our contract to
their benefits group. Ric Panzera worked with us t:o first have our initial study reviewed by a
second actuary. The purpose of this exercisEr was to delve deeper into the specific iterns that
were driving our costs, i.e. turnover assumptions, mortality assumptions, health insurance costs
by group, etc. Stanton Group (now Gallagher Benefits) working as a subcontractor for First
Southwest, reviewed the Milliman study, and reviewed additional employee census data, and
claims data. They issued a report dated April 29, :?009 (Exhibit 3), which first confirmed the
Milliman report. Using the same assumptions, Stanton actually calculated a higher liability,
$96.7 million.
However, based upon their study of our plans actual experience, and utilizing an alternative
amortization method*, the liability was reduced to $89 million, with the ARC at $7.76 million;
still a staggering number.
*The assumptions for termination were increased, again to coincide with the City's actual
experience. The election of health insurance coverage at retirement was decreased, Ibased
upon actual rates. The amortization was escalated over time to coincide with projected payroll
increases, rather than flat over the 30 years. This assumption lowers the ARC now, and
increases it over the amortization period.
Step 3 - Changes Need to Be Made
At the staff level, it became obvious that the City could not add $8 - $10 million per year in costs
in order to maintain the status quo; and knowing, that that number would only increase over
time, as more retirees came on to the plan. It did not seem prudent to do nothing, as the
liability will continue to grow, deteriorating. the C:ity's financial position.
The first action taken was to request City Council approval, and funding, for an `Employee /
Retiree Health Clinic'. By offering lower cost alternatives for primary care, and expanded
wellness initiatives, we are very hopeful that we will be able to contain the future increases to
overall health insurance costs. This model has been successful in other communities, and has
been widely studied by our Health Director and her' staff, to determine the best, most effective
practices. The initial plan is for a three year pilot period. During this time we will do all that we
canto evaluate the effectiveness to our health care' cost. The Clinic is expected to open
November 1, 2009.
During the summer months, the health insurance nenewal was in development. Prior to the
renewal recently adopted, retirees under age 65 were'blended', included, for insurance
purposes, as regular employees, and medicare retirees paid '100% of their cost. Also, over
time, on occasion, the City Council had absorlbed rate increases for retirees and employees,
which threw the plan out of sync.
We began exploring the plan cost by employE~e/retiree group. It had been the belief, for some
time, that the medicare retirees were fully funding their premiums. The actuaries did not see it
that way. They saw the medicare retirees underfunded by 66%. Blue Cross saw it at 2.?%
underfunded. Each group was looking at different sets of data, for different time periods;
however, either way, the medicare retirees were not funding 100% of the cost, and are
therefore increasing the liability. Non medicare retirees are a larger problem, funding an
estimated 70% of their higher, fully insured cost.
As we looked at the renewal, the staff recommendled to the Council, and the Council adopted a
plan whereby we begin to move towards a fundin€; model that 1) reflects the plan, whereby
retirees (under 65) pay 50% of their cost, or their dependent costs, and 2) unblends the rates,
(Exhibit 4). After discussion and input from the Council, the effects of these two chan€;es were
phased in over five years. The effect of the five year phase in for the November 1, 2009 renewal
is:
Est.
Count
Retiree <65 54~
Retiree <65+ 1 Dependent 13'~
Retiree <65+2 Dependents 10
Medicare Retiree 8CI
Medicare Retiree + 1 Dependent 34
Medicare Retiree + 2 Dependent' 2
Employee + 1 Dependent 5`>
Employee + 2 Dependents 203
Current
Monthly 11/1/09 $
Cost Cost Increase Increase
$ 183.55 $ 205.81 $ 22.26 12.13%
646.14 723.55 77.41 11.98%
724.33 811.51 87.18 12.04%
149.50 162.94 13.44 8.99%
421.36 456.53 35.17 8.35%
499.54 539.07 39.53 7.91%
280.86 286.63 5.77 2.05
351.24 360.97 9.73 2.77%
This phase in period will allow the staff to continue studying plan options as far as eli€;ibility,
new hires, etc., in a continued effort to provide a sustainable, long term benefit for thie current
and future employees and retirees. Yes, under thie current plan, the under 65 retiree will see
substantial increases over the five years. It is our hope that these increases can be mitigated in
the future; however the current course is pruident, and measured approach to secure the long
terrri sustainability of the plan.
The City Council has approved a contract with Gallagher Benefits to perform the 2009 actuarial
study. These studies are required to be updated, no less than every two years. The 2009 study
will reflect changes to the plan adopted at the 9/22/09 meeting. The City Council is being asked
to hire a benefits attorney to provide us with legal advice as we look at changes to eligibility and
other options. The attorney will also assist us in establishing the trust vehicle to begin funding
the liability. A trust is the best option to reduce the liability by setting aside funding.
As usual, the staff looks forward to the input from the Council as we proceed in this very
difficult, but necessary task.
EXHIBIT "1"
Summary of Statement No. 45
i~----•~ Governmental Accounting Standards Board
Sur~~maries /Status
Summary of Statement No. 45
Accounting and Financial Reporting by
Employers for Postemployment
Benei`its Other Than Pensions
(Issued 6/04)
In addition to pensions, many state and (local
governmental employers provide other
posterr~ployment benefits (OPEB) as part of the
total compensation offered to attract and retain
the services of qualified employees. OPEB
includes postemp/oyment healthcare, as well as
other forms of postemployment benefits (for
example, life insurance) when provided
separately from a pension plan. This Statement
establishes standards for the measurement,
recognition, and display of OPEB
expenselexpenditures and related liabilities
(asset:>), note disclosures, and, if applicable,
required supplementary information (RSI) in the
financial reports of state and local governmental
employers.
The a~>proach followed in this Statement
generally is consistent with the approach
adopted in Statement No. 27, Accounting for
Pensions by State and Local Governmental
Employers, with modifications to reflect
differe~~nces between pension benefits and
OPEB. Statement No. 43, Financial Reporting
for Po:stemployment Benefit Plans Other Than
Pension Plans, addresses financial statement
and disclosure requirements for reporting by
administrators or trustees of OPEB plan assets
or by Employers or sponsors that include OPEB
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Summary of Statement No. 45 Page 2 of 9
plan assets as trust or agency funds in their
financial reports.
How This Statement Improves Financial
Reporting
Postem~ployment benefits (OPEB as well as
pensions) are part of an exchange of salaries
and benefits for employee services rendered. Of
the total benefits offered by employers to attract
and retain qualified employees, some benefits,
including salaries and active-employee
healthcare, are taken while the employees are in
active s>ervice, whereas other benefits, ir~clucling
postemployment healthcare and other OPEE-,
are taken after the employees' services have
ended. Nevertheless, both types of benefits
constitute compensation for employee services.
From an accrual accounting perspective., the
cost of OPEB, like the cost of pension benefiits,
generally should be associated with the periods
in which the exchange occurs, rather than with
the periods (often many years later) when
benefits are paid or provided. However, in
current: practice, most OPEB plans are financed
on apay-as-you-go basis, and financial
statements generally do not report the financial
effects of OPEB until the promised benefits ;are
paid. A,s a result, current financial reporting
gener2~lly fails to:
• Recognize the cost of benefits in periods
when the related services are received by
the employer
. Provide information about the actuarial
accrued liabilities for promised benefits
associated with past services and whether
aind to what extent those benefits have
been funded
. Provide information useful in assessing
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Summary of Statement No. 45
potential demands on the employer's future
ca:>h flows.
This Statement improves the relevance and
usefulnf:ss of financial reporting by (a) requiring
systematic, accrual-basis measurement and
recognii:ion of OPEB cost (expense) over a
period tlhat approximates employees' years of
service and (b) providing information about
actuarial accrued liabilities associated with
OPEB arnd whether and to what extent progress
is being made in funding the plan.
Summary of Standards
Measurement (the Parameters)
Employers that participate in single-employer or
agent multiple-employer defined benefit cJPE.B
plans (:>ole and agent employers) are required to
measure and disclose an amount for annual
OPEB cost on the accrual basis of accounting.
Annual OPEB cost is equal to the employer's
annual required contribution to the plan (ARC),
with certain adjustments if the employer Ihas a
net OPIEB obligation for past under- or
overcor~tributions.
The AF;C is defined as the employer's required
contributions for the year, calculated in
accord<~nce with certain parameters, anti
includes (a) the normal cost for the year and (b)
a component for amortization of the total
unfunded actuarial accrued liabilities (or funding
excess) of the plan over a period not to exceed
thirty years. The parameters include
requirements for the frequency and timing ot~
actuarial valuations as well as for the actuariial
methods and assumptions that are acceptak~le
for financial reporting. If the methods arnd
assumptions used in determining a plan's
fundinct requirements meet the parameters, the
same methods and assumptions are required for
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Summary of Statement No. 45
financial reporting by both a plan and its
participating employer(s). However, if a plan's
method of financing does not meet the
parameters (for example, the plan is financed on
apay-as-you-go basis), the parameters
nevertheless apply for financial reporting
purposes.
For financial reporting purposes, an actuarial
valuation is required at least biennially for OF'EB
plans with a total membership (including
employees in active service, terminated
employees who have accumulated benefits but
are not yet receiving them, and retired
employees and beneficiaries currently receiving
benefits) of 200 or more, or at least trienniall~~ for
plans with a total membership of fewer than ;?00.
The projection of benefits should include all
benefits covered by the current substantive plan
(the plan as understood by the employer andl
plan members) at the time of each valuation and
should take into consideration the pattern of
sharing of benefit costs between the employer
and plan members to that point, as well <~s
certain legal or contractual caps on benefits 'to
be provided. The parameters require that thE;
selection of actuarial assumptions, including the
healthcare cost trend rate for postemployment
healthcare plans, be guided by applicable
actuarial standards.
Alternative Measurement Method
A sole employer in a plan with fewer than orie
hundrE~d total plan members (including
employees in active service, terminated
employees who have accumulated benefits but
are not yet receiving them, and retirees and
beneficiaries currently receiving benefits) has
the option to apply a simplified alternative
meas~-rement method instead of obtaining
actuarial valuations. The option also is available
to an agent employer with fewer than ore
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Summary of Statement No. 45
hundred plan members, in circumstances in
which the employer's use of the alternative
measurement method would not conflict with a
requirement that the agent multiple-employer
plan obtain an actuarial valuation for plan
reporting purposes. Those circumstances arE~:
. The plan issues a financial report prepared
in conformity with the requirements of
Statement 43 but is not required to obtain
an actuarial valuation because (a) the pllan
has fewer than one hundred total plan
mE~mbers (all employers) and is eligible to
use the alternative measurement method,
or (b) the plan is not administered as a
qualifying trust, or equivalent arrangemE:nt,
for' which Statement 43 requires the
presentation of actuarial information.
. The plan does not issue a financial report
prepared in conformity with the
requirements of Statement 43.
This alternative method includes the same broad
measurement steps as an actuarial valuation
(projecting future cash outlays for benefits,
discounting projected benefits to present value,
and allocating the present value of benefits to
periods using an actuarial cost method).
However, it permits simplification of certain
assumptions to make the method potentially
usable by nonspecialists.
Net OPEB Obligation-Measurement
An employer's net OPEB obligation is definE~d as
the cumulative difference between annual OPEB
cost ar~d the employer's contributions to a pllan,
including the OPEB liability or asset at transition,
if any. (Because retroactive application of the
measuirement requirements of this Statement is
not required, for most employers the OF'EB
liability at the beginning of the transition year will
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Summary of Statement No. 45 Page 6 of 9
be zero.) An employer with a net OPEB
obligation is required to measure annual OPE:B
cost equal to (a) the ARC, (b) one year's interest
on the net OPEB obligation, and (c) an
adjustment to the ARC to offset the effect: of
actuarial amortization of past under- or
overcon~tributions.
Financial Statement Recognition and
Disclosure
Sole and agent employers should recognize
OPEB Expense in an amount equal to annual)
OPEB cost in government-wide financial
statemE~nts and in the financial statements of
proprietary funds and fiduciary funds from wriich
OPEB contributions are made. OPEB
expenditures should be recognized on a
modified accrual basis in governmental fund
financial statements. Net OPEB obligations, if
any, including amounts associated with under-
or overcontributionsfrom governmental funds,
should be displayed as liabilities (or assets) in
government-wide financial statements. Simil<~rly,
net OPIEB obligations associated with
proprietary or fiduciary funds from which
contributions are made should be displayed .as
liabilities (or assets) in the financial statements
of those funds.
Emplo}~ers are required to disclose descriptive
information about each defined benefit OPEB
plan in which they participate, including the
fundincl policy followed. In addition, sole and
agent Employers are required to disclosE:
information about contributions made in
comparison to annual OPEB cost, changes in
the net OPEB obligation, the funded status of
each plan as of the most recent actuarial
valuation date, and the nature of the actuarial
valuation process and significant methods and
assumptions used. Sole and agent employers
also are required to present as RS/ a schedule
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Summary of Statement No. 45
of funding progress for the most recent valual:ion
and the two preceding valuations, accompanied
by notes regarding factors that significantly
affect the identification of trends in the amounts
reported.
Cost-Sharing Employers
Employers participating in cost-sharing multiple-
employerplansthat are administered as trusts,
or equivalent arrangements, in which (a)
employer contributions to the plan are
irrevocable, (b) plan assets are dedicated to
providing benefits to retirees and their
beneficiaries in accordance with the terms of the
plan, and (c) plan assets are legally protected
from creditors of the employers or plan
admini:>trator, should report as cost-sharing
employers. Employers participating in multiplle-
employer plans that do not meet those criteria
instead are required to apply the requirements of
this Statement that are applicable to agent
employers.
Cost-sharing employers are required to
recognize OPEB expense/expenditures for their
contractually required contributions to the plan
on the accrual or modified accrual basis, as
applicable. Required disclosures include
identification of the way that the contractually
requirE~d contribution rate is determined (for
example, by statute or contract or on an
actuariially determined basis). Employers
participating in acost-sharing plan are required
to present as RSI schedules of funding procress
and ernployer contributions for the plan as a
whole if a plan financial report, prepared in
accordance with Statement 43, is not issued and
made publicly available and the plan is not
included in the financial report of a public
employee retirement system or another entity.
Other Guidance
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Summary of Statement No. 45
Employers that participate in defined contribution
OPEB K>lans are required to recognize OPEB
expensE~/expenditures for their required
contributions to the plan and a liability for unpaid
required contributions on the accrual or modified
accrual basis, as applicable.
This Statement also includes guidance for
employ+ers that finance OPEB as insured
benefits (as defined by this Statement) and for
special funding situations.
Effective Dates and Transition
This St<~tement generally provides for
prospective implementation-that is, that:
employers set the beginning net OPEB
obligation at zero as of the beginning of the iinitial
year. Implementation is required in three phases
based on a government's total annual revenues
in the first fiscal year ending after June 15, 1'999.
The definitions and cutoff points for that purpose
are the same as those in Statement No. 34,
Basic F=inancial Statements-and Management's
Discussion and Analysis-for State and Loc<~1
Governments. This Statement is effective for
periods beginning after December 15, 2006, for
phase 1 governments (those with total annual
revenues of $100 million or more); after
December 15, 2007, for phase 2 governments
(those with total annual revenues of $10 million
or more but less than $100 million); and after
December 15, 2008, for phase 3 governments
(those with total annual revenues of less than
$10 million). Earlier implementation is
encouraged.
Unless; otherwise specified, pronouncements of
the G~~SB apply to financial reports of all state
and local governmental entities, including
general purpose governments; public benefiit
corporations and authorities; public em~>loyee
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Summary of Statement No. 45
retiremE;nt systems; and public utilities, hospitals
and other healthcare providers, and colleges
and universities. Paragraphs 4 and 6 discuss the
applicability of this Statement.
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EXHIBIT "2"
111 Milkman
City of Fort Arthur, Texas
Actu<~rial Valuation Of
Postretirement Benefits Under
GASB 45
As Of October 1, 2007
Prepared By
Milkman, Inc.
333 Clay Street
Suite 4330
Houston, TX 77002-7338
A ~1i LL o41aN c: ~. r^6A: s,flM
PJli~liman
~o!>su~la,n~s and Ac:uarres
November 9, 2007
Ms. Rebecca Underhill, CPA
Director of Finance
City of Port Arthur
444 4`h Street
Port Arthur, TX 77641
Re: Actuarial Valuation of Postretirement Benefits under GASB 45 for
the City of Port Arthur
Dear NIs. Underhill:
333 Clad Street.
Suite 4330
Houston., TX 77002-7338
Phone: (713) 658-8451
Fax: (713) 658-9656
www.milliman.com
Pursuant to your request, we have completed. an actuarial valuation of the benefit cost and
fulnded status relating to the future retiree :medic;al benefits provided by the City as of
October 1, 2007 for the fiscal year beginning October 1, 2007. The results of our
calculations are set forth in the following report, as are the actuarial assumptions,
rrtethods and brief summary of the retiree eligibility and benefits upon which our
calculations have been made. Our determinations reflect the procedures and methods as
prescribed in Statement 45 of the Governmental Accounting Standards Board,
".Accounting and Financial Reporting by Employers for Postemployment Benefits Other
than Pensions" ("Statement").
Actua~:ial computations under the Statement are for purposes of fulfilling certain
employer accounting requirements. The ca culations reported herein have been made on
a basis consistent with our understanding of the Statement. Determinations for purposes
other than meeting the employer financial accounting requirements of the Stateme;nt may
differ significantly from the results reported herein.
In preparing our calculations for this report, we have relied without audit, on the
employee data, plan provisions, and other :plan :financial information as provided by the
City. If any of this information, as summarized in this report, is inaccurate or incomplete,
the results shown could be materially affected and this report may need to be revised.
This report, is intended for the sole use of the addressee and is intended only to supply
<.;ufficient information for the Plan Sponsor to comply with the stated purpose of the
re--port: and may not be appropriate for other business purposes. Reliance on information
contained in this report by anyone for other than the intended purpose puts the relying
entity at risk of being misled. Accordingl}~, no person or entity, including the addressee,
should base any representations or warranties in any business agreement on any
statements or conclusions contained in this report without the written consent of
M illiman.
OFFICES IN PRINCIPAL CI1"IES WORLDWIDE
Ms. Rebecca Underhill
November 9, 2007
lPage 2
~~
On the basis of the foregoing, we hereby certify that, to the best of our knowled€;e and
belief, this report is complete and accurate and has been prepared in accordance with
generally recognized and accepted actuarial ~princiiples and practices which are consistent
with the applicable Actuarial Standards of Practice.
We further certify that, in our opinion, each actuarial assumption, method and technique
used is individually reasonable taking into account the experience of the Plam and
reasonable expectations. Nevertheless, the e,merg;ing liabilities and costs of the plan will
vary from those presented in this report to the extent that actual experience differs from
that. projected by the actuarial assumptions.
Please contact us if you have questions about our report or would like additional
information.
We, Rick White and Bryan Wilson, are consulting actuaries for Milliman, Inc. and are
Members of the American Academy of Actuaries and meet the Qualification Standards of
the American Academy of Actuaries to render the- actuarial opinion contained herein.
Respectfully submitted,
White FSA MAAA B n Wilson, MAAA
Richard E. ,
Consulting Actuary Consulting Actuary
OFI-ICE`i IN PRINCIPAL CITIES WORLDWIDE
Contents
Introduction and Purpose ....................,~....................................................................3
E;chibits ...................................................,~.................................................................... 5
Exhibit 1 -Summary of Participant Data ................................................................ 6
Exhibit 2 -Actuarial Present Value of 'Total Projected Benefits ............................ 7
Exhibit 3 -Actuarial Accrued Liability ................................................................... 7
Exhibit 4 -Annual Required Contribution - 4.0°Io .................................................. 8
Exhibit 5 -Annual Required Contribution - 7.0% ................................................. 9
Exhibit 6 -Projected Benefit Payments ............................................................... 10
Exhibit 7 -Financial Statement Disclosures ........................................................ 11
Exhibit 8 -Schedule of Funding F'rogrE;ss ............................................................. 12
Appendices ...................................................................................................,...........13
Appendix A -Actuarial Cost Methoc! ........................................................................ 14
Appendix B -Actuarial Assumption;~ ........................................................................ 15
Appendix C -Plan Provisions ...............................................
.................................... 18
Appendix D -Glossary ............................................................................................. 20
Actuarial Valuation of Postretirennent Benefits Under GASB 45 2
This material assumes that the reader is familiar with the City of Port Arth.ur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GA.SI3 Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Miluman does not intend to benefit
anc: assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
Introduction and Purpose
Historically, governmental entities offering postretirement medical plans -especially those that
are self-funded -have accounted for such plans on essentially a cash basis. Consequently, the
cost for such plans is attributed to the period of time that an employee is retired and not
performing substantial work for the employer. In 2004, the Governmental Accounting Standards
Bo,~rd issued Statement No. 45 entitled "Accolantin~; and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions" ("GASB 45 ") to address the accounting of these
plans.
'The major change under GASB 45 is to attribute the cost of postretirement benefits to the time
during which the employee is working for the employer. Reasons provided by GASB for this
change include:
• Recognize the cost of benefits in periods when the related services are recei`~ed by the
employer.
• Provide information about the actuarial liabilities for promised benefits associated with
past services and to what extent those benefits are funded.
• Provide information that is useful to assess potential demands on the employer's future
cash flows.
W11ile GASB 45 allocates the costs of a postretirement benefit plan over the years of active
employment (when the promise of future benefits is potentially motivating an employe;e), it does
nolt require the funding of such benefits. There are iwo key points that need to be noted in this
regaled. First, the choice of the discount rate used iin measuring the liabilities of the benefits is
tied to the funding vehicle or lack thereof. GASB 45 requires the use of a discount rate that is
related to the long-term investment yield on investments used to finance the payments of
benefits. An unfunded plan must use a discount rate equal to what the sponsor earns on its
general assets. Since a lower discount rate leads to higher liabilities, a funded plan. will have
lower liabilities than an unfunded plan with ide.ntica]~ provisions and membership.
W}iile the discount rate issue provides some encouragement for funding plans, there is a second
key point. GASB 45 requires that assets can only be considered if they are: (1) held in an
irrevocable trust, (2) dedicated solely to provide benefits under the plan to retirees and their
beneficiaries, and (3) are protected from cre;ditors. This restriction may limit what can be
funded, depending upon legal restraints and tai; issues.
Actuarial Valuation of Postretirerr~ent Benefits Under GASB 45 3
Thi;> material assumes that the reader is familiaz with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
admnistration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
In order to illustrate how the results are impacted i:f the Plan is funded, results are shown using
two different discount rates. If the Plan were fundt;d, the entity may be able to invest in higher
risk. securities. For purposes of this report, we :have determined the liabilities using a 7%
discount rate, to reflect the potential effect of funding these liabilities using a trust fund. Without
funding, the discount rate is assumed to be 4%, which represents a conservative estimate of
short-term pooled funds. If the plan sponsor chooses to fund these liabilities, the actual discount
rate will reflect the actual investments selected by the plan sponsor. If the plan sponsor chooses
to continue with apay-as-you-go arrangement, the discount rate should reflect what the sponsor
actually expects to earn on short-term pooled fiunds.
Thiese pages estimate the cost of the entity's current retiree health program and the potential
impact of GASB 45. The intended purpose; of this information is to provide actuarial cost
information to the entity to help with financial and benefit planning. Milkman does not intend to
benefit and assumes no duty or liability to other parties who receive this work. The summary
should only be used in its entirety to assure complete understanding of the estimates and the
methodology and assumptions underlying the estimates.
In preparing this report, we relied on the overall employee census information provided by the
entity. We reviewed the information for reasonableness, but we did not audit the information.
To the extent that any of this data or information is incorrect, the results of this reporit may need
to be revised. We have not collected actual claims information of the entity. Per capita claims
were developed from our understanding of the plan and Milkman's Health Cost Guidelines.
A number of assumptions have been made in projecting retiree health costs that should be
reviewed prior to interpreting the results shown in this report. These assumptions, as well as
thc, actuarial methodology, are described in this report. The projections in this report are
estimates and, as such, the entity's actual liability will vary from these estimates. The actual
liability will not be known until such time that all. eligibility is exhausted and all benefits are
paid. The projections and assumptions should be updated as actual costs under this program
develop.
The Medicare Modernization Act (MMA) provides for a federal subsidy to sponsors of a
postretirement benefit plan that provides presc.riptian drug coverage, provided the coverage is at
least actuarially equivalent to the prescription drug benefits provided by Medicare Part D.
GASB has released a Proposed Technical Bulletin that indicates this future subsidy should not be
reflected. V`%e have not reflected any effect of thin, future subsidy in the calculations shown in
this report.
Actuarial Valuation of Postretirement Benefits Under GASB 45 4
This raterial assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
adrninistrationand other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GA.SI3 Statement 45 on the City's fmancial statements. It may not be appropriate for other purposes. Milkman does not intend to benefit
and. assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
Actuarial Valuation of Postretirennent Benefits Under GASB 45 5
This raterial assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
adn inistration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. Ic may not be appropriate for other purposes. Milkman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. Thls material should only be reviewed in its entirety.
Exhibit 1 -Summary of Participant Data
Years of 'Service
A e 0-5 5-I0 1Q 15 15-?A ;2Q-25 25-36 3(1=35 35 & U 'FotaI
0-24 7 1 0 0 0 0 0 0 8
:?5-29 22 11 0 0 0 0 0 0 33
30-34 25 34 7 0 0 0 0 0 66
35-39 18 24 23 10 0 0 0 0 75
40-44 1:1 23 15 31 12 1 0 0 93
45-49 18 18 7 28 20 34 0 0 125
'i0-54 14 13 9 15 13 22 26 0 112
55-59 6 8 11 10 11 7 6 4 63
60-64 4 7 2 2 2 2 2 3 24
65-69 0 1 0 0 0 1 0 1 3
70&U 1 0 1 0 1 0 0 0 0 2
'Total 125 141 74 97 58 67 34 8 .604
Retirees 'Spouses :Total
Under 55 14 6 20
55-59 27 8 35
60-64 24 12 36
65-69 30 9 39
Over 70 77 19 96
Total 172 54 226
Actuarial Valuation of Postretirerrtent Benefits Under GASB 45
This material assumes that the reader is familiaz with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
adnunistraton and other factors. The material was prepazed solely to provide assistance to the City an reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milkman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
Exhibit 2 -Actuarial Present Value of Total Projected Benefits
Medicatl
Pre-65
Post-65
Total
Medical
Pre-b
Post-65
Total
Medical
Pre-6.5
Post-65
Total
Medical
Pre-65
Posy -65
Total
~.
City* Fire* Police* Retirees Total
$20,517,432 $9,317,913 $9,416,316 $4,737,503 $43,989,164
48,552,855 15,918,503 15,583,624 20,963,811 101,018,793
$69,070,287 $25,236,416 $24,999,940 $25,701,314 $145,007,957
_ ~.
City* Fire* Police* Retirees Total
$13,279,916 $5,732,450 $5,369,893 $4,060,752 $28,443,011
19,749,157 5,690,970 5,082,761 13,319,079 43,841,967
$33,029,073 $11,423,420 $10,452,654 $17,379,831 $72,284,978
* Actives Only
Exhibit 3 -Actuarial Accrued Liability
~.
City* Fire* Police* Retirees :...Total
$11,992,392 $5,949,185 $5,063,553 $4,737,503 $27,742,633
27,246,879 9,850.137 7,956,764 20,963,811 66,017,591
$39,239,271 $15,799,322 $13,020,317 $25,701,314 $93,760,224
~.
City* ' Fire* :Police* Retirees ' Total
$8,389,290 $3,935,920 $3,092,327 $4,060,752 $19,478,289
11,962,246 3,805,095 2,803,986 13,319,079 31,890,406
$20,351,536 $7,741,015 $5,896,313 $17,379,831 $51,368,695
* Actives Only
Actuarial Valuation of Postretiremisnt Benefits Under GASB 45 7
":['his material assumes that the reader is familiar with the City of PoR Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 4S on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
~md assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
E~chibit 4 -Annual Required Contribution - 4.0%
City Fire Police Retirees Total.
A. Normal Costs
(1) C;utrent 'near Normal Cost as of October 1, 2007 $ 2,78.',225 $ 786,556 $ 873,354 $ 0 $ 4,442,135
(2) Assumed Interest to the End of the Fiscal Year $ 11 ].,289 $ 31,462 $ 34,934 $ 0 $ 177,685
(3) C;utrent'i'ear Normal Cost as of Sept. 30, 2008 $ 2,89;1,514 $ 818,018 $ 908,288 $ 0 $ 4,619,820
[(1) + (2)l
B. Beternunation of Current Year Amortization
Payment
(1) i.7nfunded Actuarial Accrued Liability (see Exhibit $ 39,239,271 $ 15,799,322 $ 13,020,317 $25,701,314 $ 93,760,224
-~ )
(2) P/l;tximum Permissible Amortization Period 30 years 30 years 30 years 30 yf;ars 30 years
(3) Level Dollar Amortization Factor 17.9837 17.9837 17.9837 17.9837 17.9837
(4) ~lrnortization Amount as of October 1, 2007 $ 2,18x,935 $ 878,536 $ ?24,007 $1,429„145 $ 5,213,622
[(x)1 t3)]
(5) Assumed Interest to the End of the Fiscal Year $ 8,7 277 $ 35,141 ~ 28.960 57 166 208 545
(6) Arnonization Amount as of September 30, 2008 $ 2,269,212 $ 913,677 $ 752,967 $1,486,311 $ 5,422,167
C. Determination of Annual Required Contribution
(1) Normal Cost for Benefits Attributable to Service in $ 2,893,514 $ 818,018 $ 908,288 $ 0 $ 4,619,820
the Year (A.3. j
(2) Amortization of Unfunded Actuarial Accrued $ 2,269,212 $ 913,677 $ 752,967 $1,486,311 $ 5,422,167
;I~ability (B.6.)
(3) Annual Required Contribution (ARC) [(1) + (2j] $ 5,162,726 $ 1,731,695 $ 1,661,255 $1,486,311 $ 10,041,987
Thee amortization of the Unfunded Actuarial Accrued Liability is calculated here assuming 30 level annual
payments. GASB 45 allows for these payments to be calcullated as a level percent of payroll. If this were done,
the FYE 2008 ARC would be lower, but future years would be higher as payroll increases.
Actuarial Valuation of Postretirement Benefits Under GASB 45
This rnater-ial assumes that the reader is fazniliaz with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GA.SII Statement 45 on the City's financial statements. It may nat be appropriate for other purposes. Milliman does not intend to benefit
and'. assumes no duty or liability to other parties who receive this work. This material should only be :reviewed in its entirety.
Ex;hibit 5 -Annual Required Contribution - 7.0%
___- City Fire Police Retirees Total
A. Normal Costs
(1) Current Rear Normal Cost as of October 1, 2007 $ 1,35].,277 $ 352,140 $ 366,753 $ 0 $ 2,070,17
(2) Assumed. Interest to the End of the Fiscal Year $ 9~I,589 $ 24,650 $ 25,673 $ 0 $ 144,912
(3) Current Year Normal Cost as of September 30, $ 1,44`1,866 $ 376>790 $ 392,426 $ 0 $ 2,215,082
2008 [(1;. + (2)]
B. Deterrttination of Current Year Amortizafion
Payment
1;1) Unfunded Actuarial Accrued Liability (see Exhibit $ 20,3511,536 $ 7,741,015 $ 5,896,313 $17,379,831 $ 51,368,695
3)
(2) DQaximum Permissible Amortization Period 30 years 30 years 30 years 30 yc;ars 30 years
(3) L.,eve1 Dollar .Amortization Factor 13.2777 13.2777 13.2777 13.2777 13.2777
(4) Amortization Amount as of October 1, 2007 $ 1,53:?,761 $ 583,009 $ 444,076 $1,308;.949 $ 3,868,795
[(1) / (31]
(5) Assun,~ed Interest to the End of the Fiscal Year 10'7293 $ 40,811 ~ 31.085 91 626 270 816
(6) Amortization Amount as of September 30, 2008 $ 1,640,054 $ 623,820 $ 475,161 $1,400.,575 $ 4,139,611
[14) + (5)]
C. Deternunation of Annual Required Contribution
(1) Normal Cost for Benefits Attributable to Service in $ 1,445,866 $ 376,790 $ 392,426 $ 0 $ 2,215,082
the: Year ("A.3.)
(2) Amortization of Unfunded Actuarial Accrued $ 1,640,054 $ 623,820 $ 475,161 $1,400,575 $ 4,139,611
Liability (B.6.)
(3) Annual Required Contribution (ARC) [(1) + (2)] $ 3,085,920 $ 1,000,610 $ 867,587 $1,400,575 $ 6,354,693
The amortization of the Unfunded Actuarial Accrued Liability is calculated here assuming 30 (level annual
payments. GASB 45 allows for these payments to be calcullated as a level percent of payroll. If this were done,
the FYE 2008 ARC would be lower, but future years w+ould kle higher as payroll increases.
Actuarial Valuation of Postretirernent Benefits Under GASB 45
This material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
adnunistration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
E~~hibit 6 -Projected Benefit Payments
'Valuation
Year
Gross Retiree
Contributions
Net
1 1,511,125 (571,572) 939,553
2 1,832,547 (698,271) 1,134,276
3 2,221,112 (840,873) 1,380,239
4 2,690,188 (1,015,488) 1,674,700
5 3,19T,979 (1,207,5:9) 1,984,454
6 3,779,388 (1;427,708) 2,351,680
~ 4,367,668 (1,649,792) 2,717,876
8 4,966,036 (1,882,301) 3,083,735
9 5,577,121 (2,127,8~~1) 3,449,290
10 6,257,498 (2,381,781) 3,875,717
11 6,935,748 (2,645,122) 4,290,626
12 7,559,104 (2,884,317) 4,674,787
13 8,308,156 (3,146,093) 5,162,063
14 g,g34,549 (3,381,400) 5,453,059
15 9,497,861 (3,632,2~~3) 5,865,618
16 10,141,619 (3,876,641) 6,264,978
17 10,604,982 (4,083,358) 6,521,624.
18 11,205,809 (4,309,4:18) 6,896,351
19 11,748,625.: (4,520,6x4) 7,228,011
20 12,164,068 (4,712,3:?6) '7,451,742
This table illustrates projected benefit payments for current members only.
Actuarial Valuation of Postretirentent Benefits Under GASB 45 10
'I1»s material assumes that the reader is familiaz with the City of Port Arth.ur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact. of the proposed
GA.SI3 Statement 45 on the City's fmancial statements. It may not be appropriate for other purposes. Milkman does not intend to benefit
anc~. assumes no duty or liability to other parties who receive this work. Thiis material should only be reviewed in its entirety.
E~:hibit 7 -Financial Statement Disclosures
The following table shows the calculation of 'the Annual Required Contribution and estimated
Net OPF,B Obligation at the end of the fiscal year.
--- Fiscal Year Endin Se tember 30 Z00$
4% 7%
.Determination of Annual Required
Contribution
Normal Cost at fiscal year end $ 4,619,820 $ 2,215,082
Amortization of UAAL 5,422,167 4,139,611
Annual Required Contribution (ARC) $ 10,041,987 $ 6,354,693
Determination of Net OPEB Obligation
Annual Required Contribution $ 10,041,987 $ 6,354,693
Interest on prior year Net OPEB Obligation 0 0
Adjustment to ARC 0 0
Annual OPEB Cost $ 10,041,987 $ 6,354,693
Estimated Contributions (939,553) (6,354,693)
Increase in Net OPEB Obligation $ 9,102,434 $ 0
Net OPEB Obligation -beginning of year $ 0 $ 0
Net OPEB Obligation -end of year (estimated) $ 9,102,434 $ 0
Tile following table shows the annual OPEB cost and net OPEB obligation for the prior 3 years
assuming the plan is not prefunded (4% discount):
Percentage of
Fiscal `Discount Annual ''OPEB Cost Net OPEB
Year Ended 'Rate OPEB Cast Contributed Obli ation
09/30/2006 N/A N/A N/A N/A
09/30/2007 N/A ]V/A N/A N/A
09/30/2008 4.0% $10,041,987 9.36% $9,102,434
Actuarial Valuation of Postretireiment Benefits Under GASB 45 11
This material assumes that the reader is familiar with the City of Port Artlhur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's fmancial statements. It may not be appropriate for other purposes. Milkman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. Ttiis material should only be reviewed in its entirety.
'Sxhibit 8 -Schedule of Funding Progress
Unfunded
Actuarial Actuarial
Actuarial Actuarial. Discount Accrued. ,Accrued
Valuation Value Liabilities Liabilities Funded
.Date of Assets ' Rate ~(AAL)~'~ (UAAL)1~1 -Ratio
October 1, 2005 N/A N/A N/A N/A N/A
~~ctober 1, 2006 N/A N/A N/A N/A N/A
l~ctober 1, 2007 0 4.0% 93,760,224 93,760,224 0.0%
(1) Actuarial Accrued Liability dete~rnlined under the projected unit
credit cost method.
(2) Actuarial Accrued Liability less Actuarial Value of Assets.
Actuarial Valuation of Postretirement Benefits Under GASB 45 12
This material assumes that the reader is familiaz with the City of Porl: Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact o:f the proposed
GAS13 Statement 45 on the City's fmancial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work:. This material should only be reviewed in its entirety.
Actuarial Valuation of Postretirernent Benefits Under GASB 45 13
This. material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibIlity,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GA:iB Statement 45 on the City's financial statements. It may no4 be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. Thi;> material should only be reviewed in its entirety.
Appendix A -Actuarial Cost NVlethod
Unit Credit Actuarial Cost Method
Thc; actuarial cost method determines, in a systematic way, the incidence of plan sponsor
contributions required to provide plan benefits. It al>o determines how actuarial gains and losses
~~re recognized in pension costs. These gains and losses result from the difference between the
actl~al experience under the plan and the experience by the actuarial assumptions.
The cost of the Plan is derived by making certain specific assumptions as to rates of interest,
mortality, turnover, etc. which are assumed to hold for many years into the future. Since actual
experience may differ somewhat from the long teen assumptions, the costs determined by the
valuation must be regarded as estimates of the true costs of the Plan.
Actuarial liabilities and comparative costs shown in this Report were computed using the Unit
Credit Actuarial Cost Method, which consists of the following cost components:
1. The Normal Cost is the Actuarial Present Value of benefits allocated to the
valuation year.
2. The- Actuarial Accrued Liability is the Actuarial Present Value of benefits
accrued as of the valuation date.
3. Valuation Assets are equal to the market value of assets as of the valuation date,
if any.
4. Unfunded Actuarial Accrued Liability is the difference between the Act<larial
Accrued Liability and the Valuation. Assets. It is amortized over the maximum
permissible period under GASB 45 of 30 years.
It should be noted that GASB 45 allows a variety of cost methods to be used. We elected this
method because it is generally easy to understand and is widely used for the valuation of
post:employment benefits other than pensions. Ot11er methods used do not change the ultimate
liability, but do allocate it differently between what: has been earned in the past and what will be
earned in the future. If a different method was used, either the normal cost would decrease and
the unfunded amortization would increase, or the normal cost. would increase and the
amortization decrease. Please note that the net effect of the change may result in an increase or
de;crease in the annual required contribution (ARC). If desired, we can provide more details.
Actuarial Valuation of Postretirement Benefits Under GASB 45 14
This material assumes that the reader is familiaz with [he City of 1?ort Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not. intend to benefit
and assumes no duty or liability to other parties who receive this v+ork. This material should only be; reviewed in its entirety.
Appendix B -Actuarial Assumptions
In addition to the actuarial method used, actuarial cost estimates depend to an important degree
on the assumptions made relative to various occurrences, such as rate of expected investment
earnings by the fund, rates of mortality among activt; and retired employees, rates of termination
i'rom employment, and retirement rates. In the current valuation, the actuarial assumptions used
1:or the calculation of costs and liabilities are as follows:
Measurement Date
Benefit liabilities are valued as of October 1, 2007.
Discount Rate for Valuing Liabilities (for illustrative nurnoses only*1
Without prefunding: 4.OOcIo per annum, compounded annually
With prefunding: 7.00% per annum, compounded annually
* please see discussion in the Introduction and Purpose section of this report
1Vlortality Rates
Healthy Lives: RP2000 Healthy Mortality Table (sex distinct)
w/ Generational Projection Scale AA
Disabled Lives: RP2000 Disabled Mortality Table (sex distinct)
w/ Generational Projection Scale AA
Withdrawal Rates (from TMRS Reuort for Mid withdrawal ;;roue')
For the first 18 years, the rates vary by sex and length of service. Sample rates are shown
below:
Svc Males_ Females
0 .299 .308
3 .130 .166
6 .090 .104
9 .056 .058
12 .034 .038
15 .022 .023
18 .017 .013
after 18 years, the rates vary by age (from TMRS Report for municipalities with 500 or more
members). Sample rates are shown below:
Awe Rate;
40 .018
45 .013
50 .008
55 .003
60 .008
Actuarial Valuation of Postretirernent Benefits Under GASB 45 15
This material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact. of the proposed
GA,S13 Statement 45 on the City's fmancial statements. It may not be appropriate for other purposes. MIlliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
65 .013
Disability Rates (from TMRS report)
A~ Male Female:
30 0.000108 0.0000`_>4
35 0.000326 O.000lti4
40 0.000897 0.000449
45 0.001884 0.000943
50 0.003331 0.001666
55 0.005442 0.002723
Retirement Rates (from TMRS report
Age Male Femal~_
45-49 0.06 0.045
50-54 0.08 0.07_i
55-59 0.12 0.10
60 0.20 0.3_i
61 0.24 0.2`i
62 0.50 0.40
63 0.28 0.20
64 0.35 0.2'i
65 0.75 0.50
66-69 0.55 0.45
70 1.00 1.00
Coverage Assumption
90°Io of employees eligible for retiree medical benefits are assumed to elect continued
medical coverage in retirement.
S~~ousal Coverage Assumption
50°'/0 of active members are assumed to elect coverage for a spouse upon retirement.
S~vouse Age Difference
If spouse's date of birth is not provided, females are assumed to be. three years younger than
:males.
Administrative Expense Load
12.5% administrative load on gross per capita claims costs
Pf;r Capita Medical Benefit Costs
The assumed annual per capita cost of medical and pharmacy benefits prior to reduction for
retiree contributions is shown below for select ages. These amounts include a 12.5%~
administra
uve exvense >oaa.
A e Medical
Male Female
55 $7,015 $'7,419
58 8,355 8,345
61 9,951 !3,387
64 11,852 10,559
65 3,372 3,494
Actuarial Valuation of Postretirement Benefits Under GASB 45
16
This material assumes that the reader is familiaz with the City of Port Arthur's post-employment benefit programs, their benefits, eligibIlity>
administration and other factors. The material was prepared sole y to provide assistance to the City in reviewing the impact of the proposed
GASB Statement. 45 on the City's financial statements. It may not be appropriate for other purposes. MIlliman does not intend to benefit
and assurnes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
68 3,904 3,E374
Medical Inflation (Trend Assumution)
The trend assumptions for medical and pharmacy costs and retiree premiums are summarized
below:
Year Pre Medicare Post Medicare
2007 11.0% 10.5%
2008 10.5% 10.0%
2009 10'.0% 9.5° o
2010 9.5% 9.0°0
2011 9.0% 8.5°'0
2012 8.5% 8.0°'0
2013 8.0% 7.5°'0
2014 7, 5% 7.5°,'0
2015 7.0% 7.0°,'0
2016 6.5% 6.5°6
2017 6.0% 6.5°'°
2018 5..5% 6.0°,~0
2019 5..0% 5.5°i°
2020 5..0% 5.5°,'°
2021 + 5.0% 5.0°i°
Actuarial Valuation of Postretirenaent Benefits Under GASB 45 17
This material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
.Appendix C -Plan Provisions
Medical Eligibility and Coverage
City and Police
Retirement -For employees who are eligible to receive a pension from the Texas 1Vlunicipal
Retirement System and are retiring (1) wittl 20 or more years of service with the City or (2)
after age 60 with at least 10 years of service with. the City.
Disability -For employees who aze eligible to receive a disability pension from the 'Cexas
Municipal Retirement System and became disab ed after at least 10 years of service with the
City.
Fire
Retirement -For employees who are eligibble to receive a pension from the Port Arthur
Firefighter's Relief and Retirement Fund and are; retiring with 20 or more years of service.
Disability -For employees who become disabled prior to attaining 20 years of service and are
eligible to receive a disability pension from the Port Arthur Firefighter's Relief and Retirement
Fund.
Monthly Medical Contributions Required by Retirees
Under A,ge 6~; Over Abe 65
Retiree Retiree Retiree Retiree
Only & Spouse Only & Spouse
$172.35 $61J6.70 $140.38 $395.64
Dental Eligibility and Coverage -Retirees art; not eligible for the dental plan.
Life Insurance Benefits -None
Dental Benefits -The City makes no contribution to this benefit
Vision Benefits -The City makes no contribution to this benefit
Hearing Benefits -Not covered
Medical Plan Benefits Summary - (see next page)
Actuarial Valuation of Postretirement Benefits Under GASB 45
18
This material assumes that the reader is familiar with the City of ]Port Arthur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may n;ot be appropriate for other purposes. Milliman does not. intend to benefit
ar.d assumes no duty or liability to other parties who receive this v~ork. This material should only be, reviewed in its entirety.
E>I;hibit III
City of Port Arthur
Summary of Medical Benefits
Effective 11/11/2007
Aft. t
PPO
Pfa~n Features In-Network Chtt-of-Network
Deductible
Irdividual $500..
$1,000
Family $1, 500 $3,000
OOP Max
Individual $2,500 $3000
Family $5,000 $8,000
Lifetime Max $1 000 000
In itieirt Ho ital must be recertifi
Member Coinsurance 80°/ 60% after per adm. ded.
Per Admission Deductible None $200
Penalt for Failure to Precertif None $250
Em RoomlTreatmerit Room '--
Emergency
Facility Charges 80% after $100 copay, waived if admitted
Ph sician Char es 80 % after cal. r. ded
Non-Emergency
Facility Charges BO % after $10(1 copay, waived if admitted 60°/ after $100 copay, waived if admitted
Ph sician Char es 80°/ after cal. r, ded 60% after cal. r. ded
Meriical=Su .Services
Physician Office (non-surgical), Lab/X-Ray 100°r; after $;?5 copay 70% after cal. yr. ded.
Immunizations (birth to age 6) 100°/> 100°~
Physician Surgical Services 80 % after cal. yr. ded 60% after cal. yr. ded.
Lab & X-Ray in Other OP Facilities 100°/, 70% after cal. yr. ded.
Certain Diagnostic Procedures: Bone Scan, 80% after cal. yr. ded 60% after cal. yr. ded.
Cardiac Stress Test, CT Scan, Ultrasound, MRI,
Myelogram, PET Scan
Horne Infusion Therapy (must be precert.) 80 % after cak. yr. ded 60 % after cal. yr. ded.
In-Vitro Fertilization Declined
Chiropractic Care 80 % after caV. yr. ded ~ 60% after cal. yr. ded.
$1 500 cal. r. max.
All Other Ph sician Medicine Services Same basis as an other sickness
S e+ech and Hearin Services with Hearin Aids Covered as an other :ackness• $1 000 max benefit er 36-month rind for Hearin Aids.
All Other Out atient ServicesJSu lies 80% after call. r. ded 60% after cal. r. ded.
Preventive Care - -
Routine Physicals, Well Baby 100°m after $25 copay 70% after cal. yr. ded.
Immunizations (after age 6) 100°/ after $;?5 copay 70 % after cal. yr. ded.
Vision & Hearin Exams 100°io after ;?5 co a 70% after cal, r. ded.
F~tDsnded Care Servfces must be recertified
Coinsurance 100°r.; 70 % after cal. yr. ded.
Maeimum Benefits
Home Health Care $1 C,000 per cal. yr. $7,000 per cal. yr.
Skilled Nursing Facility $10,000 per' cal. yr. $7,000 per cal. yr.
Hospice Care $20,000 lifetime max $14,0001ifetime max
Benefits used in or out-of-networ k a I towards both maximums.
Mei>tal Health/Chem. De ndenc must be recertifi ed
Inpatient Services
Hospital Services (Facility) 80 % 60% after per adm. ded.
Physician Services 80% after cal. yr. ded 60°/ after cal. yr. ded.
Calendar Year Limitations ;30 days/visits 15 days/visits
Da sand visits used in or out-of-net work a I towards both maximums.
Outpatient Services
Services in Physician Office 100°o after $25 copay 70% after cal. yr. ded.
Professional Provider 80% after cal. yr. ded 60% after cal. yr. ded.
Visits Allowed 30 visits 15 visits
Chem. De endenc Max for each Covered Individual $10,0001ifetime maximum
Serious Mental Illness Covered as an other sickness
Phrlrmac
Retail $10/$30/$50 80% of Allowable minus copay
Mail Order r30-da su I $10/$30!$50
Members choosing to buy brand drugs when a generic equivalent is available +MII pay the brand copay plus
the difference between the cost of the brand and generic drug, even if prescription says DAW.
R:c copays do not apply to stoploss maximum.
Actuarial Valuation of Pos!tretirement Benefits Under GASB 45 19
This material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibIlity,
adnunistration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact. of the proposed
GASB Statement 45 on the City's fmancial statements. It may ncrt be aplpropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. Thais material should only be reviewed in i[s entirety.
Appendix D -Glossary
The following is an explanation of many of theterms referenced by the Proposed Statement of the
Governmental Accounting Standards Board, "Accounting and Financial Reporting by Employers for
Postemployment Benefits Other than Pensions".
1. Actuarial Cost Method. This is a procedure for determining the Actuarial Present Value of
Benefits and allocating it to time periods to produce the Actuarial Accrued Liability and the
Normal Cost. The Statement assumes a closed group of employees and other participants unless
otherwise stated; that is, no new entrants are assunned. Six methods are permitted -Unit Credit,
Entry Age Normal, Attained Age., Aggregate, Frozen Entry Age, and Frozen Attained Age.
w. Actuarial Accrued Liability. This is the portion of the Actuarial Present Value of Benefits
attributable to periods prior to the valuation date by the Actuarial Cost Method (i.e., that portion
not provided by future Normal Costs).
:3. Actuarial Present Value of Benefits. This is the value, as of the applicable date, of future
payments for benefits and expenses under the Plan, where each payment is:
(a) Multiplied by the probability of the event occurring on which the payment is conditioned,
such as the probability of survival, death, disability, termination of employment, etc.; and
(b) Discounted at the assumed discount rate.
4. .Actuarial Value of Assets. This is the value of crash, investments and other property belonging
to the Plan, as used by the actuary for the purpose of an Actuarial Valuation.
5. Amortization Payment. This is the amount of the contribution required to pay interest on and
to amortize over a given period the Unfunded Actuarial Accrued Liability or the: Unfunded
Frozen Actuarial Accrued Liability. A closed amortization period is a specific number of years
counted from one date and reducing to zero with the passage of time; an open amortization
period is one that begins again or is recalculated at each actuarial valuation date.
6. Annual Required Contributions ("ARC"). This is the employer's periodic required
contribution to a defined benefit OPEB plan, calculated in accordance with the set of
requirements for calculating actuarially dc:termiined OPEB information included in financial
reports.
7. Attribution Period. The period of an employee's service to which the expected postretirement
benefit obligation for that employee is assigned. The beginning of the attribution period is the
employee's date of hire. The end of the attribution period is the normal retirement date. For
disability retirement, the end of the attribution period is the date of disability.
8. Benefit Payments. The monetary or in-kind benefits or benefit coverage to which participants
may be entitled under a post employment benefit plan, including health care benefits and life
insurance not provided through a pension plan.
Actuarial Valuation of Pos.tretireirent Benefits Under GASB 45 20
This material assumes that the reader is familiar with the City of Fort Artlhur's post-employment benefit programs, their benefits, eligibility,
administration and other factors. The material was prepazed solely to provide assistance to the City in reviewing the impact of the proposed
GFVS6 Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
9. Funding Excess. This is the excess of the Actuarial Value of Assets over the actuarial accrued
liability.
~0. Normal Cost. This is the portion of the Actuarial Present Value of Benefits allocated to a
valuation year by the Actuarial Cost Method.
~ 1.. Net OPEB obligation. This is the cumulative difference since the effective date of this
statement between annual OPEB cost and the employer's contributions to the plan, including the
OPEB liability (asset) at transition, if any, and excluding (a) short-term differences and (b)
unpaid contributions that have been converted to OPEB-related debt.
a~. Other Postemployment Benefits ("OPEB"). 'Chis refers to postemployment benefits other
than pension benefits, including healthcare benefits regardless of the type of plan that provides
them, and all other postemployment benefits provided separately from a pension plan, excluding
benefits defined as termination benefits or offers.
L:~. Return on Plan Assets. This is the actual investment return on plan assets during the fiscal
vear.
14. Substantive Plan. 'The terms of the postretirement benefit plan as understood by an employer
that provides postretirement benefits and the employees who render services in exchange for
those benefits. The substantive plan is the basis far the accounting for the plan.
15. Unfunded Actuarial Accrued Liability. This :is the excess of the actuarial accrued liability
over the Actuarial Value of Assets.
Actuarial Valuation of Postretirernent Benefits Under GASB 45 21
'this material assumes that the reader is familiar with the City of Port Arthur's post-employment benefit programs, their benefits, eligibIlity,
administration and other factors. The material was prepared solely to provide assistance to the City in reviewing the impact of the proposed
GASB Statement 45 on the City's financial statements. It may not be appropriate for other purposes. Milliman does not intend to benefit
and assumes no duty or liability to other parties who receive this work. This material should only be reviewed in its entirety.
EXHIBIT "3"
April 29, 2009
Ms. Rebecca Underhill, CPA
C)irector of Finance
City of Port Arthur, Texas
F'.0. Box 1089
F'orl: Arthur, Texas 77641-1089
Re: Actuarial Audit of the City of Port Arthur (Retiree Health Care Plan Actuarial Valuation
C)ear Ms. Underhill:
Gallagher Benefit Services, Inc. (GBS) is pleased to provide our Actuarial Audit of the City of
Fort Arthur Actuarial Valuation Report of Postretirement Benefits under GASB 45 as of
October 1, 2007 provided by Richard E. White and Bryan Wilson, consulting actuaries of
Milkman, Inc., on November 9, 2007.
l-his Actuarial Audit consists of two steps:
Step One -Match Results of Milkman based on information provided by Milkman (i.e.
report and subsequent documents) to veirify the accuracy of the City's Other
Postemployment Benefits (OPEB) actuarial ca'~lculations, and
Step Two -Review of the Actuarial Assumptions Used by Milkman to value the
OPEB liabilities and annual costs.
The following summarizes the purpose, approach, findings, and conclusion for both steps of
t:he Actuarial Audit:
Step One -Match Results of Milkman
Purpose
This step addresses whether or not Milliiman correctly programmed the benefits of the
plan based on the census data, plan provisions, and actuarial assumptions and methods
shown in their report.
Approach
GBS programmed the participant data, plan provisions, and assumptions provided by
Milkman. GBS valued postemployment meclical and prescription drug coverage for
retirees, beneficiaries, disabled participants, and active employees.
www.stanton-group.com
www.gall<~gh~arbenefits.com
3600 American Blvd. West, Suite 500
Bloomington, MN 55431
952 356 3840 1 800 754 9867
Ms. Rebecca Underhill
April 29, 2009
Page 2
Certain plan provisions regarding spouse contributions and disability eligibility
requirements were not clear in Milkman's b'aluation. GBS contacted the City to get
clarification of these provisions and included them in the liability calculations.
Milkman results were provided by individual components. GBS results were also
separated into these individual components for comparison purposes and to assist in
matching Milkman.
Findings and Conclusions
During the matching process, GBS determined that the census data was as of January
1, 2007 rather than the October 1, 2007 valuation date. This is acceptable so long as
the January 1, 2007 data was expected to reasonably represent participants as of the
October 1, 2007 valuation date. Milkman dici not indicate this expectation within the
valuation.
Overall, GBS is within 5% of the Present Value of Benefits (PVB) calculated by Milkman
based on their assumptions. However, GBS clid not fall within 5% for all the individual
components. GBS's PVB for spouses of employees and pre-Medicare spouses of retirees
are 25% and 22% higher than Milkman's, respectively. GBS's PVB for Fire employees
(excluding spouse. coverage) is 8% less than Milkman's. These two individual
components comprise a small portion of the total PVB. The City may want to
understand how Milkman is interpreting anti valuing the provisions related to these
individual components. Despite these discrepancies, GBS is within 5% of Milkman's PVB
and concludes that overall liabilities a,re reasonable based on the provisions of the
plan and the assumptions used by Milkman.
Step Two -Review of the Actuarial Assumptions Wsed by Milkman
Purpose
The Review of Actuarial Assumptions is an analysis of the economic, demographic, and
utilization assumptions and actuarial cost method used to determine the results
presented by Milkman. The assumptions are evaluated for' reasonableness on an
individual basis.
Approach
To evaluate the retirement, termination, cisability, and election rate assumptions,
GBS conducted an experience study, comparing Milkman's assumptions to historical
occurrences provided by the City.
Findings and Conclusion
The Review of Actuarial Assumptions produced some questions regarding assumptions
used to calculate the OPEB liabilities and annual costs. GBS does not necessarily
believe that any specific assumption is incorrect; rather GBS believes that further
analysis and discussions with the City should be completed to determine if a revised
assumption is more suitable.
Ms. Rebecca Underhill
April 29, 2009
Page 3
The following summarizes key findings and recommendations for assumptions related
to the Per Capita Claims Costs (PCCC), termination rates, and election rates:
Milkman developed the PCCC from their understanding of the plan and Milkman's
Health Cost Guidelines. GBS recorr~mencls using actual health care experience of
City participants instead of Millima~n's Flealth Cost Guidelines. The City is large
enough that actual participant experience over multiple years would be very
credible and would increase the credibility of the valuation results. The PCCC
assumed for disabled participants is the same as that assumed for healthy
participants, but employer medical costs for disabled participants could be
significantly different than healthy parti<ipants. GBS recommends that a separate
PCCC table applicable for current and fui:ure disabled participants be incorporated
in the valuation. Milkman's 12.5% administrative load in the PCCC is slightly higher
than GBS's client experience.
Based on GBS's experience study, 1Willim~an's termination assumption significantly
overestimates termination prior to rettirement eligibility. This is a critical
assumption and has significant impact •on plan costs. If the City overestimates
termination, it will be anticipating lower costs than will actually occur. GBS
recommends considering a more coriserva~tive termination assumption.
Also based on GBS's experience study, Milkman's election rates at retirement
slightly overstate the number of eligible employees assumed to elect coverage
(including dependent coverage) at retirement. This is a critical assumption that
can significantly impact plan costs„ GBS recommends lowering the percentage of
eligible employees that elect health care' at retirement to 83% from 90% and those
electing to cover a spouse to 38% from 5CI%.
GSB's key finding and recommendation related to the actuarial cost method is how the
amortization of the Unfunded Actu<~rial Accrued Liability (UAAL) is amortized.
Milkman developed that Annual Required Contribution by amortizing the UAAL over 30
years as a level dollar amount. If the City is trying to keep the Annual Required
Contribution and Net OPEB Obligations to a minimum now, the amortization of the
UAAL could be amortized over 30 years as an amount that increases at the assumed
payroll growth rate of the City. Changing to this method of amortization would
decrease the amortization amount of the UAAL approximately 40% or $2,000,000 in the
early years, but increase the amortization amount approximately 95% or $7,000,000 in
the later years of the 30-year period. GBS's experience is that most clients are
amortizing the UAAL over 30 years as an amount that increases at the assumed payroll
growth rate. GBS recommends changing the amortization method if the City is trying
to keep the Annual Required Contribution as low as possible and follow the
methodology of many other public sector employers.
Ms. Rebecca Underhill
April 29, 2009
F'age 4
In arddition to matching Milkman, GBS determined results with revised termination rates and
election rates. Exhibits at the end of the zrudit report summarize the Present Value of
E3enefits, Actuarial Accrued Liability, and Annual Required Contribution under the following
scenarios:
GBS Match -This is GBS's match of the Milkman results based on Milkman
assumptions and plan provisions.
Revised Termination Rates -These acre GBS's results based on revised termination
rates as described on page 11 of the audit report.
Revised Election Rates -These are GBS's results based on revised termination rates
and election rates as described on pages 11 of the audit report.
Revised UAAL Amortization Method -These are GBS's results based on revised
termination rates, election rates, and amortization method as described on page 11
of the audit report.
GB`.i appreciates the opportunity to provide this; service to the City of Port Arthur. If you have
any questions regarding our report, or if you would Bike additional information, please contact
me.
Sincerely,
E rg
~? --
,~ ~
>~ (i>
S<~rah G. Johnson, ASA, MAAA
Actuarial Analyst
Gallagher Benefit Services, Inc.
(952)356-0732
Christopher L. Grabrian, EA, ASA, MAAA
Actuarial Consultant
Gallagher Benefit Services, Inc.
(952;1 356-0706
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EXHIBIT "4"
K'~~EIV c~
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~INAIUL~ ~~~`
Tt): Stephen B. Fitzgibbons, City Manager DATE: 09/04/09
FROM: Dr. Albert T. Thigpen, IPMA-CP, CAS
Director of Human Resources and Civil Service
RE:: Major Medical Insurance Renewal Ref. Renewal Rate Analysis
As you are aware, Blue Cross Blue Shield [BC/BS] of Texas has
presented a major medical insurance renewal in which the
proposed rates for the City have been held constant [q.v. Exhibit
"A"]. Although, this is good nE~ws for the City, the shift which has
occurred over time with regaird to payment of "true" insurance
costs leaves the City holding (paying) the larger end of the
financial burden.
A closer examination of renewal as shown in Exhibit "A" reveals
BC/BS basically rated the City's covered lives in two (2) groups:
Medicare and "Under 65", the latter including retirees and "active"
(currently working) employees. In order to see the impact of
retirees on renewal rates, Mr. Moshier, City Health Insurance
Consultant, had BC/BS provide renewal rates for "Active"
employees. The result indicated a reduce-ion of the previously
presented renewal rate from $ 413.79 to $ 393.10 - a reduction of
approximately five (5%) percent [q.v. Exhibit "B"].
A key concern discussed by you, Ms. Underhill, ACM/Admin., and
myself is the impact of the shift of the financial burden to the City.
BC/BS has been requested to provide renewal rates for three- (3)
groups: "Actives", "Under 65 Retirees", and "Over 65 [Medicare]
Retirees" based on actual utilization costs. These rates are
reflected in Exhibit "C".
As we have discussed, this year it will be prudent to return to a
true 50/50 arrangement on premiums in which the employee
and/or retiree are participating jointly. I have requested Mr.
Moshier to ask BC/BS to pirovide renewals rates keeping the
"Actives" at the original renewal rate of $ 413.79, the "Over 65
Retirees" at the proposed $ 216.70, and using the difference
between the "Actives only" renewal rate of $ 393.10 and the
original renewal rate to mitigate the renewal rate of the "Under 65
Retirees" which is shown in E~:hibit "C" as $ 589.65.
The revised rates would be used to calculate premium costs for
plan participants. Retirees in the "Over 65 Retirees" (Medicare)
category would pay $ 216.70 which is their funding rate based on
utilization and a true one-half (50%) of their dependent care costs
[Note: The City would see a reduction in individual and "Medicare
2+ Dependent categories; ho~nrever, .there would be an increase in
"Medicare Retiree/Medicare Dependent" category as the City
currently does not pay one-half (50%) of that cost.], "Actives"
would pay one-half the appropriate dependent premium
(single+l, family), and "Under 65 Retirees" would pay one-half of
the new adjusted premium. However, as in the past, City Council
can choose to absorb all or a portion of the increase.
Undoubtedly, additional modifications, as we have discussed, to
the City's Major Medical Insurance Plan will be necessary to
control costs and to maintain .a viable plan for employees, retirees,
and dependents. The changes will impact other benefit areas such
as retirement, etc. Changes to control costs .should always be
considered in the view of the greater concern of providing
maximum healthcare benefit to all concerned.
In considering a prospective view, it would appear prudent to
examine our "covered lives" base in three principal components:
retirees, employees with fifteen (15+) plus years of service, and
those with 0 to fourteen (14~+) years of service. Examining how
we offer insurance benefits to ,each of these groups will afford
opportunities to modify insurance offerings regarding retirement;
yet, maintain the goal of fairness and reasonableness. An
additional requirement regardling persons qualifying for retirement
eligibility using "prior service credit" [i.e. eligible time at another
public employer] would be to add a fifteen (15) year "direct
service with the City of Port Arthur" to qualify for retiree medical
benefits at the full level. Tr~is would be in keeping with the
proposed grouping of "covere~~ lives" and recognize those whose
retiree status is the direct result of tenured service to the citizens.
A plan to tie years of service to retiree insurance benefit level in a
tiered manner will need to developed and considered. An example
of such a .plan would be: 20i+ years of direct service - 100%
benefit level, 19 - 15 years of` direct service - 75%, and 10 - 14
years of direct service - 50%.
The renewal date for the Cit~~'s Major Medical Health Insurance
Plan is November 01, 2009; therefore, we will have a renewal
resolution on the September 22, 2009 Council Meeting Agenda in
order to have the month of October for "Open Enrollment"
purposes (i.e. sign-up, benefit and dependent changes, etc.).
Other changes to the City's Ntajor Medical Health Insurance Plan
will require significant due diligence and research; further, such
changes are most effective, ar~d receive City Council endorsement,
when there is employee input.. Therefore, I would recommend
further changes which would have greater impact on covered
individuals be considered, and prepared, for implementation at the
November O1, 2010 renewal.
Please advise should you need~~ additional information.
c: John Comeaux, PE
Rebecca Underhill, CPA
Deborah Echols, CPA
Patricia Davis
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