fresno county employees’ retirement association actuarial audit actuarial valuation of june 30,...
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Fresno County Employees’ Retirement Association
ACTUARIAL AUDIT
ACTUARIAL VALUATION OF JUNE 30, 2010EXPERIENCE STUDY FOR
JULY 1, 2006 - JUNE 30, 2009
GRAHAM SCHMIDTBOB MCCRORYEFI ACTUARIES
JANUARY 19, 2010
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•Good news•More good news
•Even more good news
Today’s Discussion2
Good News
We agree! Liabilities and costs in actuarial
valuation as of June 30, 2010 agree within reasonable tolerances
Our independent experience study from July 1, 2006 to June 30, 2009 produced comparable results
Experience study recommendations are reasonable and in accordance with generally accepted actuarial principles
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Good News4
($ in Millions) June 30, 2010
ValuationEFI Independent
Review Ratio
Present Value of Benefits $4,961.5 $4,886.9 98.5%
Actuarial Accrued Liabilities 4,092.5 4,041.7 98.8%
Actuarial Value of Assets 2,983.0 2,983.0
100.0%
Unfunded Accrued Liability (UAL) 1,109.5 1,058.7 95.4%
UAL Amortization 99.7 95.2 95.5%
Normal Cost 80.3 77.9 97.0%
Total 180.0 173.1 96.2%
More Good News
Graham had a baby!
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Even More Good News
We found some things to quibble about Mortality rates Rate of return Cost of living adjustments Productivity pay increases
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Mortality Rates
Life expectancy after retirement may be underestimated in recommended mortality rates; therefore, liabilities may be understated A number of retired members were incorrectly
treated as deaths Members with higher benefits tend to live
longer; this is not considered in setting rates Fixing these issues resulted in an 11% margin
decreasing to -3% No allowance for future mortality
improvements Even current mortality rates are
overestimated Not a huge issue, but it is worth addressing
Assumptions for retirees should be carefully considered before changes in GASB rules
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Rate of Return
Assumed rate of return of 7.75% is reasonable, but may have no margin Gathered assumptions from Wurts –
returns, standard deviations by class, correlation matrix
Simulated your investment allocation – 10,000 trials of a 10-year period
Average compound return: 7.66% after expenses
Probability of making 7.75%: 49.3% This calculation is illustrative, not
definitive Return assumptions are declining in
general
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Rate of Return9
Cost of Living Adjustments
Our analysis indicates that the COLAs are likely to average below 3% Current inflation assumption is 3.5% COLA is capped at 3%; any shortfall
relative to inflation is banked In a low inflation environment, new
retirees will not build up a bank balance to offset later inflation
As a result, average COLA will be somewhat less than the cap
Based on typical retiree mix and banking procedures at other ‘37 Act counties, we estimate 2.7% is a reasonable COLA estimate
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Cost of Living Adjustments11
Productivity Increases
We are skeptical of productivity increases in wages, at least for the next 10 years Current assumption is wage
increases – not due to merit/longevity – will average 4% per year, 0.5% higher than inflation
We doubt even inflationary increases for the foreseeable future
We also see wage decreases and reductions in force happening now
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Summary
We confirm Segal valuation liabilities and costs
We confirm Segal experience study recommendations
We have listed areas for further consideration Mortality rates Assumed investment return Assumed cost of living increases Assumed productivity pay increases
Thank you for this opportunity!
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• Graham Schmidt(415) 439-5313
gschmidt@efi-actuaries.com
• Bob McCrory(206) 328-8628
bobmccrory@efi-actuaries.com
Contact Information14
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