Atherton City Council
November 16, 2022

PARS Trust Payment Allocation To Retiree OPEB Expense
November 16, 2022

cycle. The shifted amount would be for retirees only. Active employee costs would remain an operational expense.

Payment of the retiree health from the PARS Trust reduces the General Funds Operations Expense by approximately $550K to $600K per year. The Town is required to conduct an OPEB Actuarial every two years. The Committee recommends that the Town assess the budgeted distributions after each Actuarial Report. At the current value of $7.8 million, assuming the retiree allocations remain relatively static, the Trust can pay approximately 14 years worth of full OPEB benefits.

Attached for review is Atherton 2022 Actuarial Valuation of OPEB, presentation, and a memo the Committee reviewed for its consideration for discussion on Atherton OPEB liabilities.

FISCAL IMPACT
None.

GOAL ALIGNMENT
This Report and its contents are in alignment with the following Council Policy Goals:
• Goal Area A – Maintain Fiscal Responsibility
• Goal Area F – Be Forward-Thinking, Well-Managed, and Well-Planned

POLICY FOCUS
OPEB Liabilities are long term retiree health liabilities that are earned by eligible Town employees. Fiscal Stability is one of the core values of the Town of Atherton. One of the objectives of financial stability is to ensure the paying down of the Town’s Long-term liabilities. The Town maintains an irrevocable trust for the addressing of OPEB benefits and over the years has contributed to funding the liabilities. This is an opportunity to reduce the Town operational expenditures for OPEB benefits and can result in significant long-term operational savings for the General Fund.

PUBLIC NOTICE
Public notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting in print and electronically. Information about the project is also disseminated via the Town’s electronic News Flash and Atherton Online. There are approximately 1,200 subscribers to the Town’s electronic News Flash publications. Subscribers include residents as well as stakeholders –to include, but be not limited to, media outlets, school districts, Menlo Park Fire Protection District, service provides (water, power, and sewer), and regional elected officials.

COMMISSION/COMMITTEE FEEDBACK/REFERRAL
Audit/Finance Committee (meets every other month)

PARS Trust Payment Allocation To Retiree OPEB Expense
November 16, 2022

ATTACHMENTS

1. Town of Atherton 2022 Actuarial Valuation of OPEB – Postemployment Healthcare Program

2. Presentation -June 30, 2022 OPEB Valuation Review

3. Memo Re: Atherton OPEB Liabilities Funding recommendation to City Council

Town of Atherton
GASB 75 Disclosures for Fiscal Year Ending June 30, 2022 Based on OPEB Valuation as of June 30, 2022

CONTACT
Evi Laksana, ASA, MAAA
[email protected]
(424) 877-2393
Version 1.0

Town of Atherton
Table of Contents
Actuarial Certification................................................................................................................................................................1 Section 1: Executive Summary..................................................................................................................................................3 Section 2: Financial Disclosures...............................................................................................................................................8 Section 3: Asset Information....................................................................................................................................................16 Section 4: Actuarially Determined Contribution...................................................................................................................18 Section 5: Projected Benefit Payments..................................................................................................................................19 Section 6: Substantive Plan Provisions...................................................................................................................................21 Section 7: Actuarial Methods and Assumptions ..................................................................................................................24 Section 8: Participant Summary............................................................................................................................................32 Appendix - Sample Decrement Rates ..................................................................................................................................36 Appendix - Glossary ...............................................................................................................................................................45

Actuarial Certification Town of Atherton

Actuarial Certification
Mr. Robert Barron III
Town of Atherton
80 Fair Oaks Lane, 1st Floor
Atherton, CA 94027
GovInvest has been engaged by Town of Atherton to complete an actuarial valuation of the Town of Atherton OPEB Plan as of June 30, 2022 which will be used as the basis of the financial accounting disclosure for fiscal year ending June 30, 2022 in accordance with GASB Statement No. 75 (Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions).

The purpose of this report is to provide the Town with the recommended contributions and required information needed for financial statement disclosure purposes. The use of this report for any other purpose may not be appropriate. The content of this report may not be modified, reproduced, or provided to third parties, either in whole or in part, without our permission. GovInvest is not responsible for usage, inference, or misinterpretation of this report by third parties.

Results presented in this report are based on the census data, substantive plan provisions, and healthcare cost information provided by the Town and/or their benefit consultants. All information provided has been reviewed for reasonableness and clarifications or corrections have been requested where appropriate. We have not audited the information at the source, and therefore, do not accept responsibility for the accuracy or completeness of the data on which the information is based. Assumptions made related to missing data have been identified in this report.

We are satisfied that the information provided is suitable and sufficient for the purpose of the measurement.

The valuation results were prepared using leased actuarial modeling software that produces results consistent with the purpose of this valuation and meet applicable regulatory requirements. The vendor is responsible for the development, maintenance, and improvement of these models.

The models include comprehensive technical documentations that outline how the calculations are performed along with sample life outputs that allow the users to confirm with high degree of accuracy how the programmed benefit is applied to an individual with the proposed decrements and other assumptions. The actuarial team loads the participant data, programs the benefit provisions and proposed assumptions into the model and review sample life outputs and results under the supervision of credentialed actuaries who are proficient users of the software.

We are not aware of any material limitations in the model nor any material inconsistencies in the assumptions used within the model.

Actuarial Certification Town of Atherton

The discount rate, other economic, and demographic assumptions have been selected by the Town with our recommendations and concurrence.

We believe each assumption is reasonable based on its own merits and in combination represent reasonable expected experience of the Plan.

All calculations have been completed in accordance with generally accepted actuarial principles and practices.

Future actuarial measurements may differ significantly from current measurements due to factors such as actual plan experience that differs from that anticipated by the economic and demographic assumptions as well as changes in future assumptions, substantive plan provisions, and/or applicable law. We have not analyzed the potential range of such differences due to the limited scope of our engagement. To our knowledge, there are no significant events prior to the current year’s Measurement Date or as of the date of this report that may materially affect the results presented herein.

The undersigned meets the General Qualification Standards of the American Academy of Actuaries for the purpose of issuing Statement of Actuarial Opinion in the United States. Neither GovInvest nor any of its employees have any relationship with the Plan Sponsor that could impair or appear to impair the objectivity of this report.

Evi Laksana, ASA, MAAA
September 30, 2022

Executive Summary Town of Atherton

Section 1: Executive Summary
Town of Atherton (the “Town”) sponsors a single-employer defined benefit OPEB plan that provides medical and prescription drug coverage at retirement. Employees may continue health coverage with the Town at retirement for themselves, their spouses, and dependents for life once they meet certain eligibility requirements and as long as required contributions are made.

The results presented in this report are based on the June 30, 2022 valuation with liabilities and assets measured as of June 30, 2022, for use in the Town’s accrual-based financial statement for the fiscal year ending June 30, 2022. The June 30, 2022 valuation uses census data of (a) active employees who will be eligible to receive benefits in the future and (b) existing retirees who are currently receiving these benefits as of June 30, 2022, as well as healthcare cost information effective on January 1, 2022 provided by the Plan Sponsor and/or their healthcare consultant.

The actuarial valuation is based on substantive plan provisions outlined in Section 6. The valuation requires assumptions which are listed in Section 7. Results from the June 30, 2022 valuation may be rolled-forward for use in the Plan Sponsor’s accrual-based financial statement disclosure for the fiscal year ending June 30, 2023 assuming that there are no material changes to the substantive plan provisions and/or the covered population.

The Plan Sponsor’s next full valuation is as of June 30, 2024 with liabilities and assets measured as of June 30, 2024 for reporting in the Plan Sponsor’s accrual-based financial statements for the fiscal year ending June 30, 2024.

Changes Since Prior Valuation
The Town’s Net OPEB Liability has decreased from $133,190 as of June 30, 2021 to $(93,344) as of June 30, 2022, which is attributable to a combination of the following factors:

1. Less favorable actual asset performance compared to expected.

2. More favorable actual demographic experience and lower healthcare cost increase than expected that caused a liability decrease.

3. Assumption changes as outlined in Section 7 as well as changes in actuarial methodology due to changes in actuary that produces a slight net liability decrease.

Executive Summary Town of Atherton

Summary of Results
Presented below is the summary of results for the current fiscal year compared to the prior fiscal year.

Fiscal Years 2021/22 2020/21
Valuation Date (VD) June 30, 2022 June 30, 2020
Measurement Date (MD) June 30, 2022 June 30, 2021
Membership Data as of Valuation Date
Inactive employees or beneficiaries currently receiving benefits1 41 61 Inactive employees entitled to but not yet receiving benefits 0 0 Active employees 39 36
Total membership 80 97
Discount Rate at Measurement Date
Municipal Bond Index Rate 4.09% 2.16%
Long-term Expected Asset Return 6.00% 5.39%
Year in which Fiduciary Net Position is projected to be depleted N/A N/A Single Equivalent Discount Rate (SEDR) 6.00% 5.39%
Net OPEB Liability as of Measurement Date
Total OPEB Liability (TOL) $ 7,736,578 $ 8,999,682
Fiduciary Net Position (FNP) (7,829,922) (8,866,492)
Net OPEB Liability (NOL = TOL – FNP) $ (93,344) $ 133,190 Funded Status (FNP / TOL) 101.2% 98.5%
1 Prior year inactive employees or beneficiaries currently receiving benefits enrollment includes 41 retirees and 20 spouses. Current year inactive employees or beneficiaries currently receiving benefits enrollment includes 41 retirees only and excludes spouses covered under the plan to comply with GASB requirements on enrollment reporting.

Executive Summary Town of Atherton

Fiscal Years 2021/22 2020/21
Valuation Date (VD) June 30, 2022 June 30, 2020
Measurement Date (MD) June 30, 2022 June 30, 2021
OPEB Expense / (Income) by Fiscal Year $ (609,815) $ (452,878) Balance of unamortized Deferred Inflows at MD $ (3,612,875) $ (4,091,369) Balance of unamortized Deferred Outflows at MD $ 895,117 $ 396,269 Actuarially Determined Contribution by Fiscal Year2 $ 519,144 $ 465,571 2 Actuarially Determined Contribution (ADC) for FY 2020/21 is as shown in the Town of Atherton GASB 75 OPEB Valuation Report for Disclosures for the fiscal year ending June 30, 2021 prepared by Precision Actuarial Inc. dated 10/6/2021. ADC for FY 2021/22 is from the same report but with revised amortization of the Net OPEB Liability based on level % of pay amortization method using 5.39% discount rate, 2.75% payroll growth, and 16 years amortization period.

Executive Summary Town of Atherton

Below is a breakdown of the OPEB liability allocated to past and current service as of the Measurement Date compared to the prior Measurement Date. The liability below includes explicit subsidy (if any) and implicit subsidy. Refer to the Substantive Plan Provisions section for complete information on the Town benefit provisions.

Present Value of Future Benefits (PVFB) As of June 30, 2022 As of June 30, 2021 Active employees $ 1,961,954 $ 4,608,699
Retired employees 6,795,812 6,877,755
Total PVFB $ 8,757,766 $ 11,486,454
Total OPEB Liability (TOL) As of June 30, 2022 As of June 30, 2021 Active employees $ 940,766 $ 2,121,927
Retired employees 6,795,812 6,877,755
Total TOL $ 7,736,578 $ 8,999,682
As of June 30, 2022 As of June 30, 2021
Discount Rate 6.00% 5.39%
$6.8 $6.9
$0.9 $2.1 $1.0
$2.5
$0
$3
$6
$9
$12
As of 6/30/2022
(6.00% DR)
As of 6/30/2021
(5.39% DR)
Millions
OPEB Liability Breakdown ($)
Active future service
(PVFNC)
Active past service (TOL)
Retirees

77.6%

59.9%

10.7%

18.5%

11.7%

21.6%
0%
20%
40%
60%
80%
100%
As of 6/30/2022
(6.00% DR)
As of 6/30/2021
(5.39% DR)
OPEB Liability Breakdown (%)

Executive Summary Town of Atherton

Below is a breakdown of the Total OPEB Liability as of the Measurement Date, shown separately for explicit and implicit subsidy.

Total OPEB Liability (TOL)
As of June 30, 2021
Explicit Implicit Total
Active employees $ 706,460 $ 234,306 $ 940,766
Retired employees 5,965,211 830,601 6,795,812
Total TOL $ 6,671,671 $ 1,064,907 $ 7,736,578
$0.7
$6.0
$0.2
$0.8
$0.0
$2.5
$5.0
$7.5
Active Retiree
Millions
TOL $ Breakdown (Explicit/Implicit)
Implicit
Explicit 75.1%

87.8%

24.9%

12.2%
0%
20%
40%
60%
80%
100%
Active Retiree
TOL % Breakdown (Explicit/Implicit)

Financial Disclosures Town of Atherton

Section 2: Financial Disclosures
This section provides the necessary accounting disclosures for the Town’s financial reports as shown in the following tables:

Table 1: Plan Demographics Table 5: Net OPEB Liability Sensitivity (Healthcare Trend Rates) Table 2: Brief Summary of Assumptions Table 6: Historical Deferred Inflows and Outflows Table 3: OPEB Expense Table 7: Unamortized Balance of Deferred Inflows and Outflows Table 4: Net OPEB Liability Sensitivity (Discount Rate) Table 8: Schedule of Future Amortization of Deferred Inflows and Outflows Summary of Membership and Assumptions
The table below shows the number of employees covered by the benefit terms as of June 30, 2022.

Table 1 - Plan Demographics
Inactive employees or beneficiaries currently receiving benefits 41 Inactive employees entitled to but not yet receiving benefits 0 Active employees 39
Total membership 80

Financial Disclosures Town of Atherton

The Total OPEB Liability (TOL) as of June 30, 2022 was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified. For a complete list of assumptions, refer to Section 7.

Table 2 - Brief Summary of Assumptions
Inflation 2.50%
Payroll growth 2.80% wage inflation plus seniority, merit, and promotion salary increases based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 Investment rate of return 6.00%
Discount rate 6.00%
Healthcare trend rates
Based on 2022 Getzen model that reflects actual premium increases from 2022 to 20233followed by 6.50% non-Medicare / 5.40% Medicare in 2023, decreasing gradually to an ultimate rate of

3.94% by 2075
3 Actual premium increases from 2022 to 2023 used in the valuation are as follows:

APOA Confidential / Teamsters Management
Active Retirees <65* Retirees 65+* Active Retirees <65* Retirees 65+* Active Retirees <65* Retirees 65+* Non-Medicare 6.90% 6.60% N/A 2.00% 11.50% N/A 9.10% -2.40% N/A Medicare -0.80% 2.20% 3.90% -0.40% 5.30% 5.70% 5.10% 6.20% 5.50% * Retiree <65 / Retirees 65+ refer to retirees who are under the age of 65 and retirees age 65 and older as of the Valuation Date respectively.

Financial Disclosures Town of Atherton

OPEB Expense
The table below shows a comparison of the OPEB Expense recognized by the Town for the current and prior fiscal years.

Table 3 - OPEB Expense
Fiscal Years 2021/22 2020/21
SEDR as of beginning of year 5.39% 6.00%
SEDR as of end of year 6.00% 5.39%
Service Cost $ 261,221 $ 215,662
Interest on TOL and Service Cost 483,322 622,420
Changes of benefit terms 0 0
Projected earnings on OPEB Plan investments (476,574) (397,936) OPEB Plan administrative expenses net of all revenues 48,456 44,195 Current period recognition of Deferred Inflows /
Outflows of Resources
Difference between expected and actual
experience in the TOL $ (284,532) $ (4,364)
Changes of assumptions or other inputs (744,067) (742,585) Net difference between the projected and actual
earnings on OPEB Plan investments 102,359 (190,270)
Other 0 0
Total current period recognition $ (926,240) $ (937,219) OPEB Expense / (Income) $ (609,815) $ (452,878)

Financial Disclosures Town of Atherton

Schedule of Changes in Net OPEB Liability
Fiscal Year Ending June 30 2022 2021 2020 2019 2018
Measurement Period Ending June 30 2022 2021 2020 2019 2018 Total OPEB Liability (TOL)
Service Cost $ 261,221 $ 215,662 $ 175,867 $ 167,493 $ 257,258 Interest on TOL and Service Cost 483,322 622,420 623,286 610,002 755,515 Changes of benefit terms 0 0 0 0 0
Difference between expected &
actual experience (1,404,646) (18,835) 558,111 (11,091) (574,495) Changes of assumptions or other
inputs (7,409) (1,698,656) (849,626) 0 (2,299,690)
Benefit payments (595,592)4(557,849) (557,747) (549,101) (401,170) Net change in TOL $ (1,263,104) $ (1,437,258) $ (50,109) $ 217,303 $ (2,262,582) TOL – beginning $ 8,999,682 $ 10,436,940 $ 10,487,049 $ 10,269,746 $ 12,532,328 TOL – ending $ 7,736,578 $ 8,999,682 $ 10,436,940 $ 10,487,049 $ 10,269,746 Plan Fiduciary Net Position (FNP)
Contributions – employer $ 594,061 $ 704,530 $ 763,648 $ 747,885 $ 493,288 Contributions – employees 0 0 0 0 0
Benefit payments (595,592) (557,849) (557,747) (549,101) (401,170) Net investment income (986,583) 1,432,366 322,036 417,827 326,600 Trust administrative expenses (48,456) (44,195) (38,683) (33,395) (15,183) Net change in Plan FNP $ (1,036,570) $ 1,534,852 $ 489,254 $ 583,216 $ 403,535 FNP – beginning $ 8,866,492 $ 7,331,640 $ 6,842,386 $ 6,259,170 $ 5,855,635 FNP – ending $ 7,829,922 $ 8,866,492 $ 7,331,640 $ 6,842,386 $ 6,259,170 Net OPEB Liability – ending $ (93,344) $ 133,190 $ 3,105,300 $ 3,644,663 $ 4,010,576 FNP as % of TOL 101.2% 98.5% 70.2% 65.2% 60.9%
Covered-employee payroll –
measurement period $ 5,142,900 $ 4,410,693 $ 4,983,389 $ 4,799,843 $ 4,648,758 NOL as % of covered payroll -1.8% 3.0% 62.3% 75.9% 86.3% 4 Based on $444,395 disbursements shown in the PARS asset statement for the year ending June 30, 2022 and esti Page 310 of 364 mated implicit subsidy payment of $151,197.

Financial Disclosures Town of Atherton

Schedule of Employer Contribution
Fiscal Year Ending 2022 2021 2020 2019 2018
Actuarially Determined
Contribution (ADC) $ 519,144 $ 465,571 $ 435,103 $ 419,511 $ 693,890 Contributions in relation to
the ADC $ 594,061 $ 704,530 $ 763,648 $ 833,381 $ 493,288 Contribution deficiency /
(excess) $ (74,917) $ (238,959) $ (328,545) $ (413,870) $ 200,602 Covered-employee payroll –
employer fiscal year $ 5,142,900 $ 4,410,693 $ 4,983,389 $ 4,799,843 $ 4,648,758 Contributions as a % of
covered-employee payroll 11.6% 16.0% 15.3% 17.4% 10.6%

Financial Disclosures Town of Atherton

Net OPEB Liability Sensitivity
The following presents the Net OPEB Liability of the Town, as well as what the Town’s Net OPEB Liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current discount rate as of June 30, 2022.

Table 4 - Net OPEB Liability Sensitivity (Discount Rate) 1% Decrease
(5.00%)
Discount Rate
(6.00%)
1% Increase
(7.00%)
Net OPEB Liability / (Asset) $ 787,752 $ (93,344) $ (826,812) The following presents the Net OPEB Liability of the Town, as well as what the Town’s Net OPEB Liability would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates as of June 30, 2022.

Table 5 - Net OPEB Liability Sensitivity (Healthcare Trend Rates) 1% Decrease Healthcare Trend Rates51% Increase
Net OPEB Liability / (Asset) $ (823,843) $ (93,344) $ 765,268 5 Comparison of Baseline, 1% Decrease and 1% Increase in healthcare trend rates assumptions are as shown below. For actual increases from 2022 to 2023 used in the valuation, refer to the Trend Rates section in Section 7.
1% Decrease Baseline 1% Increase
Actual increases from 2022 to 2023 less 1% followed by 5.50% non-Medicare / 4.40% Medicare in 2023, decreasing
gradually to 2.94% ultimate rate
Actual increases from 2022 to 2023 followed by 6.50% nonMedicare / 5.40% Medicare in 2023, decreasing gradually to

3.94% ultimate rate
Actual increases from 2022 to 2023 plus 1% followed by 7.50% non-Medicare / 6.40% Medicare in 2023, decreasing
gradually to 4.94% ultimate rate

Financial Disclosures Town of Atherton

Deferred Inflows and Deferred Outflows of Resources Related to OPEB The tables below show changes in the Net OPEB Liability that have not been included in the OPEB expense for the following items:

1. Differences between expected and actual experience of the OPEB plan

2. Changes in assumptions

3. Differences between projected and actual earnings on the OPEB plan investments The initial amortization base for the first two items above are amortized linearly over the average expected remaining service lives of active and inactive employees. The difference between projected and actual earnings on the OPEB plan investments is amortized linearly over five years.

Table 6 - Historical Deferred Inflows and Outflows
Differences between expected and actual experience
Measurement
Period Ending
Fiscal Year
Ending Initial Balance
Initial
Amortization
Period
Annual Recognition
Recognized in OPEB
Expense through
June 30, 2022
Unamortized Balance
as of June 30, 2022
6/30/2018 6/30/2018 $ (574,495) 7.30 $ (78,958) $ (394,790) $ (179,705) 6/30/2019 6/30/2019 $ (11,091) 3.70 $ (2,202) $ (11,091) $ 0 6/30/2020 6/30/2020 $ 558,111 6.90 $ 80,921 $ 242,763 $ 315,348 6/30/2021 6/30/2021 $ (18,835) 5.60 $ (3,364) $ (6,728) $ (12,107) 6/30/2022 6/30/2022 $ (1,404,646) 5.00 $ (280,929) $ (280,929) $ (1,123,717) Changes in assumptions or other inputs
Measurement
Period Ending
Fiscal Year
Ending Initial Balance
Initial
Amortization
Period
Annual Recognition
Recognized in OPEB
Expense through
June 30, 2022
Unamortized Balance
as of June 30, 2022
6/30/2018 6/30/2018 $ (2,299,690) 7.30 $ (316,065) $ (1,580,325) $ (719,365) 6/30/2019 6/30/2019 $ 0 3.70 $ 0 $ 0 $ 0
6/30/2020 6/30/2020 $ (849,626) 6.90 $ (123,188) $ (369,564) $ (480,062) 6/30/2021 6/30/2021 $ (1,698,656) 5.60 $ (303,332) $ (606,664) $ (1,091,992) 6/30/2022 6/30/2022 $ (7,409) 5.00 $ (1,482) $ (1,482) $ (5,927)

Financial Disclosures Town of Atherton

Differences between projected and actual earnings on OPEB plan investments Measurement
Period Ending
Fiscal Year
Ending Initial Balance
Initial
Amortization
Period
Annual Recognition
Recognized in OPEB
Expense through
June 30, 2022
Unamortized Balance
as of June 30, 2022
6/30/2018 6/30/2018 $ 27,013 5.00 $ 5,401 $ 27,013 $ 0
6/30/2019 6/30/2019 $ (37,387) 5.00 $ (7,477) $ (29,908) $ (7,479) 6/30/2020 6/30/2020 $ 93,450 5.00 $ 18,690 $ 56,070 $ 37,380 6/30/2021 6/30/2021 $ (1,034,430) 5.00 $ (206,886) $ (413,772) $ (620,658) 6/30/2022 6/30/2022 $ 1,463,157 5.00 $ 292,631 $ 292,631 $ 1,170,526 The table below shows the unamortized balance of Deferred Inflows and Outflows of Resources as of June 30, 2022 for financial statement disclosure for the fiscal year ending June 30, 2022.

Table 7 - Unamortized Balance of Deferred Inflows and Outflows Deferred Outflows
of Resources
Deferred Inflows of
Resources
Differences between expected and
actual experience $ 315,348 $ (1,315,529)
Changes in assumptions or other inputs 0 (2,297,346)
Net difference between projected and
actual earnings on OPEB plan
investments
579,769 0
Employer contribution subsequent to the
Measurement Date 0 0
Total $ 895,117 $ (3,612,875)
Schedule of future annual amortizations of
Deferred Inflows and Outflows that will be
recognized in future OPEB expense is as
shown below.

Table 8 - Schedule of Future Deferred Inflows and
Outflows Amortization
Measurement
Period Ending Amounts
2023 $ (929,441)
2024 $ (921,962)
2025 $ (654,653)
2026 $ (211,702)
2027 $ 0
Thereafter $ 0

Asset Information Town of Atherton

Section 3: Asset Information
Funding Policy
The Town has an OPEB Trust that is invested in the Public Agency Retirement Services (PARS) under the Moderate Investment Objective, which is a qualified irrevocable trust. The Town’s funding policy is to contribute the implicit subsidy amount to the Trust or the Actuarially Determined Contribution6.

Asset Breakdown7
As of June 30, 2022 June 30, 2021
Assets
Cash and cash equivalents $ 391,496 $ 443,325
Investments
Equity $ 3,777,937 $ 4,278,082
Fixed income 3,523,465 3,989,921
Real estate 137,024 155,164
Total investments $ 7,438,426 $ 8,423,167
Total assets $ 7,829,922 $ 8,866,492
Liabilities
Accounts payable $ 0 $ 0
Total liabilities $ 0 $ 0
Net asset available for benefits $ 7,829,922 $ 8,866,492 6 The Town has historically contributed more than 100% of the ADC to the Plan through a combination of retiree healthcare expenses paid from outside of the Trust and deposit made to the Trust. 7 Asset breakdown by investment class is based on the target allocation for PARS Moderate Investment Objective for both measurement periods.

Asset Information Town of Atherton

Reconciliation of Assets
Measurement Periods 2021/22 2020/21
Additions
Contributions received
Employer $ 442,864 $ 566,672
Employees 0 0
Total contributions $ 442,864 $ 566,672
Implicit subsidy credit 151,197 137,858
Investment income
Interest and dividend $ 0 $ 0
Net increase/(decrease) in fair value of investments (986,583) 1,432,366 Accrued income 0 0
Investment expense 0 0
Net investment income $ (986,583) $ 1,432,366
Total additions $ (392,522) $ 2,136,896
Deductions
Benefit payments net of retiree contributions $ (444,395) $ (419,991) Implicit subsidy portion of benefit payments (151,197) (137,858) Administrative expenses (48,456) (44,195)
Total deductions $ (644,048) $ (602,044)
Change in net position $ (1,036,570) $ 1,534,852
Net position – beginning of year $ 8,866,492 $ 7,331,640 Net position – end of year $ 7,829,922 $ 8,866,492

Actuarially Determined Contribution Town of Atherton

Section 4: Actuarially Determined Contribution
Actuarially Determined Contribution (ADC) is the recommended contribution that, if paid on an ongoing basis, is expected to provide sufficient resources to fund (a) future normal cost (cost for new service) and (b) the amortized unfunded liabilities (cost for past service). There is no requirement to fund OPEB benefit under GASB 75 and it is up to the Plan Sponsor’s discretion to determine the OPEB contributions based on their fiscal situation.

Contribution Years 2022/23 2023/24
Funding discount rate 6.00% 6.00%
Amortization method Level % of Pay Level % of Pay
Payroll growth 2.80% 2.80%
Amortization period 15 years 14 years
Actuarial Accrued Liability (AAL) – beginning of year8 $ 7,736,578 $ 7,713,461 Actuarial Value of Assets (AVA) – beginning of year9(7,829,922) (7,807,364) Unfunded AAL (UAAL) – beginning of year $ (93,344) $ (93,903) Normal Cost – beginning of year $ 105,341 $ 101,769
Amortization of UAAL – beginning of year (7,645) (8,124) Total Normal Cost and amortization of UAAL $ 97,696 $ 93,645 Interest adjustment for end of year payment 5,862 5,619 Administrative expenses 39,150 39,037
Actuarially Determined Contribution (ADC) $ 142,708 $ 138,301 Expected benefit payments $ 581,774 $ 558,651
8 Fiscal year 2022/23 AAL as of beginning of year is based on June 30, 2022 OPEB valuation. Fiscal year 2023/24 AAL as of beginning of year is based on June 30, 2022 OPEB valuation projected to June 30, 2023 on a “no gain/loss” basis.
9 Fiscal year 2022/23 AVA as of beginning of year is based on market value of assets as of June 30, 2022. Fiscal year 2023/24 AVA as of beginning of year is projected from June 30, 2022 market value of asset assuming 6.00% investment income in FY 2022/23, Town contribution equals to the Actuarially Determined Contribution ($142,708 in FY 2022/23), and 0.50% Trust investment expense applied to the beginning of year asset balance.

Projected Benefit Payments Town of Atherton

Section 5: Projected Benefit Payments
The below table shows the projected benefit payments for the next 30 years for a closed group of participants (both active employees and existing retirees) who are included in the census data as of June 30, 2022. This exhibit is provided for informational purposes only and is not a required disclosure under GASB 75. Projected benefit payments below include both explicit (if any) and implicit subsidies (as applicable).

FYE
Future
Retirees
Current
Retirees Total FYE
Future
Retirees
Current
Retirees Total FYE
Future
Retirees
Current
Retirees Total
2023 $ 8,294 $ 573,480 $ 581,774 2033 $ 105,025 $ 479,019 $ 584,044 2043 $ 199,595 $ 347,372 $ 546,967 2024 $ 16,327 $ 542,324 $ 558,651 2034 $ 98,429 $ 477,259 $ 575,688 2044 $ 219,397 $ 342,371 $ 561,768 2025 $ 25,526 $ 542,467 $ 567,993 2035 $ 114,488 $ 492,655 $ 607,143 2045 $ 241,831 $ 336,156 $ 577,987 2026 $ 36,647 $ 536,585 $ 573,232 2036 $ 137,419 $ 507,584 $ 645,003 2046 $ 249,364 $ 329,017 $ 578,381 2027 $ 46,512 $ 522,510 $ 569,022 2037 $ 144,584 $ 420,315 $ 564,899 2047 $ 254,208 $ 320,973 $ 575,181 2028 $ 59,893 $ 474,361 $ 534,254 2038 $ 153,558 $ 371,988 $ 525,546 2048 $ 233,182 $ 311,848 $ 545,030 2029 $ 76,586 $ 477,535 $ 554,121 2039 $ 164,802 $ 375,172 $ 539,974 2049 $ 227,546 $ 301,159 $ 528,705 2030 $ 88,646 $ 481,027 $ 569,673 2040 $ 175,303 $ 377,528 $ 552,831 2050 $ 231,725 $ 289,070 $ 520,795 2031 $ 91,862 $ 480,847 $ 572,709 2041 $ 200,780 $ 378,712 $ 579,492 2051 $ 232,760 $ 275,176 $ 507,936 2032 $ 109,595 $ 484,745 $ 594,340 2042 $ 190,594 $ 378,693 $ 569,287 2052 $ 241,922 $ 260,896 $ 502,818 $0
$130
$260
$390
$520
$650
2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 Thousands
Projected Benefit Payments
Current Retirees Future Retirees

Projected Benefit Payments Town of Atherton

The following table splits the projected benefit payments for the next 30 years between the explicit and implicit subsidies for a closed group of participants (both active employees and existing retirees) who are included in the census data as of June 30, 2022.

FYE Explicit Implicit Total FYE Explicit Implicit Total FYE Explicit Implicit Total 2023 $ 473,874 $ 107,900 $ 581,774 2033 $ 475,040 $ 109,004 $ 584,044 2043 $ 474,388 $ 72,579 $ 546,967 2024 $ 460,370 $ 98,281 $ 558,651 2034 $ 478,644 $ 97,044 $ 575,688 2044 $ 475,807 $ 85,961 $ 561,768 2025 $ 463,541 $ 104,452 $ 567,993 2035 $ 489,083 $ 118,060 $ 607,143 2045 $ 492,828 $ 85,159 $ 577,987 2026 $ 463,896 $ 109,336 $ 573,232 2036 $ 512,124 $ 132,879 $ 645,003 2046 $ 488,334 $ 90,047 $ 578,381 2027 $ 464,106 $ 104,916 $ 569,022 2037 $ 494,638 $ 70,261 $ 564,899 2047 $ 470,926 $ 104,255 $ 575,181 2028 $ 451,240 $ 83,014 $ 534,254 2038 $ 469,161 $ 56,385 $ 525,546 2048 $ 473,067 $ 71,963 $ 545,030 2029 $ 461,302 $ 92,819 $ 554,121 2039 $ 469,663 $ 70,311 $ 539,974 2049 $ 459,492 $ 69,213 $ 528,705 2030 $ 465,994 $ 103,679 $ 569,673 2040 $ 485,559 $ 67,272 $ 552,831 2050 $ 434,810 $ 85,985 $ 520,795 2031 $ 476,395 $ 96,314 $ 572,709 2041 $ 498,448 $ 81,044 $ 579,492 2051 $ 438,694 $ 69,242 $ 507,936 2032 $ 483,706 $ 110,634 $ 594,340 2042 $ 493,987 $ 75,300 $ 569,287 2052 $ 434,131 $ 68,687 $ 502,818 $0
$130
$260
$390
$520
$650
2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 Thousands
Projected Benefit Payments (Explicit/Implicit)
Explicit Implicit

Substantive Plan Provisions Town of Atherton

Section 6: Substantive Plan Provisions
Changes Since Prior Valuation
There are no plan provision changes since the last full valuation.

Eligibility Employees are eligible for lifetime retiree health benefits once they retire within 120 days from date of separation and the retiree must be receiving benefits from California Public Employees Retirement System (CalPERS). The earliest service retirement eligibility requirements under CalPERS are as follows:

Membership Date Requirements
Before 1/1/2013 Age 50 with 5 years of CalPERS service10 On/after 1/1/2013 Age 52 with 5 years of CalPERS service10 CalPERS eligibility requirements for disability benefits are as follows:
• Ordinary Disability: five years of service
• Line of Duty Disability: no age or service requirement Spouse Benefits Employees are allowed to elect spousal coverage at retirement. Retiree medical coverage continues to surviving spouses upon death of retirees as long as the required contributions are made and the retiree chooses the option for their surviving spouse to continue receiving a retirement benefit. There is no surviving spouse coverage upon the death of active employees.

Ancillary Benefits There is no Town-subsidized dental, vision, life insurance, or Medicare Part B reimbursement at retirement.

PEMHCA Minimum Pursuant to Government Code 22892 of the Public Employees’ Medical and Hospital Care Act (PEMHCA), the Town contributes the minimum amount allowed ($149 and $151 per month effective on January 1, 2022 and 2023 respectively) to certain groups as described in the Employer Subsidy section below. The minimum employer contribution increases annually by the CPI medical care component. The amount of Town-provided contribution is the same regardless of the retiree’s dependent coverage and health plan choice 10 Note that service includes service across all CalPERS employers and with other retirement systems with which CalPERS has reciprocity agreements.

Substantive Plan Provisions Town of Atherton

Employer Subsidy The Town subsidy for medical and prescription drug coverage at retirement is as shown below.

Employee Groups Date Cut-Off Svc @ Ret Town Subsidy
Management
(non-represented)
Hired before 11/17/2010 5+
100% of premiums for any medical plan and coverage
level elected
Hired between 11/17/2010
and 6/30/2013
5 – 9 PEMHCA minimum
10+
Maximum subsidy based on Kaiser single employee
premium
Hired on/after 7/1/2013 5+ PEMHCA minimum
APOA Police
Officers and
Miscellaneous
Employees
Retired before 10/1/2013 5+
Maximum subsidy of $1,247.06 (not increasing in the
future)11
Hired before 10/1/2013
5 – 9 PEMHCA minimum
10+
Maximum subsidy of 90% of Kaiser premium for any
coverage level elected subject to the vesting schedule12, 13 Hired on/after 10/1/2013 5+ PEMHCA minimum
Teamsters and
Confidential (nonmanagement,
miscellaneous)
Hired before 1/19/2011 5+
Maximum subsidy of 95% of Region 1 Blue Shield Access
Plus premiums for any coverage level elected14
Hired between 1/19/2011
and 12/31/2012 5+
Maximum subsidy based on Kaiser single employee
premium
Hired on/after 1/1/2013 5+ PEMHCA minimum
Vesting schedule referenced in the above table is as follows:

CalPERS Svc Vested % CalPERS Svc Vested % CalPERS Svc Vested % 10 50% 14 70% 18 90%
11 55% 15 75% 19 95%
12 60% 16 80% 20 100%
13 65% 17 85%
11 Employees retiring on disability will be exempt from the maximum Town subsidy. 12 The cap increases at half of the excess of the assumed annual rate of increase for Kaiser premium over 3%, with a minimum of 0%. For three existing disabled retirees, the cap increases at half of the excess of the assumed rate increase for Kaiser premium against Kaiser premium in 2014 over 3%, with a minimum of 0%. 13 Employees retiring on disability shall receive Town subsidy of 90% of Kaiser premium for any coverage level elected. 14 At age 65, the Town pays only 95% of the reduced post-65 premium. Some existing retirees are subject to a fixed maximum subsidy that is based on Region 1 Blue Shield premium rate in 2016 increased by 9.3%.

Substantive Plan Provisions Town of Atherton

Retiree Contributions Retirees are required to contribute the portion of premium rates not covered by the Employer Subsidy.

Premium Rates The monthly premium rates for CalPERS plans used in the valuation effective on January 1, 2022 are as shown below.

Regions Non-Medicare Plans Single 2-Party Family
Region 1
Anthem BC Select $ 1,015.81 $ 2,031.62 $ 2,641.11
Anthem BC Traditional $ 1,304.00 $ 2,608.00 $ 3,390.40
Blue Shield Trio $ 898.54 $ 1,797.08 $ 2,336.20
Kaiser Permanente $ 857.06 $ 1,714.12 $ 2,228.36
PERS Gold $ 701.23 $ 1,402.46 $ 1,823.20
PERS Platinum $ 1,057.01 $ 2,114.02 $ 2,748.23
PORAC $ 799.00 $ 1,725.00 $ 2,219.00
United Healthcare $ 1,020.28 $ 2,040.56 $ 2,652.73
Out of State PERS Platinum $ 847.71 $ 1,695.42 $ 2,204.05 Medicare Plans Single 2-Party Family
Blue Shield Medicare $ 353.13 $ 706.26 $ 1,059.39
Kaiser Permanente Senior Advantage $ 302.53 $ 605.06 $ 907.59 PERS Gold Medicare Supplement $ 377.41 $ 754.82 $ 1,132.23 PERS Platinum Medicare Supplement $ 381.94 $ 763.88 $ 1,145.82 PORAC Medicare Supplement $ 461.00 $ 919.00 $ 1,471.00
UHC Medicare Advantage $ 294.65 $ 589.30 $ 883.95

Actuarial Methods and Assumptions Town of Atherton

Section 7: Actuarial Methods and Assumptions
Changes Since Prior Valuation
The following assumptions have been updated since the prior valuation:

1. The Single Equivalent Discount Rate (SEDR) used in the valuation has been increased from 5.39% as of June 30, 2020 to 6.00% as of June 30, 2022 based on updated expected long-term rate of return of the Trust. Refer to the Discussion of Discount Rates section for additional information on the discount rate setting. This change caused a decrease in the liability.

2. Payroll growth, mortality, disability, termination, and retirement rates have been updated from CalPERS Experience Study and Review of Actuarial Assumptions published in December 2017 to the most recent study published in November 2021. The net impact of these changes is a slight increase in the liability.

3. Health care trend rates have been updated as follows, which caused a net increase in the liability:
a. Medical/prescription drug costs: from Getzen 2019 table with an initial rate of 6.50% that decreases gradually to an ultimate rate of 4.04% by 2075 for non-Medicare and 4.00% for all years for Medicare to Getzen 2021 table that reflects actual premium increases from 2022 to 202315 followed by 6.50% non-Medicare / 5.40% Medicare in 2023 that decreases gradually to an ultimate rate of 3.94% by 2075.
b. PEMHCA minimum: from 3.00% to 1.34% from 2022 to 2023 followed by 3.75% for all subsequent years.

4. Percentage of active employees electing health coverage with the Town at retirement for those who are eligible for PEMHCA minimum benefit only has been reduced from 100% to 50% based on other agencies’ experience that offer similar subsidy. This change caused a decrease in the liability.
15 Actual premium increases from 2022 to 2023 used in the valuation are as follows:

APOA Confidential / Teamsters Management
Active Retirees <65* Retirees 65+* Active Retirees <65* Retirees 65+* Active Retirees <65* Retirees 65+* Non-Medicare 6.90% 6.60% N/A 2.00% 11.50% N/A 9.10% -2.40% N/A Medicare -0.80% 2.20% 3.90% -0.40% 5.30% 5.70% 5.10% 6.20% 5.50% * Retirees <65 / Retirees 65+ refer to retirees who are under the age of 65 and retirees age 65 and older as of the Valuation Date respectively.

Actuarial Methods and Assumptions Town of Atherton

5. Percentage of active employees electing spousal coverage with the Town at retirement has been updated from 75% for both genders to 65% for male and 45% for female employees based on spousal election information available in the census data for existing retirees.

Additionally, in the prior valuation, husbands are assumed to be three years older than wives. In this year’s valuation, husbands are assumed to be one year older than wives. This assumption update is based on spousal age difference shown in the census data for active employees. The net impact of both changes is a decrease in the liability.

Valuation Date June 30, 2022
Measurement Date June 30, 2022
Reporting Period Fiscal year ending June 30, 2022
Discount Rate For accounting disclosure: 6.00% as of June 30, 2022 and 5.39% as of June 30, 2021 For funding purposes (in calculating the Actuarially Determined Contribution): 6.00% as of June 30, 2022 and 5.39% as of June 30, 2021
Refer to the Discussion of Discount Rate section for additional information on the discount rate setting.

Actuarial Cost Method Entry Age Normal Level Percentage of Pay; a method that allocates the actuarial present value of the projected benefits of each individual on a level basis over the earnings of the individual between entry age and assumed exit age(s).
• The portion allocated to a valuation year is called the Normal Cost. • The portion allocated to past periods is called the Actuarial Accrued Liability (AAL) or Total OPEB Liability (TOL).

Payroll Growth 2.80% wage inflation plus seniority, merit, and promotion salary increases based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members.

Refer to the Appendix for sample rates.

Mortality Based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members.

Termination Based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Refer to the Appendix for sample rates.

Actuarial Methods and Assumptions Town of Atherton

Disability Based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Refer to the Appendix for sample rates.

Retirement Based on CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Refer to the Appendix for sample rates.

Participation Rate 100% of active employees who are eligible for premium-based subsidy are assumed to elect health coverage with the Town at retirement and continue for life.
50% of active employees who are eligible for PEMHCA minimum benefit only are assumed to elect health coverage with the Town at retirement and continue for life.

Existing retirees who are currently enrolled in the Town’s health plans are assumed to continue coverage until death.

Upon retiree’s death, surviving spouses are assumed to continue coverage in the Town’s health plans (all of them are assumed to receive contingent pension benefit).

Existing retirees who currently waived coverage are not assumed to re-enroll in the future.

Health Plan Election Employees are assumed to elect the same health plan option they are currently enrolled in at retirement prior to Medicare eligibility. Upon Medicare eligibility, the pre-Medicare to Medicare health plan mapping assumed is as shown below.

Pre-Medicare Plans Medicare Plans
Blue Shield Trio Blue Shield Medicare
Kaiser Permanente Kaiser Permanente Senior Advantage
PERS Gold PERS Gold Medicare Supplement
PERS Platinum PERS Platinum Medicare Supplement
United Healthcare UHC Medicare Advantage
Existing retirees are assumed to remain in the same health plan option they are currently enrolled in for life, except for those who are under the age of 65 as of the Valuation Date. The assumed Medicare plan election for these retirees is according to the above table.

Actuarial Methods and Assumptions Town of Atherton

Spousal Election 65% of male and 45% of female active employees are assumed to elect spousal coverage at retirement. Husbands are assumed to be one year older than wives.

For existing retirees, spousal coverage and age is based on actual data.

Dependent Election Not explicitly valued.

Medicare Eligibility All future and existing retirees (including disabled retirees) are assumed to be eligible for Medicare at age 65.

Per Capita Costs The valuation projects health care costs for employees who remain enrolled in the Town’s benefit plans after retirement. In accordance with Actuarial Standards of Practice No. 6 (ASOP 6), the actuarial development of health care costs should preferably use the health plan experience that is considered the best predictor of future claims experience assuming it is sufficiently credible. In the absence of credible health plan experience data, the actuary may use other methods such as premiums and normative databases to develop the per capita costs.

As medical/prescription drug costs generally vary by age, age-specific costs should be used in the development of initial per capita costs and projection of future benefit costs, except in very limited circumstances defined in ASOP 6 Section 3.7.7(c). The development of the age-specific costs should be based on the demographics of the group being valued and the group’s total expected claims or premiums.

Retiree healthcare costs are, on average, significantly higher than active employees and if the Town charges blended premium rates (determined using active employees and retiree claims experience) to the retirees, the Town is providing an implicit subsidy for these retirees. Under GASB 75, the implicit subsidy must be included in the postemployment medical benefit obligation. Separate costs should be developed for Medicare-eligible participants due to Medicare being the primary payer for these retirees, which leads to a reduction to the Plan Sponsor’s health plan costs.

In developing the initial per capita costs, we have used CalPERS health plan premium rates effective on January 1, 2022 and aging factors and subscriber enrollments for HMO and PPO plans combined as published in the CalPERS Health Plan (PEMHCA) Implicit Subsidy Data for Calendar 2019. All costs are assumed to increase with health care trend rates.

Actuarial Methods and Assumptions Town of Atherton

Per Capita Costs (Cont’d) The following table shows the sample initial per capita costs at select ages for 2022/23 used in the valuation.

Separate costs were developed for active employees and retirees by bargaining unit based on weighted average premium rates for active employees and retirees in each bargaining unit separately.

APOA Active APOA Retirees <6516 Confidential / Teamsters Active
Confidential / Teamsters
Retirees <6516
Age Male Female Male Female Male Female Male Female
45 $6,815 $9,237 $7,278 $9,865 $7,726 $10,472 $7,898 $10,705 50 $9,024 $10,644 $9,637 $11,367 $10,230 $12,066 $10,457 $12,335 55 $11,752 $12,083 $12,551 $12,904 $13,323 $13,698 $13,619 $14,003 60 $15,173 $14,144 $16,204 $15,105 $17,201 $16,034 $17,584 $16,391 64 $17,995 $15,809 $19,218 $16,883 $20,400 $17,921 $20,854 $18,320 Management Active Management Retirees
<6516
Age Male Female Male Female
45 $7,468 $10,122 $8,501 $11,523
50 $9,888 $11,663 $11,256 $13,277
55 $12,878 $13,240 $14,660 $15,072
60 $16,626 $15,498 $18,927 $17,643
64 $19,719 $17,322 $22,447 $19,720
We have assumed that CalPERS health premiums for Medicare eligible retirees are based on Medicare eligible retiree claims experience and represent the expected true cost of retiree coverage. As such, we have assumed there is no implicit subsidy for Medicare retirees. The annual costs used on/after age 65 are as shown below.

Bargaining Units Active Retirees <6516 Retirees 65+16
APOA $4,379 $4,181 $4,546
Confidential / Teamsters $3,803 $4,266 $4,183
Management $3,976 $4,452 $4,071
16 Retirees <65 / Retirees 65+ refer to retirees who are under the age of 65 and retirees age 65 and older as of the Valuation Date respectively.

Actuarial Methods and Assumptions Town of Atherton

Trend Rates Historically, health care costs have increased more rapidly than the rate of inflation. In estimating the value of retiree health benefits, assumptions must be made on future increases in healthcare costs. The health care trend rates assumption used in this valuation is based on the Getzen Model of Long-Run Medical Cost Trends, which was first designed by T.E. Getzen for the Society of Actuaries (SOA) in 2007. The model is designed to make long-run forecasts and typically used to select medical trend assumptions for retiree medical valuations to present liabilities disclosed under the appropriate accounting standards, or to determine contributions under a funding policy. The long-run baseline projection and input variables were developed under the guidance of the SOA Project Oversight Group. The model is updated annually along with updated documentation and recommended input variables by the author of the model.

The baseline assumptions used in the Getzen model is as shown in the table below.

Inflation Rate 2.5%
Real GDP Per Capita Growth 1.4%
Excess Medical Cost Growth 1.0%
Health Share of GDP Resistance Point 25.0%
Year for Limiting Cost Growth to GDP Growth 2075
The output of the Getzen Model of Long-Run Medical Cost Trend Model used in the valuation is as shown below.

Year Non-Medicare Medicare Year Non-Medicare Medicare
2022 Actual* Actual* 2040 4.81% 4.81%
2023 6.50% 5.40% 2050 4.64% 4.64%
2024 6.00% 5.30% 2060 4.54% 4.54%
2025 5.50% 5.20% 2070 4.20% 4.20%
2030 5.01% 5.01% 2075+ 3.94% 3.94%
2035 4.97% 4.97%

Actuarial Methods and Assumptions Town of Atherton

Trend Rates (Cont’d) * Actual premium increases from 2022 to 2023 used in the valuation are as follows:

APOA Confidential / Teamsters Management
Non-Medicare Medicare Non-Medicare Medicare Non-Medicare Medicare Active 6.90% -0.80% 2.00% -0.40% 9.10% 5.10%
Retirees <6517 6.60% 2.20% 11.50% 5.30% -2.40% 6.20%
Retirees 65+17 N/A 3.90% N/A 5.70% N/A 5.50%
PEMHCA minimum cost is assumed to increase by 1.34% from 2022 to 2023 followed by 3.75% for all subsequent years.
17 Retirees <65 / Retirees 65+ refer to retirees who are under the age of 65 and retirees age 65 and older as of the Valuation Date respectively.

Actuarial Methods and Assumptions Town of Atherton

Discussion of Discount Rates
Under GASB 75, the discount rate used in valuing OPEB liabilities as of the Measurement Date is a single rate that reflects:

1. The long-term expected rate of return on OPEB plan investments that are expected to be used to finance future benefit payments, to the extent that (a) they are sufficient to pay for the projected benefit payments and (b) the OPEB plan assets are expected to be invested using a strategy that will achieve that return.

2. A yield or index rate for 20-year tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher (or equivalent quality on another rating scale), when the conditions in (1) above are not met.

For the current year’s valuation:

1. The expected long-term real rate of return of the OPEB Trust is

6.00% as of June 30, 2022. This rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return net of investment expense are developed for each major asset class. These ranges are
combined to produce the long-term expected rate of return by weighting the expected future rates of return by the target allocation percentage. The Plan Sponsor’s expected future real rates of return by asset class is as shown below.

Asset Classes Target
Allocation
Expected L/T Real
Rates of Return18
Equity 48.25% 4.66%
Fixed Income 45.00% 1.06%
Real Estate 1.75% 3.98%
Cash / Cash Equivalents 5.00% -0.33%
Total 100.00%

2. The municipal bond index as of the prior and current Measurement Dates are as shown below:

Index June 30, 2022 June 30, 2021
Bond Buyer 20-Bond General
Obligation (GO) Index N/A 2.16%
S&P Municipal Bond 20 Year
High Grade Rate Index 4.09% N/A

3. The final equivalent single discount rate used for accounting disclosure is 6.00% with the expectation that the Plan Sponsor will contribute in accordance with the Funding Policy described in Section 3. Under this Funding Policy, the OPEB Trust is not expected to be depleted in the future.

The discount rate used to calculate the Actuarially Determined Contribution for recommended funding contribution is 6.00%. 18 The assumed inflation rate of 2.50% is added to the weighted expected future real rate of return to obtain the assumed discount rate. Expected long-term real rates of return in the table above are geometric returns based on the 2021 Survey of Capital Market Assumptions produced by Horizon Actuarial Services.

Participant Summary Town of Atherton

Section 8: Participant Summary
Active Employees
Active employees with health coverage are enrolled in Region 1 health plans.

Actives with Health Coverage Single 2-Party Family Total Avg. Age Avg. Svc Total Salary Anthem BC Select 1 1 2 36.2 6.0 $ 339,248
Anthem BC Traditional 1 1 57.1 20.5 $ 107,322
Kaiser Permanente 7 3 7 17 40.1 4.0 $ 2,015,546
PERS Gold 1 1 49.1 4.6 $ 134,764
PERS Platinum 1 1 2 33.3 0.6 $ 124,502
PORAC 1 1 6 8 40.7 9.6 $ 1,173,531
Total actives with health coverage 11 5 15 31 40.4 5.9 $ 3,894,913 Actives without Health Coverage Total Avg. Age Avg. Svc Total Salary Total actives without health coverage 8 47.5 4.4 $ 1,247,987 Active employees who currently have no health coverage are assumed to elect health coverage with the Town at retirement based on the participation rate assumption shown on page 25.

Participant Summary Town of Atherton

Active Age-Service Distribution
Years of Service with the Town
Age <1 1 – 4 5 – 9 10 – 14 15 – 19 20 – 24 25 – 29 30 – 34 35 – 39 40+ Total <25 1 1
25 – 29 1 4 5
30 – 34 4 2 6
35 – 39 4 1 1 6
40 – 44 2 3 1 6
45 – 49 2 3 5
50 – 54 2 1 1 1 5
55 – 59 1 2 1 4
60 – 64 1 1
65+ 0
Total 3 21 11 2 0 1 1 0 0 0 39

Participant Summary Town of Atherton

Retired Employees
Retirees with Health Coverage Single 2-Party Family Total Avg. Age Anthem BC Traditional 2 1 1 4 63.6
Blue Shield Trio 1 1 58.9
Kaiser Permanente 4 4 3 11 61.1
PERS Platinum 7 7 1 15 70.9
PORAC 1 2 2 5 70.1
United Healthcare 4 1 5 73.8
Total retirees with health coverage 18 15 8 41 67.5
Enrollments above include retirees enrolled in the corresponding Medicare plans or those with split enrollment in pre-Medicare and Medicare plans.

Age Retirees
<50 1
50 – 54 3
55 – 59 4
60 – 64 11
65 – 69 3
70 – 74 11
75 – 79 2
80 – 84 6
85 – 89
90+
Total 41

Participant Summary Town of Atherton

Comparison of Participant Summary
Below is a comparison of participant summary included in the current valuation and the prior full valuation.

As of June 30, 2022 As of June 30, 2020
Number of Participants
Active employees 39 36
Retired employees19 41 61
Total 80 97
Averages
Active average age 41.9 42.4
Active average service 5.6 7.0
Inactive average age 67.5 65.5
19 The retired employees’ enrollment as of June 30, 2022 include retirees only and exclude spouses and/or dependents who are covered under the Town’s health plans. Retired employees’ enrollment as of June 30, 2020 includes 41 retirees and 20 spouses.

Town of Atherton

Appendix – Sample Decrement Rates

Appendix – Sample Decrement Rates Town of Atherton

Mortality Rates
Mortality rates used in the valuation are based on the CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Sample pre-retirement, post-retirement non-disabled, and post-retirement disabled base mortality rates for Miscellaneous and Police members are as shown below. These rates are projected fully generationally using 80% of MP2020 mortality improvement scale.

Pre-Retirement20 Post-Retirement Non-Disabled Post-Retirement Disabled21 Attained
Ages
Miscellaneous Fire/Police/CPO Miscellaneous Fire/Police/CPO Miscellaneous Fire/Police/CPO Male Female Male Female Male Female Male Female Male Female Male Female 20 0.00039 0.00014 0.00042 0.00016 0.00039 0.00014 0.00146 0.00053 0.00411 0.00233 0.00039 0.00014 25 0.00033 0.00013 0.00038 0.00020 0.00033 0.00013 0.00154 0.00069 0.00336 0.00187 0.00033 0.00013 30 0.00044 0.00019 0.00047 0.00028 0.00044 0.00019 0.00182 0.00099 0.00452 0.00301 0.00044 0.00019 35 0.00058 0.00029 0.00053 0.00038 0.00058 0.00029 0.00208 0.00136 0.00603 0.00504 0.00058 0.00029 40 0.00075 0.00039 0.00061 0.00047 0.00075 0.00039 0.00244 0.00177 0.00779 0.00730 0.00075 0.00039 45 0.00093 0.00054 0.00073 0.00059 0.00093 0.00054 0.00314 0.00227 0.01120 0.01019 0.00093 0.00054 50 0.00134 0.00081 0.00102 0.00081 0.00271 0.00199 0.00437 0.00311 0.01727 0.01439 0.00271 0.00199 55 0.00198 0.00123 0.00153 0.00118 0.00391 0.00325 0.00623 0.00550 0.02217 0.01734 0.00391 0.00325 60 0.00287 0.00179 0.00246 0.00168 0.00575 0.00455 0.00935 0.00868 0.02681 0.01962 0.00575 0.00455 65 0.00403 0.00250 0.00384 0.00216 0.00856 0.00612 0.01393 0.01190 0.03332 0.02276 0.00856 0.00612 70 0.00594 0.00404 0.00673 0.00398 0.01340 0.00996 0.02189 0.01858 0.04056 0.02910 0.01340 0.00996 75 0.00933 0.00688 0.01221 0.00777 0.02400 0.01783 0.03498 0.03134 0.05465 0.04160 0.02400 0.01783 80 0.01515 0.01149 0.02252 0.01567 0.04380 0.03403 0.05932 0.05183 0.08044 0.06112 0.04380 0.03403 85 0.00000 0.00000 0.00000 0.00000 0.08274 0.06166 0.10244 0.08045 0.11695 0.09385 0.08274 0.06166 90 0.00000 0.00000 0.00000 0.00000 0.14539 0.11086 0.16739 0.12434 0.16770 0.14396 0.14539 0.11086 20 Pre-Retirement rates for all groups are based on the sum of non-industrial death and industrial death rates. 21 Post-Retirement Disabled rates are based on non-industrially disabled rates for Miscellaneous participants and industrially disabled rates for Fire/Police/CPO participants.

Appendix – Sample Decrement Rates Town of Atherton

Salary Increases
The seniority, merit and promotional salary increases used in the valuation are based on the CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Sample rates are as shown below.

Miscellaneous Police
Entry Ages
Service 20 25 30 35 40 45 50 20 25 30 35 40 45 50
0 0.0764 0.0764 0.0621 0.0621 0.0521 0.0521 0.0521 0.1181 0.1181 0.1051 0.1051 0.0653 0.0653 0.0653 2 0.0576 0.0576 0.0449 0.0449 0.0346 0.0346 0.0346 0.0738 0.0738 0.0628 0.0628 0.0434 0.0434 0.0434 4 0.0435 0.0435 0.0324 0.0324 0.0229 0.0229 0.0229 0.0462 0.0462 0.0375 0.0375 0.0288 0.0288 0.0288 6 0.0328 0.0328 0.0234 0.0234 0.0152 0.0152 0.0152 0.0289 0.0289 0.0224 0.0224 0.0191 0.0191 0.0191 8 0.0248 0.0248 0.0170 0.0170 0.0101 0.0101 0.0101 0.0180 0.0180 0.0134 0.0134 0.0127 0.0127 0.0127 10 0.0201 0.0201 0.0126 0.0126 0.0108 0.0108 0.0108 0.0185 0.0185 0.0155 0.0155 0.0118 0.0118 0.0118 12 0.0181 0.0181 0.0116 0.0116 0.0092 0.0092 0.0092 0.0184 0.0184 0.0153 0.0153 0.0123 0.0123 0.0123 14 0.0163 0.0163 0.0106 0.0106 0.0078 0.0078 0.0078 0.0183 0.0183 0.0151 0.0151 0.0128 0.0128 0.0128 16 0.0147 0.0147 0.0098 0.0098 0.0066 0.0066 0.0066 0.0183 0.0183 0.0149 0.0149 0.0134 0.0134 0.0134 18 0.0132 0.0132 0.0090 0.0090 0.0055 0.0055 0.0055 0.0182 0.0182 0.0147 0.0147 0.0139 0.0139 0.0139 20 0.0119 0.0119 0.0083 0.0083 0.0047 0.0047 0.0047 0.0181 0.0181 0.0145 0.0145 0.0145 0.0145 0.0145

Appendix – Sample Decrement Rates Town of Atherton

Disability Rates
The disability rates used in the valuation are based on the CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Sample rates are as shown below.

Attained
Ages
Miscellaneous Police
Male Female Unisex
20 0.000070 0.000040 0.000060
25 0.000070 0.000090 0.001710
30 0.000170 0.000330 0.004870
35 0.000350 0.000650 0.008050
40 0.000910 0.001190 0.011230
45 0.001490 0.001850 0.014400
50 0.001540 0.001930 0.018910
55 0.001390 0.001290 0.048590
60 0.001240 0.000940 0.061370

Appendix – Sample Decrement Rates Town of Atherton

Termination Rates
This assumption is used to project terminations (voluntary and involuntary) prior to meeting the minimum eligibility requirements to retire. The rates are based on the CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Sample rates for Miscellaneous members are as shown below.

Miscellaneous (Male) Miscellaneous (Female)
Entry Ages
Service 20 25 30 35 40 45 50 20 25 30 35 40 45 50
0 0.1851 0.1769 0.1631 0.1493 0.1490 0.1487 0.1509 0.1944 0.1899 0.1824 0.1749 0.1731 0.1713 0.1741 2 0.1218 0.1125 0.0970 0.0815 0.0771 0.0726 0.0750 0.1381 0.1307 0.1183 0.1058 0.0998 0.0938 0.0941 4 0.0672 0.0616 0.0524 0.0431 0.0392 0.0352 0.0366 0.0801 0.0752 0.0670 0.0587 0.0523 0.0459 0.0457 6 0.0669 0.0641 0.0575 0.0509 0.0453 0.0397 0.0383 0.0869 0.0847 0.0757 0.0666 0.0580 0.0494 0.0464 8 0.0470 0.0453 0.0410 0.0366 0.0311 0.0255 0.0218 0.0613 0.0601 0.0545 0.0488 0.0394 0.0299 0.0294 10 0.0377 0.0366 0.0337 0.0309 0.0245 0.0181 0.0032 0.0502 0.0491 0.0446 0.0401 0.0308 0.0215 0.0046 12 0.0307 0.0300 0.0282 0.0263 0.0200 0.0137 0.0027 0.0423 0.0413 0.0368 0.0322 0.0244 0.0165 0.0037 14 0.0251 0.0246 0.0226 0.0207 0.0156 0.0014 0.0017 0.0352 0.0343 0.0292 0.0241 0.0181 0.0019 0.0023 16 0.0173 0.0173 0.0152 0.0132 0.0101 0.0000 0.0000 0.0235 0.0235 0.0193 0.0151 0.0112 0.0000 0.0000 18 0.0159 0.0159 0.0129 0.0100 0.0067 0.0000 0.0000 0.0202 0.0202 0.0158 0.0113 0.0075 0.0000 0.0000 20 0.0141 0.0141 0.0110 0.0079 0.0000 0.0000 0.0000 0.0175 0.0175 0.0131 0.0087 0.0000 0.0000 0.0000

Appendix – Sample Decrement Rates Town of Atherton

Termination Rates (Continued)
Sample rates for Police members are as shown below.

Police (Male) Police (Female)
Entry Ages
Service 20 25 30 35 40 45 50 20 25 30 35 40 45 50
0 0.1298 0.1298 0.1298 0.1298 0.1298 0.1298 0.1298 0.1389 0.1389 0.1389 0.1389 0.1389 0.1389 0.1389 2 0.0464 0.0464 0.0464 0.0464 0.0464 0.0464 0.0464 0.0566 0.0566 0.0566 0.0566 0.0566 0.0566 0.0566 4 0.0170 0.0170 0.0170 0.0170 0.0170 0.0170 0.0170 0.0206 0.0206 0.0206 0.0206 0.0206 0.0206 0.0206 6 0.0226 0.0226 0.0226 0.0226 0.0226 0.0226 0.0080 0.0343 0.0343 0.0343 0.0343 0.0343 0.0343 0.0087 8 0.0176 0.0176 0.0176 0.0176 0.0176 0.0176 0.0047 0.0284 0.0284 0.0284 0.0284 0.0284 0.0284 0.0059 10 0.0145 0.0145 0.0145 0.0145 0.0145 0.0032 0.0032 0.0246 0.0246 0.0246 0.0246 0.0246 0.0047 0.0047 12 0.0124 0.0124 0.0124 0.0124 0.0124 0.0024 0.0024 0.0207 0.0207 0.0207 0.0207 0.0207 0.0033 0.0033 14 0.0106 0.0106 0.0106 0.0106 0.0018 0.0018 0.0018 0.0172 0.0172 0.0172 0.0172 0.0018 0.0018 0.0018 16 0.0077 0.0077 0.0077 0.0077 0.0000 0.0000 0.0000 0.0135 0.0135 0.0135 0.0135 0.0000 0.0000 0.0000 18 0.0068 0.0068 0.0068 0.0068 0.0000 0.0000 0.0000 0.0119 0.0119 0.0119 0.0119 0.0000 0.0000 0.0000 20 0.0060 0.0060 0.0060 0.0000 0.0000 0.0000 0.0000 0.0105 0.0105 0.0105 0.0000 0.0000 0.0000 0.0000

Appendix – Sample Decrement Rates Town of Atherton

Retirement Rates
Retirement rates used in the valuation are based on the CalPERS Experience Study and Review of Actuarial Assumptions published in November 2021 for Public Agency Miscellaneous and Police members. Sample rates are as shown below.

Miscellaneous 2% at 55 Miscellaneous 2% at 62
Attained Ages
Service 50 55 60 65 70 75 50 55 60 65 70 75
5 0.0140 0.0450 0.0590 0.1670 0.2290 1.0000 0.0000 0.0100 0.0310 0.1080 0.1200 1.0000 10 0.0140 0.0420 0.0640 0.1870 0.2290 1.0000 0.0000 0.0190 0.0510 0.1410 0.1560 1.0000 15 0.0170 0.0530 0.0830 0.2100 0.2290 1.0000 0.0000 0.0280 0.0710 0.1730 0.1930 1.0000 20 0.0210 0.0860 0.1150 0.2620 0.2290 1.0000 0.0000 0.0360 0.0910 0.2060 0.2290 1.0000 25 0.0230 0.0980 0.1540 0.2880 0.2290 1.0000 0.0000 0.0610 0.1110 0.2390 0.2650 1.0000 30 0.0240 0.1230 0.1700 0.2910 0.2290 1.0000 0.0000 0.0960 0.1380 0.3000 0.3330 1.0000 35 0.0240 0.1640 0.1860 0.2910 0.2290 1.0000 0.0000 0.1520 0.1830 0.3480 0.3870 1.0000 40 0.0000 0.1840 0.1880 0.2910 0.2290 1.0000 0.0000 0.1800 0.2040 0.3600 0.4000 1.0000 Police 2.7% at 57 Police 3% at 50
Attained Ages
Service 50 55 60 65 50 55 60 65
5 0.0500 0.0680 0.1500 1.0000 0.1240 0.0690 0.3430 1.0000 10 0.0500 0.0680 0.1500 1.0000 0.1030 0.0740 0.1800 1.0000 15 0.0500 0.0680 0.1500 1.0000 0.1130 0.0810 0.1590 1.0000 20 0.0500 0.0910 0.1500 1.0000 0.1430 0.1130 0.1880 1.0000 25 0.0500 0.1340 0.1500 1.0000 0.2440 0.2090 0.2470 1.0000 30 0.1000 0.2420 0.2280 1.0000 0.3760 0.3050 0.2470 1.0000 35 0.1100 0.3880 0.3500 1.0000 0.4380 0.3360 0.2470 1.0000 40 0.0000 0.3880 0.3500 1.0000 0.0000 0.3360 0.2470 1.0000

Appendix – Sample Decrement Rates Town of Atherton

Decrements Illustration
The table below illustrates how decrements are applied in the valuation and how the decrements affect the liabilities valued. Assuming the Plan Sponsor has 100 employees aged 30 as of the valuation date, only 48.6 employees will be projected to be employed at age 55 (assumed retirement eligibility age) using the assumed illustrative termination rates.

Age
# Actives
BOY
Annual
Termination %
# Terminated
Actives / Year
30 100.0 10% 10.0
31 90.0 9% 8.1
32 81.9 8% 6.6
33 75.3 7% 5.3
34 70.1 6% 4.2
35 65.9 5% 3.3
36 62.6 4% 2.5
37 60.1 3% 1.8
38 58.3 2% 1.2
39 57.1 1% 0.6
40 56.5 1% 0.6
41 56.0 1% 0.6
42 55.4 1% 0.6
43 54.9 1% 0.5
44 54.3 1% 0.5
45 53.8 1% 0.5
46 53.2 1% 0.5
47 52.7 1% 0.5
48 52.2 1% 0.5
49 51.6 1% 0.5
50 51.1 1% 0.5
51 50.6 1% 0.5
52 50.1 1% 0.5
53 49.6 1% 0.5
54 49.1 1% 0.5
55 48.6 0% 0.0
0 20
40 60
80 100
30 35 40 45 50 55
Application of Termination Rates
Actives Cumulative Terminated Actives Retirement Eligible Actives Notes:

1. The annual termination percentages shown in the table are for illustrative purposes only, not the actual termination rates used in the valuation.

2. For simplification, only termination decrement is assumed to be applicable while actively employed. Actuarial valuation typically applies pre-retirement death decrement during employment as well.

Appendix – Sample Decrement Rates Town of Atherton

Decrements Illustration (Continued)
The table below illustrates the number of active employees assumed to retire at each age based on the illustrative retirement rates.

Age
# Actives
BOY
Annual
Retirement %
# Retirements /
Year
55 48.6 10% 4.9
56 43.8 5% 2.2
57 41.6 5% 2.1
58 39.5 5% 2.0
59 37.5 5% 1.9
60 35.6 10% 3.6
61 32.1 10% 3.2
62 28.9 25% 7.2
63 21.7 40% 8.7
64 13.0 40% 5.2
65 7.8 100% 7.8
Notes:

1. The annual retirement percentages shown in the table are for illustrative purposes only, not the actual retirement rates used in the valuation.

2. For simplification, only retirement decrement is assumed to be applicable once the employee is retirement eligible. Actuarial valuation typically applies pre-retirement death decrement once an employee is eligible to retire.

3. The illustration above assumes that all active employees who are projected to be employed at age 55 elect health coverage with the Plan Sponsor at retirement.
0 10
20 30
40 50
55 56 57 58 59 60 61 62 63 64 65
Application of Retirement Rates
Actives Cumulative Retirements

Town of Atherton

Appendix – Glossary

Appendix – Glossary Town of Atherton

1. Active Employees – Individuals employed at the end of the reporting or measurement period, as applicable.

2. Actuarial Cost Method – A method to allocate the Actuarial Present Value of Future Benefits into portions attributed to past service (Total OPEB Liability) and future service (Normal Cost).

3. Actuarial Present Value of Future Benefits – Projected benefit payments estimated to be payable through the OPEB plan to current active and inactive employees as a result of their past service and their expected future service, discounted to reflect the expected effects of time value (present value) of money and the probabilities of payment (which is contingent on events such as death, termination, retirement, etc). In other words, this is the amount that would have been invested as of the Valuation Date so that it is sufficient to pay for benefit payments when due.

4. Deferred Inflows – Gains in the Total OPEB Liability and Fiduciary Net Position (for funded plan only) due to be recognized in the future.

5. Deferred Outflows – Losses in the Total OPEB Liability and Fiduciary Net Position (for funded plan only) due to be recognized in the future.

6. Defined Benefit OPEB – OPEB for which the benefits that the employee will receive at or after separation from employment are defined by the benefit terms. The OPEB may be stated as (a) a specified dollar amount; (b) an amount that is calculated

7. Entry Age Actuarial Cost Method – A method that allocates the actuarial present value of the projected benefits of each individual on a level basis over the earnings or service of the individual between entry age and assumed exit age(s). • The portion allocated to a valuation year is called the Normal Cost. • The portion allocated to past periods is called the Total OPEB Liability. • The portion allocated to future periods after the valuation date is called the Present Value of Future Normal Costs.

8. Fiduciary Net Position – OPEB plan assets in a secure Trust that meet the following criteria:
• Contributions from employers to the OPEB plan and earnings on those contributions are irrevocable. • OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. • OPEB Plan assets are legally protected from the creditors of employers, OPEB plan administrator, and creditors of the plan members.

9. Funded Ratio – The value of the asset expressed as a percentage of the Total OPEB Liability.

Appendix – Glossary Town of Atherton

10. Healthcare Cost Trend Rates – The rates of change in per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments.

11. Inactive Employees – Individuals no longer employed by an employer in the OEPB plan or the beneficiaries of those individuals. Inactive employees also include individuals who have accumulated benefits under the terms of an OPEB plan but are not yet receiving benefit payments and individuals currently receiving benefits.

12. Net OPEB Liability – The difference between the Total OPEB Liability and the Fiduciary Net Position.

13. Payroll Growth – An actuarial assumption on the rate of future increase in the total coverage payroll attributable to wage inflation and productivity increase; used in the Actuarial Cost Method to determine the Total OPEB Liability.

14. Plan Members – Individuals covered by the terms of the OPEB plan, which would typically include employees in active service, terminated employees who have terminated service but are not yet receiving benefit payments, and retired employees who are currently receiving benefits.

15. Other Postemployment Benefits (OPEB) – Benefits such as death benefits, life insurance, disability, and long-term care, as well as healthcare benefits (medical, prescription drug, dental, vision, and other health-related benefits), that are paid in the period after employment and that are provided separately from a pension plan regardless of the manner in which they are provided. OPEB does not include termination benefits or termination payments for sick leave.

16. Service Cost (Normal Cost) – The portion of actuarial present value of projected benefit payments that are attributed to a 12-month period after a valuation date as determined by the Actuarial Cost Method.

17. Total OPEB Liability – The portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service as of the valuation date as determined by the Actuarial Cost Method.

8605 Santa Monica Blvd PMB 52465, West Hollywood, CA 90069-4109 [email protected]

June 30, 2022 OPEB Valuation Review
Town of Atherton
September 2022
Version 1.0

© 2022 GovInvest Inc. 2
Content
1 OPEB Valuation Basics 3
2 Valuation Results 6

© 2022 GovInvest Inc.

OPEB Valuation
Basics
3

© 2022 GovInvest Inc.

OPEB
● OPEB stands for Other Post-Employment Benefits, which really means all benefits provided to employees at retirement other than pensions ● Includes the following for the Town:
○ Retiree health benefits
● Excludes: pensions or severance pay
4

© 2022 GovInvest Inc.

OPEB Valuation Components
Benefit
Provisions
Healthcare
Assumptions
Economic
Assumptions
Demographic Assumptions
5 Benefit Provisions
▪ Eligibility to qualify for
benefits at retirement
(service or disability)
▪ Benefits offered (medical/rx,
dental, vision, etc.)
▪ Employer subsidy provided
Healthcare Assumptions
▪ Employer healthcare plan
election at retirement
▪ Health plan and health coverage
election at retirement
▪ Rate of increase in future
healthcare costs
Economic
Assumptions
▪ Discount rate for present
value calculations
Demographic
Assumptions
▪ Terminations prior to retirement
▪ Rate of disablement
▪ Retirement rate once eligible
▪ Mortality assumption

© 2022 GovInvest Inc.

Valuation Results
6

© 2022 GovInvest Inc.

Summary of Valuation Results
Measurement Date (MD) 6/30/2022 6/30/2021 6/30/2020
Fiscal Year Ending Financial Disclosure 6/30/2022 6/30/2021 6/30/2020 Valuation Date 6/30/2022 6/30/2020 6/30/2020
Discount Rate 6.00% 5.39% 6.00%
Total OPEB Liability (TOL) $ 7,736,578 $ 8,999,682 $ 10,436,940 Fiduciary Net Position (FNP) (7,829,922) (8,866,492) (7,331,640) Net OPEB Liability (NOL) $ (93,344) $ 133,190 $ 3,105,300 Funded Ratio 101.2% 98.5% 70.2%
Actuarially Determined Contribution (ADC)1 FY 2021/22 FY 2020/21 FY 2019/20 $ amount $ 519,144 $ 465,571 $ 435,103
As % of covered-employee payroll 11.6% 16.0% 15.3%
7 1 FY 2021/22 ADC is as shown in the FYE 6/30/2021 GASB 75 Report prepared by Precision Actuarial, Inc. dated 10/6/2021 but with revised amortization of Net OPEB Liability based on level % of pay amortization method using 5.39% discount rate,

2.75% payroll growth, and 16 years amortization period. FY 2020/21 and 2019/20 ADCs are as shown in the Town’s Annual Comprehensive Financial Report.

© 2022 GovInvest Inc.

Changes Since Prior Valuation
8 Description of Changes Impact
Economic
Assumptions
Single Equivalent Discount Rate (SEDR) has been updated from 5.39% as of June 30, 2021 to 6.00% as of June 30, 2022 based on updated expected longterm rate of return of the Trust.

Decrease in
liability
Demographic
Assumptions
Mortality, disability, termination, and retirement rates assumptions have been updated from CalPERS Experience Study and Review of Actuarial Assumptions published in December 2017 to the most recent study published in November 2021.

Slight increase in
liability
Healthcare
Assumptions
▪ Health care trend rates have been updated from Getzen 2019 with initial rate of 6.50% that decreases gradually to an ultimate rate of 4.04% in 2075 for non-Medicare and 4.00% for all years for Medicare to Getzen 2021 table that reflects actual premium increases from 2022 to 2023 followed by 5.75% (non- Medicare) / 5.40% (Medicare) in 2023 that decrease gradually to an ultimate rate of 3.94% in 2075.
▪ PEMHCA minimum trend has been updated from 3.00% to 1.34% from 2022 to 2023 followed by 3.75% for all subsequent years.

Net increase in
liability

© 2022 GovInvest Inc.

Changes Since Prior Valuation
9 Description of Changes Impact
Other
Assumptions
▪ Payroll growth assumption was updated from CalPERS Experience Study and Review of Actuarial Assumptions published in December 2017 to the most recent study published in November 2021.
▪ Percentage of active employees electing health coverage with the Town at retirement for those who are eligible for PEMHCA minimum benefit only was reduced from 100% to 50%.
▪ Percentage of active employees electing spousal coverage with the Town at retirement has been reduced from 75% for both genders to 65% for male and 45% for female employees.
▪ In the prior valuation, husbands were assumed to be three years older than wives. In this year’s valuation, husbands were assumed to be one year older than wives.

Reduction in
liability

© 2022 GovInvest Inc.

Gain/Loss Reconciliation
10 Liability
Total OPEB Liability (TOL) as of
6/30/2021 $ 9,000,000
Expected TOL as of 6/30/2022 due to
passage of time $ 9,149,000
Actuarial (gain) / loss attributable to:

Demographic experience $ (887,000)
Healthcare cost (518,000)
Discount rate update (518,000)
Demographic assumption changes 0
All other assumption changes 511,000
Total actuarial (gain) / loss $ (1,412,000)
TOL as of 6/30/2022 $ 7,737,000
Asset
Asset as of 6/30/2021 $ 8,866,000
Expected contributions
1 519,000
Expected investment income (5.39%) 492,000
Expected asset as of 6/30/2022 $ 9,877,000
1 Set equal to the ADC cost.

Asset as of 6/30/2021 $ 8,866,000
Total contributions 594,000
Benefit payments and administrative
expenses
(644,000)
Actual investment income (986,000)
Actual asset as of 6/30/2022 $ 7,830,000

© 2022 GovInvest Inc.

Historical Unfunded Liability and Funded Ratio
11 $6.3 $6.8 $7.3
$8.9
$7.7
$4.0 $3.6 $3.1 $0.1
$0.1
$0
$3
$6
$9
$12
2018 2019 2020 2021 2022
Millions
As of June 30
Asset (FNP) Unfunded Liability Funded Liability

60.9% 65.2%

70.2%

98.5% 101.2%
0%
30%
60%
90%
120%
2018 2019 2020 2021 2022
As of June 30

© 2022 GovInvest Inc.

Actuarially Determined Contribution
Actuarially Determined Contribution (ADC) is the recommended contribution that, if paid on an ongoing basis, is expected to provide sufficient resources to fund (a) future normal cost (cost for new service) and (b) the amortized unfunded liabilities (cost for past service). 12 Normal Cost
Unfunded
Actuarial
Liability
(UAL)
Amortization
Payment
Total
Employer
Contribution

© 2022 GovInvest Inc.

Employer Contribution and ADC
13 FYE ADC
2018
1 $ 693,890
2019
1 $ 419,511
20201 $ 435,103
2021
1 $ 465,571
2022
2 $ 519,144
1 ADCs prior to FYE 2022 are as shown in
the Town’s Annual Comprehensive Financial
Reports.
2 ADC for FYE 2021 is as shown in the FYE
6/30/2021 GASB 75 Report prepared by
Precision Actuarial, Inc. Dated 10/6/2021
but with revised amortization of Net OPEB
Liability based on level % of pay
amortization method using 5.39% discount
rate, 2.75% payroll growth, and 16 years
amortization period.
* Includes implicit subsidy credit.
$401
$549 $558 $558
$151
$92
$199 $206 $147
$443
$0
$300
$600
$900
2018 2019 2020 2021 2022
Thousands
Year Ending June 30
ER Contribution for Benefit Payments* ER Contribution to PARS ADC

© 2022 GovInvest Inc.

Q&A
14 Page 361 of 364
© 2022 GovInvest Inc. 15

THANK YOU
The purpose of this presentation is to provide a summary of valuation results. The content of this presentation may not be modified, reproduced, or provided to third parties, either in whole or in part, without our permission. GovInvest is not responsible for usage, inference, or misinterpretation of this presentation by third parties.

Results presented in this report are based on the June 30, 2022 OPEB valuation. Refer to the preliminary Town of Atherton GASB 75 Disclosures for Fiscal Year Ending June 30, 2022 for complete information on substantive plan provisions and actuarial methods and assumptions.

For questions on the content of this information, please contact our Support Team ([email protected]).

Date: 11-8-22
From: Bob Polito
To: Finance Committee
Re: Atherton OPEB Liabilities
At the September 2022 meeting of the Finance Committee, the Town’s consultant, Precision Actuarial Inc/GovInvest, provided a "refresh" on the Town's liabilities for Other Post-Employment Benefits, i.e., retiree medical benefits. GovInvest determined that the Town’s Total Accrued Liability for past and present employees for lifetime medical benefits earned thru June 30,2022 amounts to $7,736,578. Below I will provide some brief background on the Town’s OPEB obligations, steps that have been taken to deal with them, and what I believe our next steps should be on this front.

As of July 1, 2011 an actuarial evaluation showed the Town’s Unfunded OPEB Liability to be $7,599,493. The Town had, up to that time, paid medical benefits from the General Fund as they were incurred, making no effort to define or fund past accrued obligations. The size of the problem and earlier changes to Governmental Accounting Standards came to the Council’s attention and various remedies were discussed. This led to the creation of a Section 115 Irrevocable Trust Account with Public Agency Retirement Services (PARS) so that the Town could begin funding for these long-term liabilities.

In FY 2012-13 the Town made its first contribution to the Trust using available ERAF funds in the amount of $1,299,316. Additional contributions were made to the Trust when funds became available, with a total of $5,000,000 being deposited into the Trust by the end of the FY 2015-16.

In addition to the above, each fiscal year an Actuarial Valuation was conducted to determine what amount of funding is required to fund the additional benefits earned in that year. That amount is referred to as the Actuarial Determined Contribution (ADC) and each year, the Town has made at least a partial payment of the ADC into the Trust. These additional payments have totaled $642,851. As of June 30, 2022, the Trust has seen deposits of $5,642,851 and earnings of $2,187,071. This has created a Fiduciary Net Position of $7,829,922 available to offset our OPEB Liabilities of $7,736,578.

Despite the substantial funding provided to and available within the PARS Trust itself, the Town has never used any of the Trust principal to pay benefits. Instead, all retiree benefits have been paid from the Town’s General Fund and expensed in the year paid. This provided a "double dipping" effect, building an asset to offset a liability, while at the same time reducing the liability by expensing the day to day associated costs.

The net result of all the above is that FY 2022/23 began with an OPEB Trust Fund that is more than fully funded!

There is further good news when we examine our OPEB liabilities more closely. The total is comprised of two components: an "Explicit" and an "Implicit" liability. The Explicit amount is what the Town can actually expect to pay CalPERS for the medical benefits that the Town is contractually obligated to provide to retirees. The Implicit amount is a calculated additional cost the Town would incur IF the Town no longer participated in the CalPERS Group Plan, but instead had to purchase and provide the insurance on the open market. The calculation of this Implicit liability became a requirement with changes made to the Governmental Accounting Standards a few years ago. However, the chance of the Implicit liability ever occurring is essentially zero as it is extremely unlikely that CalPERS will stop offering Group Rated Health Insurance Plans to its members. In short, funding the Implicit amount is absolutely unnecessary.

If the Town’s Total OPEB Liability is reduced by the Implicit portion ($1,064,907), the remaining Explicit is $6,671,671. When that "real" number is matched against the assets in the Trust, the Town is now overfunded by $1,158,251!
Furthermore, it is anticipated that our OPEB liability will continue to be reduced over time.

Currently, the Town has 41 former employees and 20 dependents receiving OPEB benefits. These retirees are entitled to those benefits for life based on a retiree health benefit plan in effect at the time of their initial employment. That liability makes up nearly 90% of the Town’s total liability.

On the other hand, of the Town’s 40 active employees, only 13 can qualify for full family medical benefits if and when they retire from the Town. This is due to benefit package changes made in 2013, which transferred most of the cost for retiree medical back to the employee. And, of those that are eligible for full retiree medical, some may never receive those benefits as they may ultimately leave employment with the Town prior to retirement from CalPERS. Some have already done so and the funds that the Town accumulated in the Trust for those anticipated but unrealized benefits remains with the Town. So, the increase in OPEB liabilities incurred for each future fiscal year will continue to decline.

In light of the above, I strongly urge the Committee to consider a recommendation to the Council that the Town begin paying at least a portion, if not all, of retiree OPEB benefits from the funds available in the PARS Trust rather than expensing from the General Fund as has been done up to this point. Given the Town’s fully funded status, with continued annual funding of the Explicit portion of the ADC, and with the gradual but predictable reduction in future employee OPEB benefits, the PARS Trust should have adequate funds to pay ALL retiree medical benefits when they come due for the foreseeable future.

The Council may wish to begin with some amount less than 100%, but given the above facts, I don’t believe that is necessary, and I would further suggest such payments commence as soon as possible. This change reduces General Fund expenses going forward and, depending on the percentage allocation, could free up roughly half a million dollars each year for use toward other Town needs.

I hope you can see fit to review this and take appropriate action at your November meeting, as I hope to have this in front of the Council at their regular meeting in November, Thank you for your consideration.