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HomeMy WebLinkAboutMilliman Actuarial Study 2010ACTUARIAL VALUATION of Firefighters' Pension Fund City of Pasco September 30, 2010 Prepared by Daniel R. Wade, FSA, EA, MAAA Fellow, Society of Actuaries Member, American Academy of Actuaries and Franklin N. Thoen, FSA, EA, MAAA Fellow, Society of Actuaries Member, American Academy of Actuaries ■ Milliman Fifth Avenue Suit Suite 3800 Seattle, WA 98101-2605 USA Tel +1206 624 7940 Fax +1 206 623 3485 milliman.com March 28, 2011 Ms. Dunyele Mason Finance Manager City of Pasco P.O. Box 293 Pasco, WA 99301 Re: 2010 Valuation Report Dear Dunyele: As requested, we performed an Actuarial Valuation of the City of Pasco Firefighters' Pension Fund as of September 30, 2010. The major findings of the valuation are contained in this report. This report reflects the benefit provisions in effect as of the valuation date. In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the City. This information includes, but is not limited to, statutory provisions, employee data, and financial information. In our examination of these data, we have found them to be reasonably consistent and comparable with data used for other purposes. Since the valuation results are dependent on the integrity of the data supplied, the results can be expected to differ if the underlying data is incomplete or missing. It should be noted that if any data or other information is inaccurate or incomplete, our calculations may need to be revised. All costs, liabilities, rates of interest, and other factors for the Fund have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the Fund and reasonable expectations); and which, in combination, offer our best estimate of anticipated experience affecting the Fund. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements; and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of future measurements. The Board has the final decision regarding the appropriateness of the assumptions. Actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the Fund. Actuarial computations presented in this report under GASB Statements No. 25, 27, and 50 are for purposes of fulfilling financial accounting requirements. The computations prepared for these two purposes may differ as disclosed in our report. The calculations in the enclosed report have been made on a basis consistent with This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc - 1 Offices in Principal Cities Worldwide 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Milliman City of Pasco March 28, 2011 Page 2 our understanding of the Fund's funding requirements and goals and GASB Statements No. 25, 27, and 50. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. Milliman's work is prepared solely for the internal business use of the City of Pasco. To the extent that Milliman's work is not subject to disclosure under applicable public records laws, Milliman's work may not be provided to third parties without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work product. Milliman's consent to release its work product to any third party may be conditioned on the third party signing a Release, subject to the following exception(s): (a) The City may provide a copy of Milliman's work, in its entirety to the Fund's professional service advisors who are subject to a duty of confidentiality and who agree to not use Milliman's work for any purpose other than to benefit the Fund. (b) The City may provide a copy of Milliman's work, in its entirety, to other governmental entities, as required by law. No third party recipient of Milliman's work product should rely upon Milliman's work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. The consultants who worked on this assignment are pension actuaries. Milliman's advice is not intended to be a substitute for qualified legal or accounting counsel. On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices. We are members of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. We would like to express our appreciation to staff members of the City of Pasco, who gave substantial assistance in supplying the data on which this report is based. We respectfully submit the following report, and we look forward to discussing it with you. Sincerely, D,�Q Wma-e--, Daniel R. Wade, FSA, EA, MAAA Consulting Actuary Joint Board # 08-06417 DRW/FNT/nlo Franklin N. Thoen, FSA, EA, MAAA Consulting Actuary Joint Board # 08-04416 This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc - 2 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo SUMMARY SECTION 1 SECTION 2 TABLE 1 TABLE 2 SECTION 3 TABLE 3 TABLE 4 TABLE 5 TABLE 6 TABLE 7 Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 Table of Contents Page Scope of the Report and Findings.................................................................1 Conclusions and Recommendations.......................................................... Cost of Pension Benefits.............................................................................. Actuarial Present Value of All Future Pension Benefits Not Provided byLEOFF System........................................................................................... Derivation of Contributions Required for Pension Benefits ............................. Actuarial Information for Accounting Purposes ........................................ GASB Statement No. 27 Annual Pension Cost and Net Pension Obligation.. GASB Statements No. 25 and No. 27 Schedule of Funding Progress............ GASB Statement No. 25 Schedule of Employer Contributions ....................... GASB Statement No. 27 Three -Year Trend Information ................................. GASB Statement No. 27 Annual Development of Pension Cost ..................... .5 .7 11 12 13 15 16 17 18 19 SECTION 4 Supplemental Information............................................................................. 21 TABLE 8 Projection of Future Excess Pension Benefits..................................................22 APPENDIX A Actuarial Procedures and Assumptions......................................................23 TABLE A-1 Summary of Valuation Assumptions.................................................................26 TABLE A-2 Service Retirement Annual Rates....................................................................27 TABLE A-3 Disability Annual Rates....................................................................................28 TABLE A-4 Mortality Annual Rates.................................................................................... 29 APPENDIX B Provisions of Governing Law........................................................................31 APPENDIX C Valuation Data.................................................................................................37 TABLE C-1 Firefighters Retired for Service......................................................................... 38 TABLE C-2 Firefighters Disabled in Line of Duty.................................................................38 TABLE C-3 Firefighters Disabled Not in Line of Duty..........................................................39 TABLE C-4 Survivors of Firefighters....................................................................................39 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 SUMMARY Scope of the Report This report presents the results of an actuarial valuation of the City's Firefighters' Pension Fund (FPF). When valuing the pension fund liabilities, particular attention is given to the cost of providing the "excess benefit", a benefit under FPF available to active members as of March 1, 1970. On that date, the Washington Law Enforcement Officers' and Firefighters' System (LEOFF) was established. Under the terms of governing law, active members of the City's FPF on that date are entitled to payment from the FPF of the excess of benefits calculated under the FPF law over those calculated under the LEOFF law. The City's FPF also pays the entire pensions of those members retired prior to March 1, 1970 and their survivors. The employer costs given in the report are those that are the responsibility of the City. They exclude pension costs payable under the LEOFF system. In addition to the summary information presented in this section, you will find the next section of the report gives the conclusions and recommendations resulting from the valuation. Section 2 gives a brief description of the implications of the method employed in carrying out the valuation. It also contains a presentation of the computations discussed in Section 1. Section 3 gives the disclosure required by the Governmental Accounting Standards Board (GASB). Section 4 shows the projected cash payments the City will be required to pay under the pension obligations of the FPF. There are three appendices attached to the report. The actuarial assumptions used in the valuation are summarized in Appendix A. Appendix B gives a summary of the benefit provisions of both FPF and LEOFF, as interpreted for the purposes of this study. Appendix C contains tables showing the distribution of the retirees with their monthly pension benefits by age. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 1 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 Findings The following table presents an analysis of the actuarial present value of future pension benefits to be paid by the City's FPF. The entire pension benefit of members retiring before the establishment of the LEOFF System is paid by the City. The City's actuarial accrued liability for members retiring after establishment of LEOFF is only for excess pension benefits, which can be substantial. Active Members Hired Prior to March 1, 1970: Retirees and survivors: Retirements prior to March 1, 1970 Retirements since March 1, 1970 Total Present Value of Future Benefits $ 0 $ 158,000 1.441.000 $ 1.599.000 $ 1,599,000 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo 2 Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 Projection of Future Excess Pension The following table illustrates the projected excess annual pension payments for currently active and retired members eligible for retirement benefits under FPF. The table is based on the actuarial assumptions stated in Appendix A. The page following the chart graphically illustrates the projected cash flow payments. Year Ending September 30 Tota I Estimated Payouts 2011 $ 99,000 2012 101,000 2013 103,000 2014 104,000 2015 105,000 2016 106,000 2017 107,000 2018 107,000 2019 107,000 2020 107,000 2021 106,000 2022 105,000 2023 103,000 2024 101,000 2025 98,000 2026 95,000 2027 91,000 2028 86,000 2029 81,000 2030 75,000 2031 69,000 2032 63,000 2033 57,000 2034 51,000 2035 45,000 2036 40,000 2037 35,000 2038 31,000 2039 27,000 2040 23,000 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo 3 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 Expected Future Benefit Payments 2010 2020 2030 2040 2050 2060 ■ Pension ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 4 Mi I I i man Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 SECTION 1 Conclusions and Recommendations The City's obligations under the FPF are limited to the benefits provided to firefighters retired prior to March 1, 1970, plus payments of excess retirement benefits to active members as of that date. To meet these obligations, the City may contribute annually to the Fund the amount raised by levying all or part of a tax of up to $0.45 (only $0.225 of which can be in excess of the property tax limit pursuant to RCW 84.52.043) per $1,000 of true and fair market value, the maximum provided by law for maintaining the Fund. Contributions also include donations and income from the state fire insurance premium collection. Per the instruction of the City, we have allocated assets to the Firefighters' Pension Fund in the amount equal to the measured liabilities as of September 30, 2010. On the basis of the actuarial assumptions used in this valuation, we estimate that the current assets of the Fund, along with future revenues from state fire insurance taxes (assumed to be paid for ten years from the valuation date) and investment earnings, will be sufficient to pay all future FPF pension benefits. Accordingly, we recommend that the City make no contributions to the Fund until the next actuarial valuation is performed. As of September 30, 2010, the actuarial present value of future excess pension benefits to be provided by the City is $1,599,000. As of September 30, 2005 (the date of the last valuation), the present value of excess pension benefits was determined to be $1.591 million. The expected value as of September 30, 2010 based upon our 2005 valuation was $1.728 million. The actual present value of $1.599 million was 7% lower than expected for reasons summarized in the following chart: Since the City's last valuation as of September 30, 2005, the liability has increase by less than was expected. There were many factors that went into this. The spread between the CPI assumption and the wage increase assumption declined from 2% to 1 %. Because the FPF benefits tend to be based upon increases in wages, while the LEOFF benefits are based upon increases in the CPI, lowering this spread decreases projected benefit amounts. This assumption change was partially offset by the decrease in the investment return ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 5 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Liability Increase (Decrease) as a Reason Percentage Demographic experience 5% Changes in benefit amounts compared to expectations (8%) Changes in the demographic assumptions 3% Changes in economic assumptions and other 7% Total (7%) Since the City's last valuation as of September 30, 2005, the liability has increase by less than was expected. There were many factors that went into this. The spread between the CPI assumption and the wage increase assumption declined from 2% to 1 %. Because the FPF benefits tend to be based upon increases in wages, while the LEOFF benefits are based upon increases in the CPI, lowering this spread decreases projected benefit amounts. This assumption change was partially offset by the decrease in the investment return ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 5 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo assumption. When future benefits are discounted at a lower rate, the liabilities increase. In total, the economic assumption changes resulted in a 7% decrease in liability. In addition to the change in economic assumptions, benefit amounts increased by less than expected over the five years between valuations. This was largely the result of a change in the law for LEOFF. LEOFF benefits are no longer limited to 60% of final salary for new pensioners. This had an impact on the expected benefit payments for the member who retired after the change in the law. Partially offsetting the decreases for changes in economic assumptions and benefit levels was an increase due to the fact that the population experienced lower mortality than expected. In addition, a change was made in the mortality table used to predict future mortality experience. The new table results in longer life expectancies. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 6 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 SECTION 2 Cost of Pension Benefits Income from the FPF comes from the following sources, as described in RCW 41.16.050: 1. Bequests, fees, gifts, emoluments or donations. 2. Forty-five percent of all monies received by the State from taxes on fire insurance premiums, prior to January 1, 2000. Twenty-five percent after January 1, 2000. 3. Taxes paid pursuant to the provisions of RCW 41.16.060 (see below). 4. Interest on the investments of the Fund. 5. Contributions by firefighters as provided herein. The provisions referred to in item (3) require that each municipality levy up to $0.45 (only $0.225 of which can be in excess of the property tax limit pursuant to RCW 84.52.043) per $1,000 of assessed valuation, based on reports by a qualified actuary, to maintain the Fund. At the time that the LEOFF System was installed, the state assumed the major portion of the obligation to provide future retirement benefits for members still in active service at the date of the inception of LEOFF, March 1, 1970. Each of the cities maintaining an FPF retained the responsibility for all benefits payable to members (or to their survivors) who retired prior to that date. In addition, each city retained the responsibility for a portion of the benefits payable to members who were active on that date. These members are entitled to benefits under either the FPF formula or the LEOFF formula, whichever is greater. If the FPF benefit is greater, the City's FPF must meet the cost of the excess of the FPF benefit over the LEOFF benefit. Upon the establishment of LEOFF, the total pension liability of each FPF was expected to decrease rapidly from year to year because of the closed, diminishing nature of the group of retirees and survivors. However, the excess pension benefits paid by each city's FPF have generally been much larger than anticipated. This is largely due to the way postretirement adjustments to benefits are calculated. For those retired after 1970, the City must pay the excess of the FPF benefit over the LEOFF benefit. The LEOFF benefits increase with the Consumer Price Index (CPI) for Seattle, while most of the FPF benefits increase with wages of the current active firefighters in the rank the members held at retirement. For this reason, the benefits are highly sensitive to the spread between wage increases and CPI increases. Wages have typically grown at a faster rate than CPI and are expected to continue to do so in the future. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 7 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Small changes in the assumptions for wage increases or CPI have a magnified impact on the liabilities calculated. To see why this magnification occurs, consider the following example. Suppose that a person has an FPF benefit of $4,000 per month and a LEOFF benefit of $3,500 per month. The city -paid benefit is $500 per month. If wages increase at 3.5%, while CPI increases at 2.5%, the benefit increases will look like the following: Current Year Increase Following Year FPF $ 4,000.00 3.5% $ 4,140.00 LEOFF 3,500.00 2.5% 3,587.50 City -Paid Benefit $ 500.00 10.5% $ 552.50 As you can see, the city -paid benefit increased 10.5% despite the fact that the total benefit paid to the member increased by only 3.5%. Consider the same example, but with a 4.0% increase to wages. Current Year Increase Following Year FPF $ 4,000.00 4.0% $ 4,160.00 LEOFF 3,500.00 2.5% 3,587.50 City -Paid Benefit $ 500.00 14.5% $ 572.50 In the second example, the wages and total benefit increased by 0.5% more (4.0% - 3.5%) than in the first example. However, the city -paid portion of the benefit increased by 4.0% more (14.5% - 10.5%) than in the first example. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo T Under LEOFF, the benefit is adjusted after retirement in proportion to the change in the Consumer Price Index (CPI). Under FPF, most adjustments are based on the change in salary for the active firefighters in the rank the members held at retirement. Wages have nearly always increased more rapidly than prices. The pattern is illustrated by the following table: Geometric Average Increase in National Average CPI for Previous Period of Years Period Endinq 10 year 20 years 50 years 83 years 2009 2.5% 2.7% 4.1% 3.1% 1999 2.9% 4.0% 4.0% 0.1% 1989 5.1% 6.2% 4.5% 1.8% 1979 7.4% 4.9% 3.0% 1959 1969 2.5% 2.4% 1949 3.2% 1959 2.2% 3.8% 1949 5.4% 1.6% Geometric Average Increase in National Average Wages for Previous Period of Years Period Ending 10 year 20 years 50 years 83 years 2009 3.3% 3.8% 4.9% 4.5% 1999 4.2% 5.0% 5.2% 1989 5.8% 6.3% 6.1% 1979 6.9% 5.6% 4.8% 1969 4.3% 4.6% 1959 4.9% 6.7% 1949 8.6% 4.0% Geometric Average Increase in National Average Wages Minus Geometric Average Increase in National Average CPI for Previous Period of Years Period Ending 10 year 20 years 50 years 83 years 2009 0.8% 1.1% 0.8% 1.4% 1999 1.3% 1.0% 1.2% 1989 0.7% 0.1% 1.6% 1979 -0.5% 0.7% 1.8% 1969 1.8% 2.2% 1959 2.7% 2.9% 1949 3.2% 2.4% The wage information is based on statistics from the Social Security System back to 1951 and the Total Private Nonagricultural Wages prior to 1951. The CPI figures are based on the national Consumer Price Index, U.S. City Average and All Urban Consumers. Over all years considered, wages have increased 1.4% faster than CPI. For the past 20 years, wages have grown at a rate of 1.1 % higher than CPI. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo 0 In addition to historical data, we reviewed current economic forecasts to find an economic forecast with a time frame suited to our purposes. We looked at the expected increase in the CPI used by the Office of the Chief Actuary for the Social Security Administration. In the 2009 Trustees Report, the ultimate projected annual increase in the CPI under the intermediate cost assumptions was 2.8%. The reasonable range was stated as 1.8% to 3.8%. The ultimate projected annual growth rate in the U.S. earnings was 3.9% for the intermediate assumptions, with a range of 3.5% to 4.3%. For this valuation, we assume wages increase 3.5% per year and CPI increases will be 2.5%, reflecting both historical data and economic forecasts. The actuarial assumptions are monitored for reasonableness and periodic changes are made when appropriate. Table 1 presents an analysis of the actuarial present value of future pension benefits to be paid by the FPF. The entire pension benefit of members retiring before the establishment of the LEOFF System is paid by the City. The City's actuarial accrued liability for members retiring after establishment of LEOFF is only for excess pension benefits, which can be substantial. As long as the FPF provides for benefits to covered members, the City will be eligible to receive a share of the State's distribution of the fire insurance premium taxes. Because we expect the total premiums for fire insurance premiums to rise over time, we have used an assumption of 2.5% annual increases. However, due to the facts that the FPFs cover a shrinking population and that the portion of fire insurance premiums allocated to FPFs was decreased significantly in 2000, we do not believe that cities can expect to receive this income forever. We have used an assumption of ten years of continued fire insurance premium tax revenue after the valuation date. Table 2 develops the Fund's actuarial deficiency for pension benefits, which is zero. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 1 0 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 1 Actuarial Present Value of All Future Pension Benefits Not Provided by LEOFF System Active Members Hired Prior to March 1, 1970: Retirees and survivors: Retirements prior to March 1, 1970 Retirements since March 1, 1970 Total Present Value of Future Benefits $ 0 $ 158,000 1.441.000 $ 1.599.000 $ 1,599,000 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 11 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 2 Derivation of Contributions Required for Pension Benefits A. Actuarial present value of all future pension benefits not provided by the LEOFF System (Table 1): For active members For retirees and survivors B. Assets of the Fund: Total Assets C. Present value of future fire insurance premiums to be allocated to the Fund through September 30, 2020*: D. Total Assets [B+C]: E. Actuarial deficiency: Actuarial present value of amount to be funded from City appropriations, beginning in the 2010-2011 Plan Year [A -D, not less than zero]: $ 0 1,599,000 $ 1,599,000 Market Value $ 1,599,000 388,000 1,987,000 $ 0 *Based on an estimate for the 2010 fire insurance premium taxes allocated to the Fund. The fire insurance premium is assumed to be payable to the City for ten years from the valuation date. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 2 Mi I I i mann Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 SECTION 3 Actuarial Information for Accounting Purposes GASB reporting standards are required for defined benefit pension plans reporting and disclosures (Statement No. 25). The City has adopted the reporting standards. The requirements for Statement No. 25 include certain supplementary information to the financial statements. These include: (1) A Schedule of Funding Progress, and (2) A Schedule of Employer Contributions. The Schedule of Funding Progress compares the amount of Unfunded Actuarial Accrued Liability (UAAL) from year to year, and measures the progress of the employer's contributions in reducing this amount. The required Schedule of Employer Contributions compares the employer contributions required based on the actuarial required contribution, or Annual Required Contributions (ARC), with those employer contributions actually made. GASB Statement No. 27 is required for pension accounting by state and local governmental employers. The disclosures include the measurement of an Annual Pension Cost (APC). For the first year, the APC is equal to the employer's ARC, as actuarially determined by the funding methods and assumptions for pension benefits used for GASB purposes. If the City does not make a contribution equal to the ARC, then a Net Pension Obligation (NPO) account is established and the APC would reflect adjustments made to the NPO account, as well as the ARC. As of September 30, 2010, the City has an NPO of zero. This is because this is the first time a valuation compliant with GASB 25 and 27 has been copmpleted. The NPO was set to zero and will become positive or negative in the future depending on payments to and from the Fund. For GASB purposes, the ARC must be calculated based on certain parameters required for disclosure purposes. We have used the Entry Age Normal Cost Method, one of the acceptable actuarial funding methods under these parameters. Under this method the projected benefits are allocated on a level basis as a percentage of salary over the earnings of each individual between entry age and assumed exit age. The amount allocated to each year is called the Normal Cost and the portion of the Actuarial Present Value of all benefits not provided for by future Normal Cost payments is called the Actuarial Accrued Liability. Since all members have already retired, the amount of the Normal Cost is zero. The UAAL is the Actuarial Accrued Liability minus the actuarial value of the Fund's assets. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 13 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo For GASB reporting purposes, Table 3 presents the annual Normal Cost and the ARC as of the valuation date, assuming the UAAL is amortized as a level dollar amount over a closed 20 -year period beginning September 30, 2010. As of September 30, 2010, the UAAL is amortized over 20 years. The estimated NPO at the end of the period September 30, 2011 is based on an assumed employer contribution as described in the footnote. Actual employer contributions may be different and the determination of the NPO at the end of the year should be redetermined based on the actual amounts received by the Fund. The UAAL and the percentage funded by assets are shown in Table 4, the Schedule of Funding Progress. Amounts shown in Table 5, the Schedule of Employer Contributions and in Table 6, the Three -Year Trend information should also be updated to reflect actual employer contributions, including amounts received from the fire insurance premiums. After the first year, the redetermination of the NPO for future years, as shown in Table 7, Annual Development of Pension Cost will require the use of an amortization factor. We can assist the City in this determination at the end of the year. Annual redeterminations of the NPO are required by GASB No. 27, but only biennial actuarial valuations are needed to determine the ARC. GASB Statement No 50 is effective for periods beginning after June 15, 2007. The Statement amends Statements 25 and 27 to require pension plans to present the following information. Notes to financial statements should disclose the funded status of the plan as of the most recent valuation date. Pension plans should also disclose actuarial methods and significant assumptions used in the most recent actuarial valuation in the notes to the financial statements instead of the notes to RSI. Please see Appendix A for a summary of the actuarial methods and assumptions used in this valuation. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 14 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 3 GASB Statement No. 27 Annual Pension Cost and Net Pension Obligation Fiscal Year Ending 8. Employer Contributions** 9. Change in NPO [(7)-(8)] 10. NPO at BOY [(11) prior year] 11. NPO at EOY [(9)+(10)] * i'is the assumed interest rate that year. 4.0% in 2010-2011. ** Employer contributions for pensions are total contributions to the Fund net of disbursements from the Fund for medical expenses under RCW 41.26.150 and administrative expenses. "** Assumed amounts will be replaced at year end with actual amounts. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 5 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo 09/30/2011 Annual required contribution (ARC) 1. Annual Normal Cost (BOY) $ 0 2. Amortization of UAAL (BOY) 0 3. Interest to EOY [(1)+(2)]x(i )* 0 4. ARC at EOY [(1)+(2)+(3)] $ 0 5. Interest on NPO $ 0 6. Adjustment to ARC 0 7. Annual pension cost (APC) [(4)+(5)-(6)] $ 0 8. Employer Contributions** 9. Change in NPO [(7)-(8)] 10. NPO at BOY [(11) prior year] 11. NPO at EOY [(9)+(10)] * i'is the assumed interest rate that year. 4.0% in 2010-2011. ** Employer contributions for pensions are total contributions to the Fund net of disbursements from the Fund for medical expenses under RCW 41.26.150 and administrative expenses. "** Assumed amounts will be replaced at year end with actual amounts. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 5 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo O N � C y m o m � 0-9 O. o c o_ O O f' N N � y G CD O 0 �a O M m a,< 0 O 0 C o m n n CD.CD 3 � N � o Q 5 CD m q 0 W CD 0 C 0 (D O 0 O O CD 0 0 a CD a- 0 O m CD rn 69 Efl 69 69 D C 0 M o —h c CL Coco $rQ- �, D a rt � - C 0.) 'i fl1 O (0 N y M TI C 3 Q m Q M O W 4�, Cn O Cfl O co O 69 n O O L O z z Z Q O D D D V/ V! 0 0 CD C CD CD CD CD '0 _0 00 O C c 6 6 CD CD 3 3 O '�� D 3 3 _ y 0- 07 0- 6 O CD N rt W W W W O 3 � 3 N N O O co CD 2) � O cD �6969ffl D n v o a D N C1� U1 CO 00CDC N O CD O N C1 m O Z N n Q) 69 459 69 69 r 0 0 M ao� c CD CL C1 a, 00 Ui to G4 N O O CIO O OD N 69 Efl 69 69 D C 0 M o —h c CL Coco $rQ- �, D a rt � - C 0.) 'i fl1 O (0 N y M TI C 3 Q m Q M O W 4�, Cn O Cfl O co O 69 n O O L O z z Z Q O D D D O C 7 m Q P•' O O y 0) 3 Q U D W r m .p CD = D Cf (D � C 0CD� ,y. i11 CD � C N n �• rt O p C T O C ..,, Q 0 -0 O CD c O C ml O Q r z z z z '�� D DDDD Co D o o °, = O C 7 m Q P•' O O y 0) 3 Q U D W r m .p CD = D Cf (D � C 0CD� ,y. i11 CD � C N n �• rt O p C T O C ..,, Q Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 5 GASB Statement No. 25 Schedule of Employer Contributions Fiscal Year Ending September 30, 2011 Total Employer Contributions* $ 0 ** Annual Required Contribution (ARC) $ 0 Percentage of ARC Contributed * Employer contrib utions for pensions are total contrib utions to the Fund net of disbursements from the Fund for medical expenses under RCW41.26.150 and ** Assumed amounts will be replaced at yearend with actual amounts. N/A % ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 7 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 6 GASB Statement No. 27 Three -Year Trend Information Annual Fiscal Year Ending Pension Cost (APC) September 30, 2011 $ 0 Contribution as a Percentage of APC N/A % * Assumed amounts will be replaced at yearend with actual amounts. Net Pension Obligation (NPO) $ 0 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. $ Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo D W r m n o0 fWn a Q' W y CD Q W O (O O TI [HT1 0 T A co o U U N O v O O W U N 0 �� l CD n ai O `,D o, m D m = m o rl rl o 0 W CD CL Q y v C 49 O O 0 n Z - 07 (D p 7 O 00 ^ N (D CD Q� i m ii m 0 m u Z W N = CD 0 N 4) a D m N0- o o c o c0 W D n C LD. o y 0 o v m S CD F O p EA D S CD 7 b c Ci + A y d w v 0 N O 4) � 3 � m O O O o cr CD * 'o 0 m -4 O O W O CD o 8 o 3 N o Z -p p O 1 i N CDD N O + N n N 3 4! m co m CCD N J� O O O_ O y J cD a D 0 N N N A W co to n O 7 Q fU N N C CD 69 V O l ^ M � O O O_ C O \ O O N O 4) m 7 CL o * � m m � n m D W r m This page intentionally left blank. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 20 Mi I l [ ma n Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 SECTION 4 Supplemental Information Cash -Flow Projections The following table illustrates the projected excess annual pension payments for currently active and retired members eligible for retirement benefits under FPF. The table is based on the actuarial assumptions stated in Appendix A. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 2 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE 8 Projection of Future Excess Pension Benefits Tota I Year Ending Estimated September 30 Payouts 2011 $ 99,000 2012 101,000 2013 103,000 2014 104,000 2015 105,000 2016 106,000 2017 107,000 2018 107,000 2019 107,000 2020 107,000 2021 106,000 2022 105,000 2023 103,000 2024 101,000 2025 98,000 2026 95,000 2027 91,000 2028 86,000 2029 81,000 2030 75,000 2031 69,000 2032 63,000 2033 57,000 2034 51,000 2035 45,000 2036 40,000 2037 35,000 2038 31,000 2039 27,000 2040 23,000 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 22 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 APPENDIX A Actuarial Procedures and Assumptions The actuarial procedures and assumptions used in this valuation are described in this appendix. Note that since all active members have retired, some of these assumptions such as termination rates are not applicable. The actuarial assumptions are intended to estimate the future experience of the members of the City's FPF. The turnover assumptions were based on the 2001-2006 Experience Study for the Law Enforcement Officers' and Firefighter's Retirement System prepared by the Office of the State Actuary. Any variations in future experience from that expected under these assumptions will result in corresponding changes in the estimated costs of the System's benefits. Since the City's last valuation, many assumptions have changed. The investment return assumption (discount rate) has been dropped 2.25%, the CPI assumption has dropped 0.5%, the salary escalation assumptions has dropped 1.5% and the mortality has been updated to match the most recent experience study done by the Office of the State Actuary for LEOFF members. In addition, the City has changed its actuary since its last valuation. Table A-1 gives a brief summary of the assumptions. The rates of mortality, retirement and other terminations of employment are illustrated in Tables A-2 through A-4. Table A-5 provides a summary of actuarial assumptions for use in the notes to the financial statements. Where numerical rates are provided in the tables, these are technically central rates of decrement, referred to in actuarial notation by the general symbol "m." The underlying theory involved is described more fully in Jordan, Life Contingencies, Society of Actuaries (Second Edition, 1967), page 273. Actuarial Cost Method We are using the Entry Age Normal Cost Method. This funding method meets the parameters required for GASB disclosure purposes. Records and Data The data regarding active members, retirees, survivors and the financial information used in this valuation were supplied by the City and are accepted for valuation purposes without audit. Replacement of Terminated Members The City's FPF is a closed group. No new members are permitted. Valuation of Assets (where applicable) All assets are carried on a market value basis. As of September 30, 2010, assets set aside for pension, which had been in excess of liability, were set to match liability as of September 20, 2010 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 23 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix A (continued) GASB No. 27 Amortization Period The UAAL is amortized over a closed 20 -year period as of September 30, 2010. Investment Earnings The future investment earnings of the assets of the City's FPF are assumed to accrue at an annual rate of 4.0%. Future Salaries Salaries are assumed to increase at the rate of 3.5% per annum. This assumption is for future inflation increases only. Since the members have at least 20 years of service, no additional increase is assumed for merit increases. Postretirement Benefit Increases Certain benefits increase at the same rate as the salaries for active members of the same rank the retiree had attained at retirement. These salaries were assumed to increase at the rate of 3.5% per annum and are assumed to increase on January 1 each year. Other benefits increase at the same rate as the CPI. The CPI was assumed to increase at the rate of 2.5% per annum. Service Retirement All members who attain, or who have attained, age 66 in active service are assumed to retire immediately. Other members eligible for service retirement are assumed to retire at the rates shown in Table A-2. Disability The rates of disability used in this valuation are illustrated in Table A-3. Mortality The mortality rates used in this valuation are illustrated in Table A-4. Members Retired from Service The mortality rates are based on the RP -2000 Mortality and Spouses: Table (combined healthy) projected to 2019 using 50% of Projection Scale AA, with ages set back one year for males and forward one year for females. Disabled Members: The mortality rates are based on the RP -2000 Mortality Table (combined healthy) projected to 2019 using 50% of Projection Scale AA, with ages set forward two years. Other Terminations of Employment The rate of assumed future withdrawal from active service for reasons other than death, disability, or retirement is 0% per year for all ages. Vesting Terminating members may forfeit a vested right to a deferred benefit if they withdraw their accumulated contributions. For the purposes of the valuation, it is assumed that no such forfeitures will occur. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 24 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix A (continued) Family Composition All active members are assumed to be married, with no children, when they retire. Marital status of retirees was supplied by the City. Wives are assumed to be three years younger than their husbands. Surviving spouses are assumed not to remarry. Fire Insurance Premiums Future fire insurance premium tax revenues are assumed to increase at the rate of 2.5% per year and are assumed to cease ten years from the valuation date. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 25 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE A-1 Summary of Valuation Assumptions I. Economic assumptions A. Salary increases (inflation only) B. Investment return assumption (discount rate) C. Growth in membership D. Postretirement benefit increases 1. Related to salaries 2. Related to consumer price index II. Noneconomic assumptions A. Service retirement B. Disability C. Mortality 1. Service -retired members and spouses 2. Disabled members D. Other Terminations of Employment 3.5% 4.0% 0.0% 3.5% 2.5% Table A-2 Table A-3 Table A-4 RP -2000 Mortality Table (combined healthy) projected to 2019 using 50% of Projection Scale AA, with ages set back one year for males and set forward one year for females. RP -2000 Mortality Table (combined healthy) projected to 2019 using 50% of Projection Scale AA, with ages set forward two years. 0% per year ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 26 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE A-2 Service Retirement Annual Rates Age Rate 50 7% 51 7 52 7 53 7 54 11 55 12 56 12 57 15 58 16 59 16 60 23 61 23 62 24 63 24 64 25 65 25 * Immediate retirement is assumed for every person who attains age 66. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 27 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE A-3 Disability Annual Rates Age Rate 30 0.8% 35 1.5 40 2.3 45 4.0 50 7.0 55 9.0 60 10.0 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 28 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Age Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE A-4 Mortality Annual Rates Active and Disabled Service -Retired Males Members Females 40 0.095% 0.113% 0.067% 45 0.123 0.153 0.105 50 0.168 0.225 0.158 55 0.267 0.391 0.286 60 0.510 0.752 0.554 65 0.987 1.407 1.045 70 1.716 2.365 1.771 75 2.966 4.105 2.870 80 5.216 7.248 4.751 85 9.335 12.728 8.158 90 16.021 20.852 14.054 95 24.597 29.421 20.151 100 33.021 37.169 24.483 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 29 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo This page intentionally left blank. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 30 Mi I l [ ma n Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 APPENDIX B Provisions of Governing Law All actuarial calculations are based on our understanding of RCW 41.16 and 41.18, the statutes establishing the FPF, and RCW 41.26, the statute establishing the Washington Law Enforcement Officers' and Firefighters' Retirement System (LEOFF). Each firefighter in service on March 1, 1970 receives the greater of the benefit payable under the Washington Law Enforcement Officers' and Firefighters' Retirement System and the benefits available under the provisions of prior law. Where benefits under the old law exceed those under the new for any firefighter, the excess benefits are paid from the FPF of the city employing him on March 1, 1970. The benefit provisions of the FPF are summarized briefly below for reference purposes. This summary does not attempt to cover all of the detailed provisions of the laws. For comparative purposes, the bracketed statements describe the corresponding LEOFF law. Definitions Salary: Basic salary attached to rank of firefighter at time of retirement. (RCW 41.18.010(4)) [Same if he had the rank for at least 12 months; otherwise, the highest 24 -month average from the last 10 years of service. (RCW 41.26.030(13a))] Spouse: Surviving spouse who was married to a disabled firefighter at time of disability or to a retired firefighter for five years prior to retirement. (RCW 41.18.010(5)). [Same, except marriage to retired firefighter for one year prior to retirement qualifies. (RCW 41.26.030(6))] Child: Firefighter's unmarried child under age 18. (RCW 41.18.010(6)) [Firefighter's unmarried child under age 18 or up to age 22 while attending an educational institution accredited or approved by the state of Washington. (RCW 41.26.030(7))] ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 31 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix B (continued) Service Retirement Benefit Member's Benefit: Eligibility Age 50 and 25 years of service. (RCW 41.18.040) [Age 50 and five years of service. (RCW 41.26.090)] Amount of 50% of salary plus an additional 2% for each year of service in excess benefit of 25 years. Maximum benefit of 60% of salary. (RCW 41.18.040) [2% of salary for each year of service if 20 or more years; 1'/2% of salary for each year of service if at least 10 but less than 20 years of service; 1 % of salary for each year of service if at least five but less than 10 years of service. For those retiring prior to July 1, 2006 the maximum initial benefit was 60% of salary. That maximum does not apply for those retiring after July 1, 2006. (RCW 41.26.100)] Survivor's Benefit: Eligibility Spouse or child (RCW 41.18.040). [Same. (RCW 41.26.160)] Amount of Continuation of firefighter's benefit. (RCW 41.18.040) [If spouse — benefit same plus additional 5% of salary per child. If no spouse — 30% of salary for first child, 10% for each additional child. Maximum benefit in either case — 60% of salary. (RCW 41.26.160)] Duty Disability Retirement Benefit Member's Benefit: Eligibility Disabled after six-month waiting period, during which time salary is payable from the Fund. (RCW 41.18.050) [Same, except salary is payable by City during the waiting period. (RCW 41.26.120)] Amount of Determined same as Service Retirement Benefit. (RCW 41.18.060) benefit [50% of salary plus an additional 5% for each child; maximum benefit of 60% of salary, or service retirement benefit, if greater. (RCW 41.26.130(1))] Recovery Restoration to service. (RCW 41.18.090) [Upon recovery before age from disability 50, restoration to service with full credit for service while disabled. Upon recovery after age 50, benefit continues as the greater of service retirement benefit or current benefit. (RCW 41.26.130(3))] Survivor's Benefit: See Survivor's Benefit section under Service Retirement. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 32 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix B (continued) Non -Duty Disability Retirement Benefit Member's Benefit: Eligibility Disabled after 90 -day waiting period, during which time salary is payable from the Fund. (RCW 41.18.080) [Disabled after six-month waiting period, during which time salary is payable by the City. (RCW 41.26.125)] Amount of 50% of salary, or service retirement benefit, if greater. benefit (RCW 41.18.080) [50% of salary plus an additional 5% for each child; maximum benefit of 60% of salary, or service retirement benefit, if greater. (RCW 41.26.130(1))] Recovery See section under Duty Disability Retirement. from disability Limitations No benefits payable if firefighter employed elsewhere when disabled. (RCW 41.18.080) [All benefits are reduced by Workers' Compensation, Social Security, or insurance provided by another employer. Allowance cannot exceed difference between wage from current gainful employment and salary currently attached to rank held at retirement. (RCW 41.26.130(4))] Survivor's Benefit: Eligibility Spouse or child. (RCW 41.18.080) [Same. (RCW 41.26.161)] Amount of Percentage of salary, as follows: benefit 33.3% to widow only 45.8% to widow and one child 47.6% to widow and two children 50.0% to widow and three children 33.3% to children only (RCW 41.18.080) [Determined same as under Service Retirement Survivor's Benefit. (RCW 41.26.161)] Duty Death Benefit Eligibility Spouse or child. (RCW 41.18.100) [Same. (RCW 41.26.160)] Amount of If spouse — 50% of salary plus an additional 5% of salary per child; benefit maximum benefit 60% of salary. If no spouse — 50% of salary to children. (RCW 41.18.100) [If spouse — same. If no spouse — 30% of salary for first child; 10% for each additional child. Maximum benefit in either case of 60% of salary. (RCW 41.26.160)] ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 33 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix B (continued) Non -Duty Death Benefit Provisions same as Survivor's Benefit under Non -Duty Disability Retirement. (RCW 41.18.080) [Provisions same as Survivor's Benefit under Duty Death Retirement. (RCW 41.26.161)] Special Provisions Under disability or death benefits, a surviving spouse may elect a lump -sum payment of $5,000 in lieu of future monthly benefits. (RCW 41.18.080) [If firefighter's contributions are not exhausted by payments to survivors, the balance goes to the firefighter's legal heirs. Applies to service, disability and death benefits. (RCW 41.26.160(3) and 41.26.161(3))] Vesting Eligibility Termination after 20 years of service. (RCW 41.18.130) [Termination after five years of service. (RCW 41.26.090)] Deferred Benefit Commences When firefighter would have had 25 years of service. (RCW 41.18.130) [Age 50. (RCW 41.26.090(2))] Amount of 2% of salary for each year of service. (RCW 41.18.130) [Same, if at benefit least 20 years of service; 1.5% of salary for each year of service if at least 10 but less than 20 years of service; 1 % of salary for each year of service if at least five but less than 10 years of service. (RCW 41.26.090 and RCW 41.26.100)] Death while Payment of firefighter's deferred benefit to his spouse or child. (RCW vested prior to 41.18.130) commencement [a. Firefighter with 20 or more years of service: of benefits If spouse - firefighter's deferred benefit plus an additional 5% of salary per child. If no spouse - 30% of salary for first child, 10% for each additional child. Maximum benefit in either case - 60% of salary. (RCW 41.26.161) b. Firefighter with less than 20 years of service: Payment to spouse or estate of accumulated contributions less any payments made to firefighter. (RCW 41.26.090)] Withdrawal Eligibility Termination with no other benefit. (RCW 41.18.130) [Same. (RCW 41.26.170)] Benefit Return of accumulated contributions less any benefit paid. (RCW 41.18.130) [Same. (RCW 41.26.170)] ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 34 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Appendix B (continued) Postretirement Increase Type 1. Escalation by salary in proportion to current salary of rank from which firefighter retired. (RCW 41.18.040) 2. Increase proportionate to the increase in the Seattle -area CPI, with change computed annually. Regardless of the increase (or decrease) in the CPI, the benefits are increased at least 2% each year. (RCW 41.18.104) [Increase or decrease proportionate to the increase or decrease in the Seattle -area CPI, with change computed annually. No benefit may decrease below original amount. (RCW 41.26.240)] Applicability Escalation Type 1 applies to firefighters who retired from service after 1969, their survivors, and to firefighters who retired for duty disability after 1961. The second type applies to all other types of monthly benefits. (RCW 41.18.104) [All monthly benefits. (RCW 41.26.240)] Minimum Benefit After April 25, 1973, a minimum benefit of $300 per month to all retired firefighters and their survivors. This minimum is increased by the CPI. (RCW 41.18.200) [No provision under RCW 41.26.1 Funeral Benefit $500 to defray funeral expenses. (RCW 41.18.140) [No provision under RCW 41.26.] ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 35 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo This page intentionally left blank. ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 36 Mi I l [ ma n Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 APPENDIX C Valuation Data This valuation is based on the membership of the City's FPF as of September 30, 2010. Tables C-1 through C-4 present the distributions of retirees and surviving spouses of retirees receiving service and disability retirement pensions. Shown in the tables is the number receiving benefits and the monthly benefits received. Active Members Annual Average Annual Number Salaries Salaries 0 $ 0.00 $ 0.00 Retired Members and Survivors Monthly Pensions Number Paid by City Paid by LEOFF 12 $ 8,211.94 $ 34,519.69 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 37 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE C-1 Firefighters Retired for Service Totals 41 $ 2,113.50 $ 7,312.12 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 38 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Monthly Pension Age Number Paid by City Paid by LEOFF 60-64 1 $ 0.00 $ 5,541.40 65-69 0 0.00 0.00 70-74 2 1,104.21 5,776.27 75-79 1 328.32 3,503.25 Totals 4 $ 1,432.53 $ 14,820.92 TABLE C-2 Firefighters Disabled in Line of Duty Monthly Pension Age Number Paid by City Paid by LEOFF 65-69 1 $ 881.97 $ 2,660.66 70-74 2 1,231.53 4,651.46 Totals 41 $ 2,113.50 $ 7,312.12 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 38 Mi I I i main Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo Age 65-69 Totals Age 60-64 65-69 70-74 75-79 80-84 85-89 Totals Actuarial Valuation of Firefighters' Pension Fund City of Pasco September 30, 2010 TABLE C-3 Firefighters Disabled Not in Line of Duty Monthly Pension Number Paid by City Paid by LEOFF 1 $ 0.00 $ 3,617.22 1 $ 0.00 $ 3,617.22 TABLE C-4 Survivors of Firefighters Number N N 4 Monthly Pension Paid by City Paid by LEOFF $ 1,118.82 $ 2,878.45 0.00 0.00 0.00 0.00 0.00 0.00 1,348.35 5,890.98 2,198.74 0.00 $ 4,665.91 $ 8,769.43 ■ This work product was prepared solely for the City of Pasco. It may not be appropriate to use for other purposes. 39 Mi I I i mann Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Fgb0004.doc 35 003 FQB 38 / 35.003.FQB.38.2010 / DRW/FNT/nlo