BICKMORE & ASSOCIATES, INC.-2014

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OPEB Actuarial Valuation — Data Request 20. The AGENCY's previous CERBT filing. (if not done by Bickmore) 21. A premium rates sheet for all coverage available to retirees (medical, dental, vision, life, etc.). Include active premiums and pre /post Medicare premiums for retirees. (except CalPERS medical) 22. The OPEB notes to financials for the fiscal years ending 6/30/2011 and 6130/2012. 23. The annual CERBT statements between July 1, 2011 and 6/30/2013. IV. Choosing an appropriate discount rate The Agency is ultimately responsible for choosing an appropriate discount rate to be used in the OPEB valuation. As you know, the actuarial calculations effectively involve projecting the amount and timing of expected future retiree benefits, then discounting them back to the present to establish a current value. The selection of the rate for the discounting is an important component in establishing the amount of the OPEB liability and annual OPEB cost. Selection of the discount rate is made by the employer providing the benefits and, per GASB 45, should be based on the long term expected return on assets from which benefits are likely to be paid. Higher discount rates are typically used where an agency is prefunding the liability through an irrevocable trust and lower rates used where not (i.e., where benefits are simply paid to retirees as they come due; this is typically referred to as "pay -as- you -go" funding). The 2011 valuation was prepared using a 4.0% discount rate for the unfunded or pay -as- you-go approach and a 7.5% discount rate used to illustrate a prefunding approach. We would like to confirm whether the Agency is comfortable having the valuation results calculated using the same discount rates used in the prior valuation or if the Agency believes a change would be appropriate at this time. If the Agency continues on a pay -as- you -go basis, benefits are effectively being paid (funded) through Agency assets and /or cash flow which would be invested with the restrictions of government funds (e.g., through the federal LGIP or LGIF in California). While those rates are certainly depressed relative to recent years, GASB 45 calculations are based on long term expected returns for those funds. • Does the Agency believe that the 4.0% used previously continues to represent a reasonable long term rate of return for such funds? • If not, what rate does the Agency believe would be more appropriate going forward? If prefunding, the discount rate would reflect the expected long term rate of return for the trust, based on the specific investment policy, assets selected and the overall allocation of assets in different market sectors. Since the Agency is not currently prefunding, we tentatively selected 7.0% as a reasonable proxy for what the Agency might expect to return if it established an OPEB trust (or joined the CaIPERS trust). Recently, CaIPERS revised its strategy and expected returns based on 3 possible allocations (now roughly