2016 LEOFF 1 Medical Benefits Actuarial Valuation Report

64 Pages·2017·8.7 MB·English

W s
ashington tate
2016 ACTUARIAL VALUATION OF
LEOFF 1 MEDICAL BENEFITS
JULY 2017

MAILING ADDRESS PHONE
Office of the State Actuary Reception: 360.786.6140
PO Box 40914 TDD: 711
Olympia, Washington 98504-0914 Fax: [phone]
PHYSICAL ADDRESS ELECTRONIC CONTACT
2100 Evergreen Park Dr. SW [email protected]
Suite 150 leg.wa.gov/osa
REPORT PREPARATION
Matthew M. Smith, FCA, EA, MAAA Luke Masselink, ASA, EA, MAAA
State Actuary Corban Nemeth
Darren Painter
Sarah Baker
Stephanie Roman, MA, JD
Kelly Burkhart
Frank Serra
Mitch DeCamp
Christi Steele
Graham Dyer
Kyle Stineman, ASA
Aaron Gutierrez, MPA, JD
Keri Wallis
Beth Halverson
Lisa Won, ASA, FCA, MAAA
Michael Harbour, ASA, MAAA
Lisa Hawbaker
ADDITIONAL ASSISTANCE
Department of Retirement Systems
Legislative Support Services
Office of Financial Management
State Auditor’s Office
To obtain a copy of this report in alternative format call 360.786.6140 or for TDD 711
2016 Actuarial Valuation of LEOFF 1 Medical Benefits iii

TABLE OF COnTEnTs
I N T R O DUCTION LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
KEY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Key Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Comments on 2016 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
I . BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
OPEB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Necessary Medical Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Disability Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
GASB Statements No . 43 and 45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
GASB Statements No . 74 and 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Actuarial Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Funding Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
II . ACTUARIAL EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Present Value of Future Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
GASB 45 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARC, Annual OPEB Cost, and NOO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Amortization Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Funded Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Covered Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Unfunded Liability as a Percentage of Covered Payroll . . . . . . . . . . . . . . . . 22
Percentage of ARC Contributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Gain/(Loss) Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
III . SENSITIVITY ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
IV . PARTICIPANT DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Summary of Plan Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Summary of Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
V . APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Actuarial Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Economic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Demographic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Summary of Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
VI . GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
VII . NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2016 Actuarial Valuation of LEOFF 1 Medical Benefits v

i L
ntroduction etter

Office of the State Actuary
“Supporting financial security for generations.”
Letter of Introduction
Actuarial Valuation of
LEOFF 1 Medical Benefits
July 2017
As directed by the Legislature, the Office of the State Actuary completed an actuarial valuation
of the post-retirement medical and long-term care benefits provided by local government
employers to members of the Law Enforcement Officers’ and Fire Fighters’ Retirement System
Plan 1 (LEOFF 1). We prepared this report in accordance with the reporting requirements
of the Governmental Accounting Standards Board (GASB) Statement No. 45. Please see the
Background section for more information.
This report shows the value of the statewide liability, as of June 30, 2016, for the retiree medical
benefits provided by LEOFF 1 employers. The responsibility to fund this liability belongs to
the employers of LEOFF 1 members, not the State of Washington. The report shows the total
liabilities and the sum of the individual Annual Required Contributions (ARC) for all LEOFF 1
members eligible for medical benefits. The total ARC for all plan members is the annual amount
required under the actuarial cost method to fully fund the liability. It is made up of the normal
cost plus the amortization of the unfunded past liability. Individual employers are not required
to pre-fund their portion of the total statewide liability.
The report is organized into the following sections:
❖ Background.
❖ Actuarial Exhibits.
❖ Sensitivity Analysis.
❖ Participant Data.
❖ Appendices.
The Background section discusses the nature of Other Post-Employment Benefits (OPEB)
liabilities, GASB financial reporting requirements and upcoming changes, and how actuaries
calculate the liabilities. The Actuarial Exhibits section provides the results of this valuation and
the necessary exhibits to satisfy the requirements of GASB 45. The Sensitivity Analysis section
provides further information about how the results change when we use different assumptions
in our calculations. The Participant Data section provides summarized information about the
retired members currently receiving medical benefits and the active members who will receive
medical benefits in the future. The Appendices provide a summary of the principal actuarial
assumptions and methods, a summary of the major plan provisions, and a glossary of actuarial
terms used throughout this report.
PO Box 40914 | Olympia, Washington 98504-0914 | [email protected] | leg.wa.gov/osa
Phone: [phone] | Fax: [phone] | TDD: 711
2016 Actuarial Valuation of LEOFF 1 Medical Benefits 1
Letter of Introduction
Office of the State Actuary
Page 2 of 2
“Supporting financial security for generations.”
Employers should not use this report to satisfy their individual employer reporting requirements
under GASB 45. The Office of the State Actuary created an online tool to help small employers
calculate their individual reporting requirements. This online tool is meant to perform the
alternative measurement method mentioned in GASB 45 and can be used by employers with fewer
than one hundred total plan members. The online tool is available on our website (listed below).
We encourage you to submit any questions you might have concerning this report to our regular
e-mail address: [email protected]. We invite you to visit our web site (leg.wa.gov/osa) for
more information regarding the actuarial funding of the Washington State retirement systems.
Luke Masselink, ASA, EA, MAAA Michael T. Harbour, ASA, MAAA
Senior Actuary Senior Actuarial Analyst
Office of the State Actuary July 2017
2 Office of the state Actuary – July 2017
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