3-Act205 Funding Valuation Package Public Works.pdf

Actuarial Valuation for Funding

SOUTH WHITEHALL TOWNSHIP PUBLIC WORKS

UNION EMPLOYEES' PENSION PLAN

As of January 1, 2025

South Whitehall Township Public Works Union Employees' Pension Plan

Actuarial Valuation as of January 1, 2025

Table of Contents

Executive Summary

Actuarial Certification

Summary of Principal Plan Benefit Provisions (SPPB)

Actuarial Assumptions and Methods

Section 1 - Summary of Plan Assets and Summary of Plan Membership

Section 2 - Act 205 Funding Calculations

Section 3 - Supplemental Information

Appendix

Executive Summary

1/1/2021 1/1/2023 1/1/2025

Market Value of Assets (MVA) 10,325,127$ 9,524,575$ 11,753,505$

Actuarial Value of Assets (AVA) 10,325,127$ 10,946,368$ 11,848,039$

Actuarial Accrued Liability (AAL) 12,854,762$ 13,734,101$ 13,802,919$

Unfunded Actuarial Accrued Liability (UAAL) 2,529,635$ 2,787,733$ 1,954,880$

Change in Estimated Cost 67,141$ 58,423$ (216,278)$

Normal Cost 85,767$ 50,481$ 39,455$

W-2 Payroll 1,181,318$ 712,184$ 654,679$

Percentage of W-2 Payroll 7.3% 7.1% 6.0%

Average Age 54.9 53.8 55.0

Interest 7.63% 7.50% 7.50%

Salary Scale 5.00% 5.00% 5.00%

Average Life Expectancy* 85.20 86.94 86.94

Mortality Basis PubG-2010 PubG-2010 PubG-2010

Projection Scale MP-2020 MP-2021 MP-2021

Participant Counts

Active 10 10 9

Vested Former 6 6 6

Receiving Benefits 38 38 36

Total 54 54 51 *Based on a male currently aged 60.

The purpose of the valuation report is to determine the actuarial status of the Plan and to serve as the basis for satisfying the reporting requirements under Act 205. The actuarial calculations contained in this report will be used to determine future minimum municipal obligations.

The Summary of Principal Plan Benefit Provisions (SPPB) may be found following the Actuarial

Certification. This summary represents our understanding of the current plan provisions in effect at

January 1, 2025. Following the SPPB is a summary of the Actuarial Assumptions and Methods used in this valuation report.

1/1/2019 1/1/2021 1/1/2023 1/1/2025

AVA 76.4% 80.3% 79.7% 85.8%

MVA 65.4% 80.3% 69.3% 85.2%

50%

60%

70%

80%

90%

100%

110% History of Plan's Funded Ratio

2019 2020 2021 2022 2023 2024

Market Value of Assets 20.7% 14.1% 14.2% (17.0%) 16.6% 12.6%

Actuarial Value of Assets 3.0% 7.8% 9.6% 5.0% 6.9% 6.6%

Components of Financial Requirements

Illustration of Minimum Municipal Obligation

Financial Requirements

Normal Cost

Administrative Expenses

Amortization of Unfunded Actuarial

Accrued Liability (UAAL)

Total Financial Requirements

Expected Member Contributions

Minimum Municipal Obligation (not less than $0) amortization of the various gains and losses, plan amendments, and changes in actuarial assumptions that have occurred in the Plan over time. The Plan had an actuarial loss of $75,227 for the previous two-year period.

Actuarial Valuation as of January 1, 2025

Executive Summary

There are three cost components that make up the financial requirement of a Plan’s Minimum Municipal

Obligation.

1. Normal Cost – This is the cost of pension and other benefits earned during the current year.

History of Investment Results

South Whitehall Township Public Works Union Employees' Pension Plan

The following is a summary of the net dollar-weighted rates of investment return for the past six calendar years on both a market value and actuarial value basis:

2. Administrative Expenses – Examples of administrative expenses paid from the plan assets are expenses for: investment advisory services, actuarial services and trustee services.

3. Amortization of the Unfunded Actuarial Accrued Liability – The amount of this cost is comprised

Please note that the figures shown above are for illustrative purposes only. The actual minimum municipal obligation is determined through the annual budgeting process.

372,657

(6,547)$

576,288$

569,741$

452,069$

445,522$

39,455$

496,876

(6,547)$

Amortization

39,957

75% Amortization

39,957

39,455$

Normal Cost

$39,455

7% Admin Expenses

$39,957

7%

Amortization of

UAAL

$496,876

86%

Normal Cost Admin Expenses Amortization of UAAL

Actuarial Certification

In preparing this report, we have relied upon the data furnished to us. The data with respect to receipts and disbursements and assets of the Plan was furnished by Charles Schwab. The data with respect to participants and beneficiaries was furnished by South Whitehall Township. The data has been reviewed and has been determined to be reasonable and consistent.

The information as contained in this report is a projection of liabilities based upon stated assumptions and is not an exact statement of the Plan's ultimate benefits and liabilities. 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 (such as at the end of an amortization period or additional cost or contribution requirements based on the Plan's funded status); and changes in plan provisions or applicable law. Due to the limited scope of the assignment, an analysis of the potential range of such future measurements was not performed.

I certify that all costs, liabilities, rates of interest, and other factors under the Plan in Section 2 of the report have been determined on the basis of actuarial assumptions and methods, each of which is reasonable (taking into account the experience of the Plan and reasonable expectations) or which, in the aggregate, result in a total contribution equivalent to that which would be determined if each such assumption and method were reasonable, and which, in combination, offer my best estimate of anticipated experience under the Plan.

I am a member of the American Academy of Actuaries, a Fellow of the Society of Actuaries, and an Enrolled Actuary under ERISA, and I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained in this report.

5/7/2025 Date Jeffrey S. Myers, FSA, EA, MAAA Partner & Consulting Actuary Enrolled Actuary No. 23-03939

Summary of Principal Plan Benefit Provisions

Eligibility

All union employees join the Plan on the 91st day of employment.

Normal Retirement

A participant is eligible for normal retirement after attainment of age 65 and completion of seven years of service.

The normal retirement pension is payable monthly during the participant's lifetime, with payments ceasing upon death.

The amount of monthly pension is equal to 2.0% of final average monthly compensation times years of service.

Final average monthly compensation is based upon the last 36 months of employment.

Late Retirement

If a participant continues working after his normal retirement date, his pension does not start until he actually retires. The late retirement benefit is the benefit accrued to the late retirement date.

Early Retirement

A participant is eligible for early retirement when the participant's attained age and years of vesting service, when added together, equal or exceed 80 (“Rule of 80”). There is no actuarial equivalent reduction for “Rule of 80”. A participant who terminates prior to age 55 with 25 years of service may retire at age 55 with an actuarially reduced benefit.

Disability Retirement

If a participant is eligible to receive Social Security disability benefits, he is eligible for a disability pension. The disability pension is equal to the actuarial equivalent of the benefit based on the normal retirement formula.

Death Benefits

If a participant (including vested former members) is vested, a death benefit is payable to his surviving spouse in an amount equal to 100% of the qualified survivor benefit.

Vesting

A participant's benefits vest upon completion of seven years of service. The vested benefit is a deferred pension beginning at normal retirement equal to the benefit accrued to the date of termination.

Accrued Pension

The benefit accrued at any date other than the normal retirement date is determined according to the normal retirement benefit formula but based upon compensation and service to date.

Summary of Principal Plan Benefit Provisions

Contributions

Members contribute 1.0% of pay. Member contributions are credited with 7.0% interest.

Actuarial Assumptions and Methods

Interest

7.50%

Salary

5.00% Annual Increase

Withdrawal

Table D-3: Rates of withdrawal at selected ages:

Age Rate Age Rate Age Rate

20 7.0000% 35 4.5000% 50 1.5000%

25 5.5000% 40 4.0000% 55 0.5000%

30 5.0000% 45 3.0000% 60 0.0000%

Mortality

PubG-2010 mortality table, including rates for disabled retirees and contingent survivors.

Incorporated into the table are rates projected generationally using Scale MP-2021 to reflect mortality improvement.

Disability

No disability was assumed.

Retirement

Earlier of Normal Retirement Age or first eligibility for Rule of 80 (not before age 62), or age on valuation date, if greater.

Preretirement Death Benefit

Liabilities computed on the assumption that all participants will have spouses of the same age at the date of eligibility for the benefit.

Actuarial Assumptions and Methods

Expenses

Provision for administrative expenses added to annual contribution requirement, per Act 205 of 1984.

Inflation

Moderate inflation based on long term historical average rates is a component of the actuarial assumptions used herein. Provision is not made for advance funding of sharply higher rates of inflation experienced in some years. The effects of such higher rates are reflected in the funding after their occurrence.

Actuarial Value of Assets

Each year the investment gain (excess of actual investment income including realized and unrealized appreciation over expected investment income) or loss is recognized over a five-year period. In no event is the actuarial value of assets allowed to be greater than 120% or less than 80% of market value.

Actuarial Cost Method

Entry Age Normal (required by Act 205 of 1984)

South Whitehall Township Public Works Union

Employees' Pension Plan

Actuarial Valuation as of January 1, 2025

Section 1

Summary of Plan Assets and Summary of Plan Membership Act 205 Funding Calculations

Receipts and Disbursements - January 1, 2023 to December 31, 2023

Market Value at 1/1/2023 9,524,575.08$

Receipts

Employer and State Contributions Received 688,557.00$

Employee Contributions Received 6,601.21

Investment Income

Income Received 319,059.13$

Accrued Income at 1/1/2023 0.00

Accrued Income at 12/31/2023 0.00

Total Investment Income 319,059.13

Change in Market Value 1,197,520.28

Total Receipts 2,211,737.62

Disbursements

Monthly Benefit Payments (940,793.76)$

Administrative Expenses (36,428.03)

Total Disbursements (977,221.79)

Market Value at 12/31/2023 10,759,090.91$

Approximate Net Dollar-Weighted Rate of Investment Return 16.60%

Receipts and Disbursements - January 1, 2024 to December 31, 2024

Market Value at 1/1/2024 10,759,090.91$

Receipts

Employer and State Contributions Received 681,576.00$

Employee Contributions Received 10,301.38

Investment Income

Income Received 570,820.84$

Accrued Income at 1/1/2024 0.00

Accrued Income at 12/31/2024 0.00

Total Investment Income 570,820.84

Change in Market Value 730,978.31

Total Receipts 1,993,676.53

Disbursements

Monthly Benefit Payments (955,777.19)$

Administrative Expenses (43,485.58)

Total Disbursements (999,262.77)

Market Value at 12/31/2024 11,753,504.67$

Approximate Net Dollar-Weighted Rate of Investment Return 12.56%

Assets and Liabilities

Assets

Cash 0.00$

Money Markets 541,868.64

Mutual Funds 7,585,434.66

Exchange Traded Funds 3,630,973.37

Total Assets in Fund 11,758,276.67$

Accrued Income 0.00

Total Assets 11,758,276.67$

Liabilities

Benefits Payable (4,772.00)$

Total Liabilities (4,772.00)

Net Assets 11,753,504.67$

Summary of Plan Membership

Active Members

Number of Members Annual Payroll

Active Members as of 1/1/2023 10

New Members During the Period 0

Returned to Active 0

Members No Longer Active:

Retired with Disability Benefit 0

Retired with Service Retirement Benefit (1)

Separated with Deferred Benefit 0

Separated with Refund of Contributions 0

Separated with Neither Deferred Benefit nor Refund of Contributions0

Deceased 0

Total (1)

Active Members as of 1/1/2025 9 654,679$

Vested Former Members

Number of Members Annual Benefit

Vested Former Members as of 1/1/2023 6

Separated with Deferred Benefit 0

Beneficiary of Deceased Participant 0

Returned to Active 0

Retired with Service Retirement Benefit 0

Deceased or Paid in Full 0

Vested Former Members as of 1/1/2025 6 78,913$

Retired Members

Number of Members Annual Benefit

Retired Members as of 1/1/2023 33

Retired with Service Retirement Benefit 1

Deceased or Paid in Full (3)

Retired Members as of 1/1/2025 31 891,689$

Disabled Members

Number of Members Annual Benefit

Disabled Members as of 1/1/2023 1

Retired with Disability Benefit 0

Deceased 0

Disabled Members as of 1/1/2025 1 4,423$

Spouse Beneficiaries of Deceased Members

Number of Members Annual Benefit

Spouse Beneficiaries of Deceased Members as of 1/1/2023 4

Additional Spouse Beneficiaries of Deceased Members 1

Deceased (1)

Spouse Beneficiaries of Deceased Members as of 1/1/2025 4 69,237$

Actuarial Valuation as of January 1, 2025

Section 2

Act 205 Funding Calculations Supplemental Information

Actuarial Value of Assets

2021 2022 2023 2024

Market Value at 1/1 10,325,127.28$ 11,756,511.08$ 9,524,575.08$ 10,759,090.91$

Contributions 802,787.55 651,708.20 695,158.21 691,877.38

Benefit Payments and Expenses (812,106.97) (952,425.61) (977,221.79) (999,262.77)

Expected Investment Income ¹ 774,035.07 870,461.43 703,765.75 795,404.87

Expected Value at 12/31 11,089,842.93$ 12,326,255.10$ 9,946,277.25$ 11,247,110.39$

Market Value at 12/31 11,756,511.08 9,524,575.08 10,759,090.91 11,753,504.67

Gain/(Loss): (Market Value 666,668.15$ (2,801,680.02)$ 812,813.66$ 506,394.28$ less Expected Value)

Percentage of Gain/(Loss) to be recognized in the future 20% 40% 60% 80%

Gain/(Loss) to be recognized 133,333.63$ (1,120,672.01)$ 487,688.20$ 405,115.42$ in the future

Market Value at 12/31/2024 11,753,504.67$

Total (Gain)/Loss for 2021-2024 to be recognized in the future 94,534.76

Actuarial Value of Assets at 12/31/2024 11,848,039.43$

2023 Approximate Net Dollar-Weighted Rate of Investment Return 6.90%

2024 Approximate Net Dollar-Weighted Rate of Investment Return 6.62%

7.50% annual interest rate

Actuarial Value of Assets cannot be greater than 120% nor be less than 80% of the Market Value.

Unfunded Actuarial Accrued Liability and Normal Cost

Unfunded Actuarial Accrued Liability

Actuarial Present Value of Future Benefits

Active Members Retirement Pension Benefits 3,726,235$

Active Members Vested Withdrawal Benefits 27,963

Active Members Preretirement Death Benefits 40,172

Active Members Refund of Member Contributions 46 1

Vested Former Members Benefits 402,334

Retired Members Benefits 9,215,559

Disabled Members Benefits 37,812

Surviving Spouses Benefits 634,134

Total 14,084,255$

Actuarial Present Value of Future Normal Costs (281,336)

Actuarial Accrued Liability 13,802,919$

Actuarial Value of Assets (11,848,039)

Unfunded Actuarial Accrued Liability 1,954,880$

Normal Cost

Normal Cost 39,455$

Normal Cost as a Percentage of Annual Payroll 6.0%

1 Accumulated Member Contributions Without Interest as of 1/1/2025 = $119,486

Accumulated Member Contributions With Interest as of 1/1/2025 = $317,145

Analysis of the Change in the Unfunded Actuarial Accrued Liability

Unfunded Actuarial Accrued Liability at 1/1/2023 2,787,733$

Additions

Normal Costs 103,486$

Administrative Expenses 79,914

Interest on Unfunded Actuarial Accrued Liability, Normal Costs, and Administrative Expenses 451,504

Total 634,904

Contributions

Employer and State Contributions (1,370,133)$

Employee Contributions (16,903)

Interest on Contributions (75,005)

Total (1,462,041)

Adjustment for Funding Deviation (80,943)

Modification in the Benefit Plan 0

Change in Actuarial Assumptions 0

Actuarial Loss

Investment Loss 137,254$

Experience Gain (142,970)

Funding Deviation 80,943

Total 75,227

Unfunded Actuarial Accrued Liability at 1/1/2025 1,954,880$

Amortization of Unfunded Actuarial Accrued Liability

Outstanding Amortization Remaining

Initial Date Initial Amount Balance Amount Amortization Nature

January 1, 2015 (95,205) (30,740) (11,041) 3 Years Assumption Chg.

January 1, 2015 (234,091) (75,586) (27,146) 3 Years Actuarial Gain

January 1, 2017 (387,913) (56,865) (56,865) 1 Year Assumption Chg.

January 1, 2017 1,495,956 219,307 219,307 1 Year Actuarial Loss

January 1, 2019 141,833 57,945 20,810 3 Years Assumption Chg.

January 1, 2019 721,482 294,744 105,859 3 Years Actuarial Loss

January 1, 2021 201,589 137,752 27,449 6 Years Assumption Chg.

January 1, 2021 380,756 260,182 51,845 6 Years Actuarial Loss

January 1, 2023 (1,259,597) (1,098,340) (160,171) 9 Years Assumption Chg.

January 1, 2023 2,490,034 2,171,254 316,634 9 Years Actuarial Loss

January 1, 2025 75,227 75,227 10,195 10 Years 1 Actuarial Loss

Total 3,530,071$ 1,954,880$ 496,876$

Projected plan year in which the unfunded accrued liability is fully amortized is 2029.

Aggregation of Changes in Unfunded Actuarial Accrued Liability

Date of Aggregated Outstanding Amortization Remaining

Aggregation Target Date Balance Amount Amortization

January 1, 2025 2029 1,954,880$ 496,876$ 5 Years

1 Average Future Service is 10 years.

Illustration of Minimum Municipal Obligation

Financial Requirements

Normal Cost 39,455$

Administrative Expenses 39,957 1

Amortization of Unfunded Actuarial Accrued Liability 496,876

Total 576,288$

Expected Member Contributions (6,547)

Minimum Municipal Obligation 569,741$ 2

1 Total Administrative Expenses for Plan Year 1/1/2023 to 12/31/2023 - $ 36,428

Total Administrative Expenses for Plan Year 1/1/2024 to 12/31/2024 - $ 43,486

2 This is not an actual MMO. Figures from this report will be used to prepare actual MMOs in future years.

Actuarial Valuation as of January 1, 2025

Section 3

Supplemental Information #VALUE!

Supplemental Information

Schedule of Funding Progress

Entry Age Net Position UAAL

Market Actuarial Unfunded as a % of as a % of

Value Accrued AAL Total Funded Covered Covered

Valuation of Assets Liability (AAL) (UAAL) Liability Ratio Payroll Payroll

Date (a) (b) (b-a) (b-a)/b (a/b) (c) ((b-a)/c)

1/1/2015 7,204,322$ 8,812,149$ 1,607,827$ 18.2% 81.8% 1,790,358$ 89.8%

1/1/2016 6,983,900 9,507,342 2,523,442 26.5% 73.5% 1,777,401 142.0%

1/1/2017 7,277,336 10,570,618 3,293,282 31.2% 68.8% 1,781,978 184.8%

1/1/2018 8,003,548 10,970,159 2,966,611 27.0% 73.0% 1,759,824 168.6%

1/1/2019 7,538,199 11,533,352 3,995,153 34.6% 65.4% 1,586,857 251.8%

1/1/2020 9,058,382 11,778,185 2,719,803 23.1% 76.9% 1,286,887 211.3%

1/1/2021 10,325,127 12,854,762 2,529,635 19.7% 80.3% 1,181,318 214.1%

1/1/2022 11,756,511 13,130,962 1,374,451 10.5% 89.5% 711,066 193.3%

1/1/2023 9,524,575 13,734,101 4,209,526 30.7% 69.3% 712,185 591.1%

1/1/2024 10,759,091 13,766,196 3,007,105 21.8% 78.2% 700,477 429.3%

1/1/2025 11,753,505 13,802,919 2,049,414 14.8% 85.2% 654,679 313.0%

Schedule of Interest Rate Sensitivity Testing

Entry Age Net Position

Market Actuarial Unfunded as a % of

Value Accrued AAL Total Funded

Interest of Assets Liability (AAL) (UAAL) Liability Ratio

Rate ¹ (a) (b) (b-a) (b-a)/b (a/b)

6.50% $ 11,753,505 15,185,759 3,432,254$ 22.6% 77.4%

7.50% 11,753,505 13,802,919 2,049,414 14.8% 85.2%

8.50% 11,753,505 12,622,676 869,171 6.9% 93.1%

¹ Valuation interest rate is 7.50%

Supplemental Information

Schedule of Contributions from the Employer and Other Contributing Entities

Actuarially ¹ Contributions ² Contribution

Determined From Deficiency/

Year Contribution Employer (Surplus)

2015 456,874$ 456,902$ (28)$

2016 433,934 433,934 0

2017 431,296 431,313 (17)

2018 406,560 406,560 0

2019 404,504 404,504 0

2020 642,814 642,814 0

2021 628,466 793,466 (165,000)

2022 612,816 644,424 (31,608)

2023 688,557 688,557 0

2024 681,576 681,576 0

¹ Minimum Municipal Obligation under Act 205 of 1984

² Includes general municipal pension system State aid

Appendix

Pension Plan Risks Measuring pension obligations and calculating actuarially determined contributions requires the use of assumptions regarding future economic and demographic experience. Future experience may differ from the assumptions used in these calculations resulting in a different outcome than expected. This uncertainty inherent in pension plans results in required contribution and funding level volatility. In many cases when discussing risks, the focus is on downside risk, there is also upside risk. It is essential that the entity taking on the risk understands the risk, bears the potential loss or reaps the potential reward.

The following are examples of risks that may significantly affect the plan's future financial condition:

1. Investment risk is the potential that investment returns will be different than expected. Investment returns less than expected will lead to lower asset values, a reduction to the plan's funded status, and higher contribution requirements. The reverse is true if investment returns are higher than expected.

2. Asset/liability mismatch risk is the potential that changes in asset values do not match changes in the value of liabilities. If there is a change in asset values relative to liabilities which reduces the plan's funded status, higher contributions may be required in order for the Plan to meet its benefit payment obligations as they become due.

3. Interest rate risk is the potential that interest rates will be different than expected. A decrease in the interest rates used to value plan liabilities results in an increase in liabilities and vice versa. The interest rates used for valuing liabilities for contribution determination is based on the expected long term rate of investment return for the plan's assets. A change to the investment allocation could warrant a change to the interest rate used, a lower long-term return would result in higher contribution requirement and vice versa. An illustration of the impact of a 1% change to the interest rates is provided in Section 3 of this report.

4. Longevity and other demographic risks are the potential that mortality or other demographic experience will be different than anticipated. This can lead to actuarial gains or losses. For example, if fewer participants die than expected, this will create an actuarial loss and may result in a higher required contribution.

5. Contribution risk is the potential of actual future contributions deviating from expected future contributions. For example, if actual contributions are not made in accordance with the plan's funding policy or there are material changes in the anticipated number of employees or covered payroll, it may impact future contributions.

There are a variety of different maturity measures that can help assess this risk. A mature plan may have more difficulty recovering from adverse experience. A plan that is closed to new entrants will mature over time as the member population ages. There are a number of ways to measure plan maturity. The following maturity measures are relevant to this plan:

1. The ratio of the retired members' liability to the total accrued liability is 71.63%. To the extent that the expected benefit payment streams for retired members are not supported by investments that provide matching income streams (asset/liability mismatch), the risk of a larger funding shortfall with respect to the retired member liability rises as this percentage increases.

2. The ratio of prior year contributions reduced by prior year disbursements (benefit payments and expenses) to market value of assets is -2.62%. A negative percentage indicates negative cash flow, which leads to lower asset values and may amplify investment risk. If the plan experiences lower than expected investment returns in combination with negative cash flow, the plan will be more underfunded (or less overfunded), and may have higher contribution requirements than would otherwise be the case if it had positive cash flow. A positive percentage indicates positive cash flow, which leads to higher asset values and may mitigate the effect of investment risk.

Negative cash flow is expected for a mature or well-funded plan. It does not indicate that a plan had been poorly managed.

3. Duration measures the sensitivity of the liability to interest rate changes. The duration of the plan's liability is 10.58 years. This means for every 1% decrease in the interest rate, the present value of future benefits liability will increase by approximately 10.58% and vice versa. The lower the duration, the less sensitive the liabilities are to a change in interest rate.

Low-Default-Risk Obligation Measure

The pension plan invests in a diversified portfolio with the objective of maximizing investment returns at a reasonable level of risk. The potential for investment returns to be different than expected is a key investment risk for the plan, which can be reduced by investing solely in bonds. However, this would also likely reduce the plan’s investment returns resulting in an increase in the plan’s required contributions.

The Low-Default-Risk Obligation Measure (LDROM) represents the funding liability if the plan invested its assets solely in a portfolio of high-quality bonds whose cash flows approximately match future benefit payments. To calculate the LDROM, a rate such as the 30-year US Treasury Rate could be used. This rate for January 2025 is a single discount rate of 4.85%. All other assumptions used to calculate the LDROM match the assumptions used for the valuation. Using a lower interest rate will result in higher liabilities which also result in higher expected contribution levels. Below is a chart illustrating the impact on the plan if the interest rate used was 7.50% as well as the impact of a 1.0% change in the funding interest rate used. The difference between the plan’s actuarial accrued liability and the LDROM can be thought of as representing the expected taxpayer savings from investing in a diversified portfolio compared to investing in only high-quality bonds.

The actuarial valuation reports the funded status and develops contribution requirements based on the expected return of the plan’s investment portfolio. If instead, the plan switched to investing exclusively in high-quality bonds, the LDROM illustrates that the funded status would be lower, which also implies that the actuarially determined contributions would be higher, perhaps significantly. Unnecessarily high contribution requirements in the near term may not be affordable and could imperil plan sustainability and benefit security.

Interest Rate: 7.50%

(FUNDING)

6.50% (-1%

FUNDING)

8.50% (+1%

FUNDING)

4.85%

(LDROM)

Accrued Liability: $13,802,919 $15,185,759 $12,622,676 $18,038,206 Actuarial Value of Assets: $11,848,039 $11,848,039 $11,848,039 $11,848,039 Funding Percentage: 85.84% 78.02% 93.86% 65.68% Expected Contribution Level:

$569,741 $755,748 $400,838 $1,117,140

Reasonable Actuarially Determined Contribution (RADC) & Funding Policy

The reasonable actuarial determined contribution (RADC) is not set based on any prescribed assumptions or set by federal law. Under Pennsylvania’s Act 205 of 1984, the required minimum contribution level is outlined.

This funding methodology is used for all Pennsylvania municipal plans as well as other small public sector pension plans. We believe this funding methodology is reasonable to use as an estimate for the reasonable actuarial determined contribution (RADC) as it requires the funding of current accruals, an administrative expense load and a portion of the unfunded accrued liability to aim to achieve a 100% funding status over a reasonable period of time.

Funding Policy

As a result of this valuation, future contributions are expected to decrease. Investment returns in excess of 7.50% for the prior two years and the expiration of five amortization bases are the main drivers for the expected decrease.

Based on the current funding policy to contribute the Minimum Municipal Obligation as calculated under Act 205 of 1984, we anticipate the contribution amount will always exceed the normal cost of the plan plus interest on the unfunded actuarial accrued liability due to the loading of administrative expenses and the amortization of the unfunded accrued liability components being included in the calculation of the contribution amount.

The amortization schedule in the valuation (if the funding percentage is less than 100%) provides the period over which the unfunded actuarial accrued liability is expected to be fully amortized.

The contribution requirements are consistent with the plan’s ability to accumulate assets adequately to make benefit payments when due. Future contributions are expected except when the plan’s actuarial value of assets exceed the plan’s present value of future benefits.

Supplemental Information for Assumptions for Act 205 Funding Calculations In accordance with regulations under Act 205 of 1984, all actuarial assumptions are selected jointly by the actuary and the governing body of the pension plan.

Interest Rates The interest rate assumption is the long term expected rate of return on pension plan investments. It is based on the Plan’s current asset allocation, expected long term inflation, and historical long term expected real rates of return on the Plan’s major asset classes.

Salary Based on expected long term salary increases for active participants, considering the effects of future inflation.

Withdrawal Historical rates of withdrawal were considered as well as future expectations of withdrawal for the affected population.

Mortality Uses the most recent study of public sector data prepared by the Society of Actuaries and takes into account the occupational makeup of the participant group.

Disability Due to the small size of the Plan, no disability was assumed.

Retirement Due to the plan size and design, use of a single retirement age was assumed. The use of retirement rates is not expected to produce materially different results.

Preretirement Survivor Death Benefit A conservative assumption was made of percent married compared to current marital statistics for the general population.

Expenses Expected expenses are determined by averaging the two prior year's expenses.

Inflation Moderate inflation based on long term historical average rates is a component of the actuarial assumptions used herein.