BICKMORE & ASSOCIATES, INC.-2014

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Actuarial Valuation of Other Post - Employment Benefit Programs as of April 1, 2012 for the City of Sample Citv F. Funding Policy The specific calculation of the ARC and annual OPEB expense for an agency depends on how it elects to fund these benefits. The funding levels are generally categorized as follows: 1. Prefunding — contributing an amount greater than or equal to the ARC each year. Prefunding generally allows the employer to have the liability calculated using a higher discount rate, such as 7.0% used in this valuation, which lowers the liability. In addition, following a prefunding policy does not build up a net OPEB obligation because the contribution equals or exceeds the annual OPEB cost each year. 2. Pay -As- You -Go funding — contributing only the amounts needed to pay retiree benefits in the current year; generally requires a lower discount rate, such as the 4.0% rate used in this valuation. 3. Partial prefunding — contributing more than the current year's retiree payments but less than 100% of the ARC; requires that liabilities be developed using a discount rate that "blends" the relative portions of benefits that are prefunded and those which are not. See Appendix 1 for details on the development of the rate for this valuation. Determination of the ARC The Annual Required Contribution (ARC) consists of two basic components, which have been adjusted with interest to the City's fiscal year end: • The amounts attributed to service performed in the current fiscal year (the normal cost) and • Amortization of the unfunded actuarial accrued liability (UAAL). The ARCs for the fiscal years ending June 30, 2012 and June 30, 2013 are developed in Table 1 B. Decisions Affecting the Amortization Payment The period and method for amortizing the AAL can significantly affect the ARC. GASB 45: Prescribes a maximum amortization period of 30 years and requires no minimum amortization period (except 10 years for certain actuarial gains). Immediate full funding of the liability is also permitted. • Allows amortization payments to be determined (a) as a level percentage of payroll, designed to increase over time as payroll increases, or (b) as a level dollar amount much like a conventional mortgage, so that this component of the ARC does not increase over time. Where a plan is closed and has no ongoing payroll base, a level percent of payroll basis is not permitted. Allows the amortization period to decrease annually by one year (closed basis) or to be maintained at the same number of years (open basis). Funding Policy Illustrated in This Report It is our understanding that the City's OPEB funding policy includes amortization of the unfunded AAL over a closed 30 -year period initially effective April 1, 2009; the remaining period applicable in determining the ARC for the fiscal year ending June 30, 2012 is 27 years. Amortization payments are determined on a level percent of pay basis. Bckmore