12-GASB 75 Report FY 2024.pdf

Actuarial Valuation Report

GASB 75

Fiscal Year Ending September 30, 2024

FEBRUARY 2025

10000 N. Central Expwy, Suite 1200 • Dallas, Texas 75231 • (214) 443-2400 • www.hubinternational.com

Prepared by:

Mark Guajardo, ASA, FCA, MAAA Consulting Actuary and Director of Analytics

(214) 443-2487 Mark.guajardo@hubinternational.com

CONFIDENTIAL – CLIENT USE ONLY

Table of Contents

Table of Contents Executive Summary _______________________________________________________________________ 1

Certification and Reliance __________________________________________________________________ 2

Report Exhibits __________________________________________________________________________ 3

Exhibit 1 ________________________________________________________________________________ 4

Exhibit 2 ________________________________________________________________________________ 5

Exhibit 3 ________________________________________________________________________________ 6

Exhibit 4 ________________________________________________________________________________ 7

Census Data ____________________________________________________________________________ 8

Actuarial Assumptions ____________________________________________________________________ 10

Actuarial Methods _______________________________________________________________________ 15

Plan Provisions _________________________________________________________________________ 16

E x e c u t i v e S u m m a r y

Executive Summary Summary of Changes and Financial Results The information contained in this report is for the sole purpose of complying with the plan sponsor’s accounting requirements promulgated by Governmental Accounting Standards Statement No. 75 (GASB 75).

For the Fiscal Year Ending September 30, 2024, the Annual OPEB Expense is $393,408 (a decrease of 18.6% over last year) and the annual employer benefit payment cost was a credit of $9,642. The Net OPEB Liability as of September 30, 2024, is $4,541,981 assuming a discount rate of 4.06%.

The census data valuation is based upon census as of September 30, 2023. The result of updating the census from September 30, 2021, was a decrease in the Total OPEB Liability (TOL) of $554,732. A new seven (7) year experience change amortization base with a credit of $79,247 per year.

Since the prior valuation, the discount rate has decreased 81 basis points to 4.06% from 4.87%. This change in addition to updating the underlying per capita costs resulted in a $80,532 decrease in the liability creating a new seven (7) year assumption change amortization base with a credit of $11,505 per year.

The discount rate is based upon the yield of a set of 20-year tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher as of September 30, 2024, the measurement date.

C e r t i f i c a t i o n a n d R e l i a n c e

February 19, 2025

Certification and Reliance As requested by The City of Burleson, we have performed an actuarial valuation as of October 1, 2023, under Governmental Accounting Standards Board Statement 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”. The results of our calculations are detailed within the enclosed report. The data, assumptions, methods, and plan provisions upon which our calculations rely upon are also specified and follow the guidance set for by the American Academy of Actuaries and the Actuarial Standards Board to the best of our knowledge.

The actuarial computations included herein are for The City of Burleson, and their auditor, to be used for fulfilling the accounting requirements for GASB 75 only. Actuarial computations for any other purpose may differ significantly from the results included in this report. As with any similar actuarial study, this valuation attempts to estimate the future behavior of plan participants and the associated costs to the Plan Sponsor of providing these OPEB benefits well into the future. The true cost of the employer sponsored retiree welfare plan will not be known until all eligible participants are exhausted and all benefits due are paid.

We have relied upon, without audit, the employee census data and other information as provided by the City. The census data was collected as of October 1, 2023. If actual employee data deviates from the information the study was based upon, the results included in our report could be materially affected.

On the basis of the preceding, I hereby certify that to the best of my knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with the applicable Actuarial Standards of Practice.

Mark Guajardo is an Associate of the Society of Actuaries and a Member of the American Academy of Actuaries. He meets the qualification standards of the American Academy of Actuaries to render the actuarial opinion contained in this valuation report.

Please contact me directly if you have questions about our report or need additional information for reporting purposes.

Mark Guajardo, ASA, MAAA Date Consulting Actuary and Director of Analytics

Report Exhibits

Report Exhibits Exhibit 1 – Changes in Net OPEB Liability

Exhibit 2 – OPEB Expense Service Cost Interest Differences between Expected and Actual Experience Change in Assumptions Contributions – Employee Projected Earnings on OPEB Plan Investments Difference between Projected and Actual Earnings on OPEB Plan Investments OPEB Plan Administrative Expense

Exhibit 3 –Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB Amounts to be Expensed in the Future o Differences between Expected and Actual Experience o Changes of Assumptions

Exhibit 4 – Schedule of Changes in Net OPEB Liability Total OPEB Liability

Page 4 Exhibit 1

Exhibit 1 Changes in Net OPEB Liability

The City’s defined benefit plan provides Postemployment Benefits Other Than Pensions (OPEB) for all permanent full-time general and public safety employees. The net OPEB liability was measured as of September 30, 2024, and the total OPEB liability used to calculate the net OPEB liability was determined using a valuation date of October 1, 2023. The following table show the roll forward of the Net OPEB liability for the current fiscal year.

Assumption Changes: Since the prior valuation, the discount rate has decreased to 4.06% from 4.87% Per capita claims costs were also updated

The two tables below show the Net OPEB liability along with the liability if a 100-basis point change was made to the discount rate (below left table) and the healthcare trend rates (below right table) as of September 30, 2024. The purpose of showing the liability sensitivity information below is to help the statement user understand the volatility in the plan liability resulting from changes in these two key assumptions

Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability

(a) (b) (a) - (b)

Balance at Beginning of Fiscal Year 4,763,828$ 0$ 4,763,828$

Changes for the Year:

Service Cost 189,337 189,337$ Interest 214,438 214,438 Difference in expected and actual experience (554,732) (554,732) Change in assumptions (80,532) (80,532) Contributions - employer (9,642) 9,642 Contributions - other 0 Net investment income 0 Benefit payments 9,642 9,642 0

Adminisrative expense 0 Net changes (221,847) 0 (221,847)

Balance at End of Fiscal Year 4,541,981$ 0$ 4,541,981$

Increase (Decrease)

1% Decrease Discount Rate 1% Increase 3.06% 4.06% 5.06%

$4,942,834 $4,541,981 $4,177,646

Discount Rate Sensitivity 1% Decrease Trend Rate 1% Increase for all Years for all Years for all Years $4,036,419 $4,541,981 $5,141,993

Healthcare Cost Trend Rate

Page 5 Exhibit 2

Exhibit 2 OPEB Expense

Shown below is the component detail of the City’s annual OPEB expense for the current and prior fiscal year:

General Plan Information

FYE 2024 FYE 2023

Service Cost 189,337$ 182,225$ Interest 214,438 220,783 Difference betweeen expected and actual experience (93,309) (14,062) Change in assumptions 82,942 94,447 Employee contributions 0 0 Projected earnings on OPEB plan investments 0 0 Difference between projected and actual earnings on OPEB plan investments 0 0 OPEB plan adminisrative expense 0 0

Collective OPEB Expense 393,408$ 483,393$

10/1/2023

Inactive employees or beneficiaries currently receiving benefit payments 9 Inactive employees entitled to but not yet receiving benefit payments 0 Active employees 399

Net OPEB Liability

Actuarial Assumptions. The total OPEB liabilty in the September 30, 2024 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified:

Inflation 2.50% per annum Salary increases 2.50% average which includes inflation Discount rate 4.06% per annum, which includes inflation Healthcare cost trend rates 6.21% initial medical trend rate for pre-65 retirees decreasing to an ultimate rate of 4.14% in the year 2041

Mortality rates were updated and are based upon the Public Plan mortality study recently completed by the Society of Actuaries PUB 2010 sex distinct general employee headcount weighted table with generational mortality improvement scale MP-2021

Exhibit 3

Exhibit 3 Deferred Outflows of Resources and Deferred Inflows of Resources

Related to OPEB As of September 30, 2024, the City of Burleson reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources.

Deferred Outflows Deferred Inflows of Resrouces of Resrouces

Differences between expected and actual experience 111,682$ (820,851)$

Changes of assumptions 162,218$ (168,226)$

Net differences between projected and actual earnings on OPEB plan investments -$ -$

Contributions subsequent to the measurement date 0 0 Collective deferred inflows of resrouces 273,900$ (989,077)$

Measurement Amounts to be Year expensed in future

September 30 expense calculations 2025 (47,005)$ 2026 (95,282) 2027 (172,669) 2028 (158,022) 2029 (151,447) 2030 (90,752) 2031 0

Total (715,177)$

Exhibit 4

Exhibit 4 Schedule of Changes in Net OPEB Liability

Total OPEB liability FYE 2024 FYE 2023 Service Cost 189,337$ 182,225$ Interest 214,438 220,783 Change in benefit terms 0 0 Difference betweeen expected and actual experience (554,732) 0 Change in assumptions (80,532) (40,566) Benefit payments 9,642 (89,925)

Net changes in total OPEB liability (221,847) 272,517 Total OPEB liability - beginning 4,763,828 4,491,311 Total OPEB liability - ending 4,541,981$ 4,763,828$

Covered Payroll $36,619,030 $30,328,507 Total OPEB liability as a percentage of payroll 12.40% 15.71%

Census Data

Census as of October 1, 2023 There were 399 active employees and 8 retirees (with 1 covered spouse) included in the valuation as of the measurement date.

Active Age / Service Matrix

Average Age: 40.6

Average Service: 7.1

Age < 1 1 - 4 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 - 34 35 - 39 40 + Total

< 25 38 0 0 0 0 0 0 0 0 0 38

25 - 29 33 8 7 0 0 0 0 0 0 0 48

30 - 34 24 8 20 3 1 0 0 0 0 0 56

35 - 39 33 7 16 11 6 0 0 0 0 0 73

40 - 44 19 3 7 6 8 4 0 0 0 0 47

45 - 49 11 2 9 2 6 10 2 0 0 0 42

50 - 54 8 0 5 5 5 5 6 2 0 0 36

55 - 59 5 1 4 1 5 6 1 4 1 0 28

60 - 64 7 1 4 2 4 0 1 2 1 0 22

65 - 69 2 0 3 0 0 0 0 0 0 0 5

70 + 2 0 0 0 1 1 0 0 0 0 4

Total 182 30 75 30 36 26 10 8 2 0 399

Accrued Service as of October 1, 2023

Retiree Age Matrix

Average Age: 59.9

Age Retirees Spouses Total

50 - 54 2 1 3

55 - 59 1 0 1

60 - 64 5 0 5

65 - 69 0 0 0

70 - 74 0 0 0

75 - 79 0 0 0

80 - 84 0 0 0

85 + 0 0 0

Total 8 1 9

Actuarial Assumptions

Measurement Date All liabilities were measured as of September 30, 2024, using a valuation date of October 1, 2023

Discount Rate 4.06%, per annum as of September 30, 2024 4.87%, per annum as of September 30, 2023

Rate of Inflation 2.50%, per annum

Salary Scale Benefits are not salary dependent, however the actuarial funding method is

Years of Select Sample Ulitmate Service Rates Age Rates

0 12.00% 20 5.25% 1 9.00% 25 5.25% 2 7.00% 30 5.25% 3 7.00% 35 5.00% 4 6.00% 40 4.50% 5 6.00% 45 4.50% 6 5.50% 50 4.00% 7 5.50% 55 4.00% 8 5.50% 60 3.75% 9 5.50% 65 3.50%

Percent Increase in Salary

Payroll Growth Rate 2.50%, per annum

Mortality Rates Non-Annuitants: Sex distinct PUB 2010 general employee mortality table with mortality improvement scale MP-2021

Annuitants: Sex distinct PUB 2010 general employee mortality table with mortality improvement scale MP-2021

Disability Rates Age Male Female

20 0.00% 0.00% 25 0.00% 0.00% 30 0.01% 0.01% 35 0.03% 0.03% 40 0.05% 0.05% 45 0.08% 0.08% 50 0.12% 0.12% 55 0.16% 0.16% 60 0.22% 0.22% 65 0.28% 0.28%

Withdrawal Rates The termination rates below are based upon the TMRS assumptions loaded 106.3% (the City specific load for Burleson). HUB, with the assistance of the TMRS actuary, adjusted the TMRS withdrawal rates to be on a headcount weighted basis instead of a participant’s salary.

Select Rates for City Employees (Police and Fire are loaded 67% and 97%, respectively)

Male Employees

Age 0 1 2 3 4 5 6 7 8 9 20 0.3944 0.3591 0.2954 0.2544 0.2376 0.2154 0.1947 0.1607 0.1310 0.1065 25 0.3627 0.3171 0.2509 0.2095 0.1876 0.1672 0.1495 0.1326 0.1196 0.0995 30 0.3387 0.2913 0.2269 0.1820 0.1460 0.1352 0.1196 0.1050 0.0978 0.0833 35 0.3452 0.2934 0.2230 0.1753 0.1426 0.1347 0.1138 0.0985 0.0833 0.0769 40 0.3406 0.2922 0.2211 0.1690 0.1421 0.1286 0.1088 0.0974 0.0809 0.0781 45 0.3170 0.2772 0.2205 0.1699 0.1429 0.1267 0.1096 0.0975 0.0814 0.0779 50 0.2944 0.2532 0.2034 0.1615 0.1386 0.1220 0.1090 0.0982 0.0812 0.0782 55 0.2854 0.2457 0.1860 0.1525 0.1201 0.1192 0.1047 0.0941 0.0819 0.0760

Service

Female Employees

Age 0 1 2 3 4 5 6 7 8 9 20 0.4075 0.3790 0.2995 0.2741 0.2551 0.2567 0.1956 0.1959 0.1955 0.1965 25 0.3780 0.3337 0.2812 0.2580 0.2211 0.2142 0.1757 0.1738 0.1504 0.1432 30 0.3535 0.3075 0.2672 0.2344 0.1779 0.1768 0.1646 0.1469 0.1251 0.1050 35 0.3354 0.2992 0.2501 0.1958 0.1690 0.1637 0.1452 0.1420 0.1283 0.1009 40 0.3143 0.2843 0.2273 0.1845 0.1717 0.1469 0.1346 0.1230 0.1085 0.0966 45 0.3078 0.2677 0.2052 0.1838 0.1432 0.1375 0.1192 0.1062 0.0933 0.0957 50 0.3090 0.2606 0.1957 0.1710 0.1231 0.1213 0.1108 0.0990 0.0897 0.0828 55 0.3089 0.2540 0.1960 0.1673 0.1171 0.1123 0.0977 0.0969 0.0909 0.0750

Service

Ultimate Rates for City Employees (Police and Fire are loaded 59% and 87%, respectively)

Years from Retirement Males Females

1 0.0268 0.2834 2 0.0340 0.0427 3 0.0393 0.0498 4 0.0438 0.0558 5 0.0475 0.0608 6 0.0507 0.0654 7 0.0538 0.0696 8 0.0566 0.0734 9 0.0592 0.0769 10 0.0616 0.0802 11 0.0639 0.0834 12 0.0660 0.0864 13 0.0681 0.0894 14 0.0700 0.0920 15 0.0720 0.0946

Retirement Rates The retirement rates below are the same rates used by the TMRS actuary in the pension valuation.

Age < 32 33 - 47 48 + < 32 33 - 47 48 + 40 - 44 0.06 0.06 45 - 49 0.06 0.06 50 - 52 0.08 0.08

53 0.08 0.10 0.08 0.10 54 0.08 0.10 0.11 0.10

55 - 59 0.14 0.10 0.11 0.10 60 0.20 0.15 0.10 0.14 0.15 0.10 61 0.25 0.30 0.20 0.28 0.26 0.20 62 0.32 0.25 0.12 0.28 0.17 0.12 63 0.32 0.23 0.12 0.28 0.17 0.12 64 0.32 0.35 0.20 0.28 0.22 0.20 65 0.32 0.32 0.20 0.28 0.27 0.20

66 - 69 0.22 0.22 0.17 0.22 0.22 0.17 70 - 74 0.20 0.22 0.25 0.22 0.22 0.25 75 + 1.00 1.00 1.00 1.00 1.00 1.00

Hire Age (Males) Hire Age (Females)

The rates above are adjusted for each City depending upon the employee contribution rate for specific City and the whether the retirement benefit contains a reoccurring COLA upon commencement (see table on the next page).

Employer Match 5.00% 6.00% 7.00% Yes No

1.0 - 1.0 0.75 0.80 0.84 1.00 0.90

1.5 - 1.0 0.81 0.86 0.92

2.0 - 1.0 0.86 0.93 1.00

Employee Contribution Rate Recurring COLA

Marriage Assumptions 80% of participants are assumed to be married at retirement Age difference: Husbands are assumed to be three-years older than their wives

Healthcare Specific Assumptions Per capita costs for Pre-65 retirees were derived based upon the fully insured rates on a retiree only experience basis. Medicare eligible retirees are assumed to rescind the City’s plan and take Medicare coverage. The per capita claims costs adjusted by age are to be used only for the GASB 75 valuation and no other purpose.

Key Assumptions:

Valuation date of October 1, 2023 Trend includes an implicit inflation rate of 2.50%, per annum and includes a provision for

COVID-19 to reflect a temporary increase in costs for the fiscal year ending 2021 Any Medicare Part D subsidy was not reflected in our estimate

Per Capita Benefit Costs Weighted Average of HDHP and PPO Plans

Participation Rate Assumption The participation rate for future retirees is based upon years of service at retirement as shown below:

< 20 20 - 29 30 + 20% 40% 50%

Years of Service at Retirement

Valuation Age Males Females Males Females 45 $852 $1,210 $1,022 $1,451 50 $1,049 $1,419 $1,258 $1,703 55 $1,295 $1,574 $1,553 $1,887 60 $1,584 $1,759 $1,902 $2,111 64 $1,860 $1,972 $2,231 $2,366 65 $1,920 $2,050 $2,304 $2,459

Retirees Spouses

Participation Rate Assumption (Continued) However, any participant that retires prior to age 50 is assumed to waive the City’s healthcare plan. For any future retiree assumed to elect retiree healthcare, their spouse is assumed to waive coverage.

Lapse Rate Assumption 40% of retirees are assumed to drop coverage at the time the employer subsidy ends.

Administrative Expenses and Stop Loss Premiums The per capita claims costs include a 7% load for administrative expenses and a 10% load for stop loss premiums where both are assumed to escalate with the healthcare trend rates each year.

Medical & Pharmacy Healthcare Trend Rates The trend rates shown below are based upon recent experience and projected future cost increases made of components such as price inflation (CPI-U), utilization, and new treatments and pharmacy offerings. The initial year includes a component for expected increases in costs due to COVID-19.

Year Ending Rate 2023 6.51% 2024 6.21% 2025 5.92% 2026 5.72% 2027 5.42% 2028 5.13% 2029 4.83% 2030 4.63% 2031 4.34%

2032 - 2040 4.24% 2041 + 4.14%

Other Welfare Benefits Since retirees pay the full premium for all other OPEB benefits (dental and vision), no liability is included in this valuation as no implicit subsidy exists for these benefits.

Actuarial Methods

Actuarial Methods The Actuarial Cost Method (ACM) is a particular technique used by the actuary for establishing the amount and incidence of annual actuarial costs. The ACM determines the portion of the ultimate cost of a benefit plan which should be allocated to each hear (known as the normal cost). The cost method is thus a budgeting tool which helps to ensure that the benefit plan will be adequately and systematically funded.

For employer financial reporting purposes, GASB 45 allows six difference funding methods in determining the amount of OPEB funding amounts and benefit liabilities. For this valuation, we have used the Entry Age Normal (EAN) funding method assuming a level salary percentage.

The EAN funding method with a level salary percentage essentially derives the normal cost so it remains a constant percentage of the participant’s salary from their hire age over their entire working lifetime. The Actuarial Accrued Liability (AAL) is the result of subtracting the Present Value of Future Normal Costs (PVFNC) from the Present Value of Future Benefits (PVFB) for each employee.

The Annual Required Contribution (ARC) and benefit liabilities of the Plan are derived making certain specific assumptions as to rates of interest, mortality, turnover, etc. which are assumed to hold for many years into the future. Since actual experience may differ somewhat from the assumptions, the costs determined by the valuation must be regarded as estimates of the true costs of the Plan.

The Actuarial Value of Assets (AVA) is a particular technique used by the actuary for developing the asset value to be used in the derivation of the Unfunded Actuarial Accrued Liability (UAAL). The AVA used for the current valuation is not applicable because the City does not pre-fund OPEB benefits.

Plan Provisions

Eligibility To be eligible for employer provided subsidy, a participant much be at least age fifty-eight (58) and have at least twenty (20) or more years of service with the City

Monthly Retiree Contribution Schedule Retirees not eligible for the City subsidy will be required to pay contributions as shown below (amounts are assumed to increase with medical trend):

Pre-65 Retiree Plan PPO Plan HDHP Plan Retiree Only $1,083.40 $788.75 Retiree + Spouse $2,383.46 $1,735.26

Medical and Pharmacy Benefits

Other Welfare Benefits Eligible retirees have access to Dental and/or Vision coverage(s), however they must pay for the entire premium (i.e., no City subsidy) unless the retiree has 20 or more years of service at retirement. Those who meet the service requirement receive a discount on the employee only portion of the premium for up to five (5) years for dental coverage.