Fort Walton Beach Council agenda — 06-24-08 regular agenda — reading text

exposures) and the ages for those who retired under normal retirement, the actuary is recommending that the current rates for early retirement be doubled and the assumed age at which 100% of the eligible members will retire be changed. The impact of this change would be an annual cost savings to the City of $65K. Staff has forwarded the Independent Peer Review & Actuarial Experience Study prepared by Foster & Foster to the Plan' s current actuary, Michael Tierney, with Actuarial Concepts. When a response has been received, staff will provide this information to the Mayor and City Council. Respectfully Submitted, 1- Brandy Wunker Interim Finance Director s Concur: Do not concur: Jove 9hanahan City Manager Page 2 Foster& Foster. Tc. Actuarial Consultants for Public Pension Plans May 14, 2008 Ms. Brandy Wunker Interim Finance Director City of Fort Walton Beach 107 Miracle Strip Parkway SW Fort Walton Beach, Florida 32549 -4009 Re: City of Fort Walton Beach General Employees' Retirement Fund Dear Brandy: Enclosed you will find copies of the independent peer review and experience study that we have performed on behalf of the above referenced plan. I look forward to meeting with the City in order to discuss the Report and answer any pending questions concerning its contents. Respectfully submitted, FOSTER & FOSTER, INC. f r` i r I M Bradley R. Heinrichs, FSA, EA, MAAA 6290 Corporate Court C -201 Fort Myers, FL 33919 • (239) 433 -5500 - Fax ( 239) 481 -0634 - www.foster-foster. com CITY OF FORT WALTON BEACH GENERAL EMPLOYEES' RETIREMENT FUND INDEPENDENT PEER REVIEW & ACTUARIAL EXPERIENCE STUDY May 14, 2008  TABLE OF CONTENTS Section Title Page Introduction 1 II Executive Summary III Peer Review 2 a. Analyze Data Benefit Calculations Analyze the Liabilities /Cost Calculations 3 IV Experience Analysis a. Investment Return Assumption Salary Scale Assumption Turnover Assumption 6 b. Retirement Rates Mortality Rates Disability Rates 7 Actuarial Cost Method c. Funding Requirements for Assumption Changes 9 V Exhibits and Charts a. Exhibit A Salary Increases 9 b. Exhibit B Investment Return 10 c. Exhibit C Turnover Experience Study 11  2 Executive Summary Foster & Foster, Inc. was retained by the Fort Walton Beach General Employees' Pension Trust Fund to review the October 1, 2006 Actuarial Valuation of the Pension Plan. This report sets forth our findings and recommendations. Our analysis is based upon a review of the plan documents, data provided to the Plan actuary, several benefit calculations performed by the Plan actuary, as well as a review of the last five actuarial valuations. In general, we found that the data collected for the valuation was complete, the individual benefit calculations were performed appropriately, and that the funding requirements have been developed according the Actuarial Standards of Practice. We do feel, however, that some of the actuarial assumptions used by the Plan actuary could be adjusted to create more stable, predictable costs moving forward. Specifically, we recommend that the Board ask its actuary to consider revising the assumptions used for turnover, pensionable pay increases, and retirement to be more in line with prior experience. We estimate that the proposed changes will lead to a cost savings to the City of over $ 200, 000 per year. We recognize that the actuarial assumptions used by the Plan must represent the City' s best estimate of anticipated experience. While we certainly cannot guarantee that the current and future plan members will behave similar to prior participants, without any additional input from the City or its consultants, we have made the recommendations described in the balance of this report. Hopefully this report will serve as a good basis for discussion between the City and the Plan actuary. I look forward to discussing this report in further detail at the upcoming Council meeting. Regards, r Bradley R. Heinrichs, FSA, EA, MAAA Foster & Foster, Inc.  Peer Review Analyze Data We received data provided by the City of Fort Walton Beach for the October 1, 2003 through October 1, 2007 actuarial valuations. We also received the benefit calculations for several recent retirees. The data provided by the City was consistent with the data described by the Plan actuary in each valuation report. Benefit Calculations The benefit calculations analyzed fairly represent the provisions of the plan as calculated by the Plan' s actuary. Additionally, all of the optional forms available in the program are listed and calculated correctly by the Plan' s actuary. Analyze the Liability /Cost Calculations The Present Value of Future Benefits ( PVFB) is the value of the benefits, discounted with interest, that are expected to be earned in the future and paid in the future. Included in this calculation are projections of service, pay, termination, death, and disability. As of October 1, 2006, the Plan' s actuary calculated the PVFB to be $ 43, 021, 088. Using the same data and same assumptions as the Plan' s actuary, we calculated the PVFB to be $ 44, 080, 465. Our calculations exceed the Plan' s actuary' s calculations by 2. 5 %. For purposes of matching another actuary' s numbers, the industry standard for tolerance is 5. 0 %, meaning that separate actuaries using identical assumptions could produce numbers as high as 5. 0% apart. These differences are oftentimes associated with the accumulation of minor discrepancies in the actuarial software used to produce the liabilities. For example, the point during the year when a member terminates /dies /retires can have a measurable difference in the value of the liability, and different valuation systems determine these decrements at different points during the year, thereby producing slightly different results. In summary, however, we were pleased to match the Plan actuary' s PVFB within 2. 5 %. Under the Entry Age Normal Cost Method ( the method used by the Plan' s actuary to develop funding requirements), the actuary determines the percent of pay ( called the Normal Cost Percentage) that would need to be contributed over a participant' s career to accumulate an amount sufficient to pay the benefits guaranteed by the Plan. The Actuarial Accrued Liability (AAL) is the amount under the current assumptions that would have accumulated in the trust if that percentage of pay had been contributed since the employee was hired.