CITY OF SANLEANDRO
RETIREE HEALTHCAREPLAN
June 30, 2021 Actuarial Valuation
Plan Funding for 2022/23 and 2023/24
Preliminary Results
Doug Pryor, Vice President & Actuary
Rachel Sun, Actuarial Analyst
Joseph Herm, Senior Actuarial Analyst
Bartel Associates, LLC
February 1, 2022
BENEFITSUMMARY
SLCEA / Conf /
SLMO / SLPMA SLPOA1
◼Eligibility2 ⚫ Service or disability retirement directly from City under CalPERS ⚫ Continued participation in PEMHCA
⚫ 5 years City service ⚫ 15 years City service
◼Medical Caps
⚫ $460
($360 hired > 1/1/07)
⚫ $200/460 (elig/not elig Medicare)
(PEMHCA min hired >1/1/07)
⚫ PEMHCA minimum
⚫ < 65 ⚫ $360
⚫ 65 to 70 ⚫ PEMHCA minimum
⚫ ≥ 70 ⚫ PEMHCA minimum
1 February 1, 2022
2 Applicable only for SLPOA retiring after March 1, 2002 (SLPOA retiring before March 1, 2002 have same benefit as other groups, with exception of $40/180 (elig/not elig Medicare) between ages 65 and 70 for retirees retiring between March 1, 1998 and 2002)
Those retiring with less than the minimum City service receive PEMHCA minimum benefit (including disabled retirement).
BENEFITSUMMARY
2021 Cap
Single 2-Party Family
$41.80 $79.40 $115.74
SLCEA / Conf /
SLMO / SLPMA SLPOA1
◼Dental Caps3
(< 65 only)
⚫ Cap varies based on coverage
(50% cost sharing of future premium increases):
⚫ SLPOA hired < 1/1/07 dental paid if under medical cap. ◼Life Insurance
(< 70 only)
⚫ $50,000 to age 70 for SLMO retired < 1/1/06
◼Surviving
Spouse Benefit
⚫ PEMHCA minimum
◼Pay-As-You-Go
Costs4
(Cash-only)
⚫ FY 2020/21 $ 809,716
⚫ FY 2019/20 786,770
⚫ FY 2018/19 778,589
⚫ FY 2017/18 802,834
⚫ FY 2016/17 838,327
3 4
February 1, 2022
50% cost sharing of future premium increases applies.
Includes full dental premiums (retiree cost sharing not included).
IMPLIED SUBSIDY
⚫ Employer cost for allowing retirees to participate at active rates. Illustrative trend:
⚫ Sample active age 40, retire age 60:
PEMHCA
$1,200
Premiums
$600Active
$600 Retiree
Cost of
Benefits
$500Active
$700 Retiree
$700
$600
$500
$400
$300
25 30 35 40 45 50 55 60 64
BlendedPremium 600 600 600 600 600 600 600 600 600
Cost byAge 400 420 460 500 550 600 640 700 800
$800
February 1, 2022
PARTICIPANTSTATISTICS
Actives
6/30/175 6/30/19 6/30/21
◼ Count 337 336 326
◼ Average
⚫ Age 45.5 43.5 43.3
⚫ City Service 11.4 11.4 9.8
⚫ Pay n/a $ 103,600 $ 109,200
◼ Total Payroll (000s)6 n/a 34,802 35,600
5 6
February 1, 2022
The 6/30/17 valuation prepared by GovInvest and is shown for comparison purposes only. 2019 payroll based on total earnings reported to CalPERS for 2017/18; 2021 payroll projected based on reported pay for 2020/21.
PARTICIPANTSTATISTICS
Retirees
6/30/177 6/30/19 6/30/21
◼ Count
⚫ Benefitting
⚫ Waived8
⚫ Total
◼ Average
⚫ Age (benefitting)
⚫ Service
Retirement Age
➢ Miscellaneous
➢ Safety
⚫ Monthly Benefit
289 300 313
- 656 186
289 956 499
67.4 69.3 69.7
n/a 58.6 58.6
n/a 53.8 52.7
n/a $ 218 $ 218
7 8
February 1, 2022
The 6/30/17 valuation was prepared by GovInvest and is shown for comparison purposes.
Data for waived retirees not available for 2017. Data for waived retirees in 2019 includes deferred vested retirements who were not eligible for retiree healthcare benefits.
ASSETS
Expected Rate of Return
PARS
Moderately Conservative Investment Policy
Expected
Real
Return10
Target
Asset
Allocation
◼ Equity 4.6% 30%
◼ Fixed Income 0.8% 65%
◼ Cash -0.5% 5%
◼ Assumed Long-Term Rate of Inflation 2.50%
◼ Assumed Long-Term Investment Expenses 0.15%
◼ 50% Confidence Level Long-Term Net Return 4.61%
◼ 55% Confidence Level Long-Term Net Return11 4.43%
◼ 60% Confidence Level Long-Term Net Return 4.25%
◼ Recommended Discount Rate 4.50%
10 Based on 8 independent Investment Advisors 2021 10-year Capital Market Assumptions and where available, investment advisors anticipated long-term trends.
11 “55% Confidence Level” means that over the long-term 55% of the time net returns are expected to be greater than 4.43% and 45% of the time net returns are expected to be less than 4.43%.
February 1, 2022
ASSETS
February 1, 2022
Market Value of Plan Assets
(000’s Omitted)
2016/17 2017/18 2018/19 2019/20 2020/21
2021/22
Projected
◼ Assets
(Beginning of Year)
• Employer Contribution
• Benefit Payments
• Administrative
Expenses
• Investment Return
◼ Assets
(End of Year)
◼ Approximate Return
$ 6,115 $ 13,665 $ 14,876 $ 16,888 $ 19,149 $ 21,807
6,950 750 1,000 1,500 - -
- - - - - -
(21) (34) (36) (40) (43) (48)
621 495 1,048 801 2,701 981
13,665 14,876 16,888 19,149 21,807 22,740
6.9% 3.3% 6.4% 4.4% 14.1% 4.5%
RESULTS
February 1, 2022
Actuarial Obligations
(000’s Omitted)
6/30/19 6/30/21
6/30/22
Projected
◼ Present Value of Benefits
• Actives $ 19,820 $ 20,185
• Retirees 11,988 13,254
• Total 31,808 33,439
◼ Actuarial Accrued Liability
• Actives 10,977 9,730 n/a
• Retirees 11,988 13,254 n/a
• Total 22,965 22,984 $ 23,736
◼ Actuarial Value of Assets 16,888 21,807 22,740
◼ Unfunded Liability 6,077 1,177 996
◼ Funded Ratio 73.5% 94.9% 95.8%
RESULTS
February 1, 2022
Actuarially Determined Contribution (ADC)
(000’s Omitted)
6/30/19 Valuation 6/30/21 Valuation
2019/20 2020/21 2021/22 2022/23 2023/24
◼ ADC - $
• Normal Cost $ 887 $ 914 $ 941 $1,003 $1,030
• Projected Admin Expenses 48 54 57 56 58
• UAAL Amortization 424 437 450 78 75
• Total ADC 1,359 1,405 1,448 1,137 1,164
◼ Projected Payroll 34,802 35,846 36,921 36,582 37,588
◼ ADC - %
• Normal Cost 2.5% 2.5% 2.5% 2.7% 2.7%
• Projected Admin Expenses 0.1% 0.2% 0.2% 0.2% 0.2%
• UAAL Amortization 1.2% 1.2% 1.2% 0.2% 0.2%
• Total ADC 3.9% 3.9% 3.9% 3.1% 3.1%
RESULTS
10-Year Projection Illustration17
(Amounts in 000’s)
Benefit Payments
Cash Subsidy
Fiscal
Year
Current
Actives
Current
Retirees Total
Implied
Subsidy
Trust
Contrib.
Total
Payments ADC
2022/23 $ 53 $ 749 $ 802 $384 $ - $ 1,186 $ 1,137
2023/24 91 713 804 376 - 1,180 1,164
2024/25 128 682 810 352 - 1,162 1,195
2025/26 161 671 832 374 - 1,206 1,231
2026/27 200 662 862 375 - 1,237 1,268
2027/28 236 660 896 405 - 1,301 1,307
2028/29 276 655 931 445 - 1,376 1,344
2029/30 318 647 965 478 - 1,443 1,376
2030/31 354 634 988 498 - 1,486 1,401
2031/32 393 624 1,017 519 - 1,536 1,420
17 February 1, 2022
Closed group basis (current employees and retirees only)
FUTURE PLANFUNDING
February 1, 2022
Background
◼ Funded position typically measured by relationship of Assets to Actuarial Accrued Liability (AAL) since AAL is a target asset value:
• Present Value of Benefits (PVB) is the amount that would pay for all benefits (for current employees/retirees) if all assumptions are met
• Actuarial Accrued Liability (AAL) is portion of PVB that has been accrued representing a target asset value
• Difference between PVB and AAL will be recognized in future costs via the Normal Cost (cost of benefits accruing during the year for active employees)
FUTURE PLANFUNDING
February 1, 2022
Background
◼ 100% AAL funded plan means:
• Plan on track to pay benefits from trust
• Future plan cost expected to equal Normal Cost (cost of benefits accruing for active employees), i.e. no catch up payments expected for prior service and retirees • No intergenerational taxpayer shifting – current tax payers have paid for cost of services provided to them
• Consider potential for overfunding due to future volatility. However:
➢future underfunding is equally likely
➢future overfunding, if it materialized, would reduce future City contributions ➢potential for long term excess assets (> PVB) very unlikely absent benefit changes
FUTURE PLANFUNDING
February 1, 2022
Plan Funded Status
◼ City’s OPEB prefunding (commenced 2008/09) has resulted in good Assets/Actuarial Accrued Liability funded position at June 30, 2021
◼ Unfunded liability and funded ratio (Assets/Actuarial Accrued Liability) has improved in the 6/30/21 valuation (amounts in 000’s):
6/30/19 6/30/21
Present Value of Benefits $31,808 $33,439
Actuarial Accrued Liability 22,965 22,984
Assets 16,888 21,807
Unfunded Liability 6,077 1,177
Funded Ratio 74% 95%
FUTURE PLANFUNDING
February 1, 2022
Projections
◼ Three funding scenarios:
• City Pay-Go
City pays benefit payments outside trust, with no further contributions to the trust.
Trust would grow with investment earnings. This is what the City did for 2020/21 and expects to for 2021/22.
• FullADC
City pays the full Actuarial Determined Contribution (ADC) annually, with a 15 year amortization of the unfunded liability.
• 90% Funded Target
Contributions determined so that 90% funded status is expected in 20 years. The trust would reimburse the City annually for approximately 18% of Pay-Go costs. ◼ Projections
• Net City OPEB Payments
(total City OPEB expenditures, after any reimbursement from trust) • Unfunded Liability
(expected unfunded liability based on net City payments)
FUTURE PLANFUNDING
Projected Net City OPEB Payments
(Amounts in 000’s)
February 1, 2022
FUTURE PLANFUNDING
Projected Unfunded Liability
(Amounts in 000’s)
February 1, 2022
FUTURE PLANFUNDING
February 1, 2022
Conclusions
◼ Observations:
• City Pay-Go and Full ADC are very similar, with City Pay-Go resulting in:
➢larger Net City OPEB Payments over next 10-15 years
➢quicker pay-off of unfunded liability by approximately 4 years • 90% Funded Target results in:
➢increasing unfunded liability over the projection period ➢although not shown in the chart, at the end of 20 years, with the plan 90% funded, significantly larger contributions would then be needed if a 100% funded status was desired going forward.
• Short term plan in good position under all 3 of the scenarios ◼ Recommendations:
• With no other considerations except OPEB, we would recommend Full ADC • However, City must consider overall budget constraints/requirements