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Other Post Employment Benefits Fiscal Year 2020 pdf file
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Source page 41
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Employee Termination It was assumed that employees would terminate employment in accordance with the
sample rates shown in the following table:
Non-Public Safety Employees
0-4 Years of 0-4 Years of 5-9 Years of 5-9 Years of 10+ Years 10+ Years
Service Service Service Service of Service of Service
Age (Males) (Females) (Males) (Females) (Males) (Females)
20 27.00% 27.00% 12.00% 12.00% 6.00% 6.00%
30 23.00% 23.00% 10.00% 10.00% 5.50% 5.50%
40 16.00% 16.00% 8.00% 8.00% 3.50% 3.50%
50 18.00% 18.00% 6.00% 6.00% 3.00% 3.00%
60 18.00% 18.00% 5.00% 5.00% 3.50% 3.50%
Public Safety Employees
Service Male Female
0 9.00% 9.00%
5 6.00% 6.00%
10 3.50% 3.50%
15 2.00% 2.00%
20 1.50% 1.50%
25 1.50% 1.50%
30 1.50% 1.50%
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 32Source page 42
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Retirement Rates for Eligible Employees
Standard Standard Male Female Public
Age Male Female Teachers Teachers Safety
45 - 49 0.00% 0.00% 0.00% 0.00% 1.00%
50 - 51 1.00% 1.50% 2.00% 1.50% 2.00%
52 1.00% 2.50% 2.00% 1.50% 2.00%
53 1.00% 2.50% 2.00% 1.50% 5.00%
54 2.00% 2.50% 2.00% 2.00% 7.50%
55 2.00% 5.50% 6.00% 5.00% 15.00%
56 2.50% 6.50% 20.00% 15.00% 10.00%
57 2.50% 6.50% 40.00% 35.00% 10.00%
58 5.00% 6.50% 50.00% 35.00% 10.00%
59 6.50% 6.50% 50.00% 35.00% 15.00%
60 12.00% 5.00% 40.00% 35.00% 20.00%
61 20.00% 13.00% 40.00% 35.00% 20.00%
62 30.00% 15.00% 35.00% 35.00% 25.00%
63 25.00% 12.50% 35.00% 35.00% 25.00%
64 22.00% 18.00% 35.00% 35.00% 30.00%
65 40.00% 15.00% 35.00% 35.00% 100.00%
66 25.00% 20.00% 40.00% 35.00% 100.00%
67 25.00% 20.00% 40.00% 30.00% 100.00%
68 30.00% 25.00% 40.00% 30.00% 100.00%
69 30.00% 20.00% 40.00% 30.00% 100.00%
70 100.00% 100.00% 100.00% 100.00% 100.00%
71 100.00% 100.00% 100.00% 100.00% 100.00%
72 100.00% 100.00% 100.00% 100.00% 100.00%
Permanent Disability Rates
Age Standard Teachers Public
20 0.01% 0.05% 0.20%
30 0.01% 0.07% 0.21%
40 0.07% 0.21% 0.71%
50 0.13% 0.42% 1.10%
60 0.12% 0.50% 0.80%
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 33Source page 43
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Trend Rate Medicare Supplement Plans: Initial Trend of 4.50% for 2020 grading down 0.00% per
year for an ultimate trend rate of 4.50%.
Non-Medicare Plans: Initial Trend of 4.50% for 2020 grading down 0.00% per year for
an ultimate trend rate of 4.50%.
Dental Plans: Initial Trend of 4.50% for 2020 grading down 0.00% per year for an
ultimate trend rate of 4.50%.
Participation Rate It was assumed that 80% of employees eligible to receive retirement benefits would
enroll in the retiree medical and dental plans upon retirement. For life insurance plans,
it was assumed that 80% of eligible employees would elect coverage upon retirement.
Spouse Participation Rate It was assumed that 80% of male employees and 70% of female employees who elect
retiree healthcare coverage for themselves would also elect coverage for a spouse upon
retirement.
Spouse Demographics It was assumed that a male spouse is three years older than a female spouse and same
sex spouses were assumed to be the same age. For current retirees, the actual census
information was used, if available.
Medicare Eligibility It was assumed that retirees who were over age 66 on the valuation date and were
enrolled in an Active plan were ineligible for Medicare and all other participants would
be eligible for Medicare at age 65, absent any information to the contrary.
School Demographics In the absence of census data specifying which participants were teachers it was
assumed that two thirds of school participants were teachers. If available, actual census
data was used.
Compensation Increases 3.00% per year.
Inflation Rate 2.50% per year.
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 34Source page 44
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Implicit Subsidy
The implicit subsidy arises because retirees who are not eligible for Medicare are charged the same premium as active
employees, even though their actual medical costs are higher on average. Consequently, a portion of the premiums being paid
for active employees are being used to “subsidize” the premiums of retirees. Actuarial Standards of Practice and GASB
standards require the liability associated with this implicit subsidy to be valued. The chart below shows a breakdown of how
implicit cost impacts reported cash flows and liabilities. Actuarial Standard of Practice No. 6 (“ASOP 6”) requires us to recognize
this implicit subsidy while the plan sponsor may only pay the premiums billed by an insurance provider.
Impact of Implicit Subsidy
As of the Measurement Date
Impact on Liability June 30, 2020 June 30, 2019
I. Total OPEB Liability 88,952,265 88,688,109
II. Total OPEB Liability (Excluding Implicit Subsidy) 72,233,594 71,971,366
III. Liability from Implicit Subsidy [I. - II.] 16,718,671 16,716,743
For the Measurement Period Ending
Impact on Payments June 30, 2020 June 30, 2019
IV. Employer Payments (Including Implicit Subsidy) 3,875,429 3,723,578
V. Actual Employer Payments 2,998,522 2,867,284
VI. Implicit Subsidy [IV. - V.] 876,907 856,294
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 35Source page 45
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Pre-65 and post-65 per capita costs were developed using fully insured premium rates.
ANNUAL PER CAPITA CLAIMS*
RETIREE - NOT MEDICARE RETIREE - MEDICARE
ACTIVE EMPLOYEES ELIGIBLE ELIGIBLE
Age Bracket Female Male Age Bracket Female Male Age Bracket Female Male
24 & Under 4,799 3,025 44 & Under 9,432 6,181 65 to 69 4,015 4,015
25 to 29 7,080 3,148 45 to 49 10,361 7,804 70 to 74 4,015 4,015
30 to 34 8,946 3,951 50 to 54 12,188 10,278 75 to 79 4,015 4,015
35 to 39 9,216 4,961 55 to 59 14,090 13,362 80 to 84 4,015 4,015
40 to 44 9,432 6,181 60 to 64 16,766 17,147 85 to 89 4,015 4,015
45 to 49 10,361 7,804 65 to 69 20,099 21,388 90 & Over 4,015 4,015
50 to 54 12,188 10,278 70 to 74 23,701 25,631
55 to 59 14,090 13,362 75 to 79 27,525 30,272
60 to 64 16,766 17,147 80 to 84 31,559 34,795
65 to 69 20,099 21,388 85 to 89 36,025 39,828
70 & Over 23,701 25,631 90 & Over 36,025 39,828
*Based on SOA 'Health Care Costs--From Birth to Death' study published in 2013
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 36Source page 46
APPENDIX III – ACTUARIAL METHODS & ASSUMPTIONS
Open Group Forecast For the projection of plan liabilities in future years, it was assumed that the number of
active employees will remain constant and those who terminate employment or retire
will be replaced with new employees with the demographics below:
Open Group Forecast Population
Demographics
Age Male Female
20 8.0% 5.0%
30 7.0% 14.0%
40 20.0% 19.0%
50 10.0% 10.0%
60 3.0% 4.0%
Total 48.0% 52.0%
Additional Comments The liabilities being reported as of the Measurement Date of June 30, 2020 reflect a
closed group and do not reflect any new entrants after the valuation date.
To the best of our knowledge all employees who are eligible on the valuation date are
included in the actuarial valuation.
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 37Source page 47
APPENDIX IV – PLAN DEMOGRAPHICS
Plan Demographics
Active Employees
Valuation Date July 1, 2018
A. Average Age at Hire 34.32
B. Average Service 10.94
C. Average Current Age 45.26
Retired Employees & Spouses
Valuation Date July 1, 2018
A. Under Age 65 101
B. Age 65 & Over 491
C. Total 592
Average Service Age
Years of Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40+ Total
0-24 20 3 23
25-29 42 7 3 52
30-34 46 24 7 1 78
35-39 27 17 23 2 69
40-44 29 17 22 22 5 95
45-49 32 21 21 19 20 4 117
50-54 16 11 17 16 17 8 4 89
55-59 14 9 13 22 9 8 10 85
60-64 6 6 5 16 9 4 5 51
65-69 1 3 1 2 2 1 1 11
70+ 2 1 1 1 5
Total 232 116 114 101 63 27 21 1 675
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 38Source page 48
APPENDIX IV – PLAN DEMOGRAPHICS
Plan Offerings Number of Contracts
Single Two-Person Family Total
BCBS HMO Blue New England 160 0 295 455
BCBS PPO (Blue Care Elect) 53 0 75 128
BCBS Medex II 186 146 0 332
Total 399 146 370 915
Per Contract Costs (monthly)
Single Two-Person Family
BCBS HMO Blue New England 813.54 0.00 2,138.30
BCBS PPO (Blue Care Elect) 1,207.50 0.00 2,864.50
BCBS Medex II 334.57 669.14
Dental Plan N/A N/A
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 39Source page 49
APPENDIX V – OVERVIEW OF GASB 74 & 75 Before Statements 74 and 75, GASB statement 45 established the reporting standards for Other Postemployment Benefit (“OPEB”) plans. It was designed to recognize the Other Postemployment Benefits earned by employees throughout their working career vs. when they are paid in retirement – accrual accounting vs. “pay-as-you-go” accounting. Additionally, each eligible active employee earns benefits each year representing benefits to be paid in retirement or a “Service Cost”. These amounts are reflected in your financial statement each year so that OPEB benefits for an eligible employee shall be fully charged to the financial statement when that eligible employee terminates employment. In 2012 GASB issued GASB Statements 67 and 68 to update and standardize the financial reporting of pension liabilities. This increased the transparency of pension liabilities by moving them to the balance sheet and made financial statement disclosures of pension liabilities more comparable between municipal entities. GASB Statements 74 and 75 are designed to have the same effect on OPEB plans. GASB 74 and 75 require retiree medical plans to disclose information about asset and liability levels and show historical contribution information. GASB 74 only applies in situations where a separate trust is established to prefund these benefits. GASB 75 requires employers to perform periodic actuarial valuations to determine annual accounting costs and to keep a running tally of the extent to which these amounts are over or under funded. GASB 74 and 75 apply to those benefits provided after retirement, except for pension benefits, such as medical, dental and life insurance. The philosophy behind the accounting standard is that these postemployment benefits are part of the compensation earned by employees in return for their services, and the cost of these benefits should be recognized while employees are providing those services, rather than after they have retired. This philosophy has already been applied for years to defined benefit pensions; GASB 74 and 75 extend this practice to all other postemployment benefits. Town of Canton Other Postemployment Benefits Plan For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 40
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APPENDIX V – OVERVIEW OF GASB 74 & 75
The process of determining the liability for OPEB benefits is based on many assumptions about future events. The key actuarial
assumptions are:
Turnover and retirement rates – How likely is it that an employee will qualify for postemployment benefits and when will they start?
Medical inflation and claims cost assumptions – When an employee starts receiving postemployment benefits many years from now,
how much will be paid each year for the benefits and how rapidly will the costs grow?
Mortality assumption – How long is a retiree likely to receive benefits?
Discount rate assumption – What is the present value of those future benefit payments in terms of today’s dollars?
Since the liability is being recognized over the employee’s whole career with the Town, the present value is divided into three pieces:
the part that is attributed to past years (the “Total OPEB Liability” or “Past Service Liability”), the part that is being earned this year
(the “Service Cost”), and the part that will be earned in future years (the “Future Service Liability”).
Once the Accrued Liability and the Service Cost have been calculated, the next step is to determine an actuarially determined
contribution. This is an amount that if paid annually would fully prefund the benefits for current active and retired employees. This
consists of two pieces:
✓ Service Cost – because the benefits earned by active employees each year should be paid for each year
✓ Past Service Cost – a catch-up payment to fund the Accrued Liability over a period of time determined by an actuary
The final step is to keep track going forward of how much of the contribution is actually paid. There is no requirement to actually fund
these benefits, but the cumulative deficiency must be disclosed on the Town’s financial statements as the Net OPEB Liability (NOL). If
you decide to fully fund the NOL this will appear in the financial statement as a Net OPEB Asset. In addition, the Discount Rate used
to calculate the liabilities must reflect the expected investment income of whatever funds are set aside to prefund the benefits; if there is
no prefunding then the Discount Rate will be much lower and the liabilities significantly higher than if the benefits are prefunded.
Town of Canton Other Postemployment Benefits Plan
For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 41Source page 51
GLOSSARY Accrual Accounting – A system of accounting in which revenues are recorded when earned and outlays are recorded when goods are received or services performed, even though the actual receipt of revenues and payment for goods or services may occur, in whole or in part, at a different time. Actuarially Determined Contribution – Amount of funding required annually to fully fund plan benefits. Determined by the actuary using a consistent methodology. Amortization – Allows the recognition of liability over a fixed period of time. Cash Basis Accounting – A system of accounting in which revenues are recorded when received and outlays are recorded when payment is made. Deferred Inflows/Outflows of Resources – Amounts arising from experience gains and losses that have not been recognized into the OPEB Expense but will be recognized in the future. Discount Rate – The interest rate used to calculate the present value of future cash flows. Under GASB 75, the rate should be the expected long-term rate of return on investments for a plan that is being fully funded, the 20-year municipal bond index for a pay-as- you-go plan, and a blend of the two rates for a plan that is being partially funded. Entry Age Normal – Under this method, the annual service cost for each individual active member, payable from the date of employment to the date of retirement, is sufficient to accumulate the value of the member’s benefit at the time of retirement. The annual service cost for each active member is a level percent of payroll. The total OPEB liability is the actuarial present value of the projected benefit times the ratio of past service to expected total service at retirement/termination. Fiduciary Net Position – The value of cash, investments, other assets and property belonging to an OPEB trust. Town of Canton Other Postemployment Benefits Plan For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 42
Source page 52
GLOSSARY Government Accounting Standards Board (GASB) – “The Governmental Accounting Standards Board (GASB) was organized in 1984 by the Financial Accounting Foundation (FAF) to establish standards of financial accounting and reporting for state and local governmental entities. Its standards guide the preparation of external financial reports of those entities.” Implicit Subsidy – The liability that arises because retirees who are not eligible for Medicare are charged the same premium as active employees even though their actual medical costs are higher on average. Irrevocable Contribution – The transfer of assets to a qualified trust in which assets may only be withdrawn for the purpose of providing retiree other postemployment benefits. Net OPEB Liability (NOL) – Total OPEB Liability less the Fiduciary Net Position. Other Postemployment Benefits (OPEB) – Benefits that an employee will begin to receive at the start of retirement. This does not include pension benefits paid to the retired employee. OPEB Trust – An entity which holds assets for the sole purpose of funding OPEB. All contributions and earning within this entity must be irrevocable and protected from creditors. Pay-as-you-go funding – Paying benefits (such as pensions or OPEB) on a cash basis, with no money set aside for future liabilities which are already incurred. Service Cost – The actuarially determined present value contribution needed to fund benefits which are earned for employee service rendered during the current year. Service cost depends on many factors, including the interest rate used to discount future cashflows, and expected inflation. Total OPEB Liability (TOL) – That portion, as determined by the Individual Entry Age Normal Actuarial Cost Method, of the Actuarial Present Value of benefits and expenses which are not provided for by future Service Costs. Town of Canton Other Postemployment Benefits Plan For the Fiscal Year ending June 30, 2020 | Delivered August 3, 2020 Page 43