EE.504 - Sun Prairie GASB 75 Report FYE 12-31-18_final.pdf

RETIREE HEALTH PROJECTIONS

GASB STATEMENT NO. 75

FISCAL YEAR END 12/31/2018

YURI NISENZON, ASA, MAAA

APRIL 2, 2019

CITY OF SUN PRAIRIE

Dallas ▪ Kansas City ▪ Baltimore ▪ Charlotte ▪ Denver ▪ Indianapolis ▪ London ▪ Omaha ▪ Trenton

Actuaries and Consultants

700 Central Expressway South

Suite 550

Allen, TX 75013

972-850-0850 lewisellis.com

April 2, 2019

Ms. Connie DeKemper Director of Administrative Services City Hall, Finance Department 300 E Main Street Sun Prairie, WI 53590

Re: GASB 75 Valuation for Fiscal Year End 12/31/2018

Dear Ms. DeKemper:

We are pleased to present our report on the analysis of the post-retirement health benefits provided by the City of Sun Prairie. Our report includes a projection of benefit costs and a determination of disclosures as specified by GASB Statement 75. The report summarizes the actuarial data used in the valuation, discloses the Total OPEB Liability (TOL) as of December 31, 2018 (measured as of December 31, 2018) and annual OPEB expense for the fiscal year ending December 31, 2018.

We appreciate the opportunity to be of service. If you have any questions, please feel free to contact me.

Sincerely, Yuri Nisenzon, ASA, MAAA Assistant Vice President

Enclosures

TABLE OF CONTENTS

Executive Summary

Benefits and Contributions

Actuarial Assumptions

Discount Rate

Recognition of Deferred Outflows and Inflows of Resources

ACA Excise Tax On High Cost Employer-Sponsored Health Coverage

Approach and Methodology

Notes to Financial Statement

Disclosures and Limitations

Actuarial Certification

Appendix A – Notes to Financial Statement

Appendix B - Required Supplementary Information

Appendix C - Schedule of Deferred Inflows and Outflows of Resources

Appendix D - Summary of Participant Data

Appendix E Actuarial Methods and Assumptions

Appendix F Summary of Plan Provisions

Appendix G Glossary of Terms

Appendix H Comparison of GASB 75 and GASB 45

Appendix H ASOP 41 Disclosures

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EXECUTIVE SUMMARY

The City of Sun Prairie (the “City”) provides post-retirement medical, prescription drug and dental benefits on behalf of its eligible retirees. As a result, the City is required to implement the Governmental Accounting Standards Board (“GASB”) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (“GASB 75”), which replaces GASB 45.

GASB 75 requires public employers to perform periodic actuarial valuations to measure and disclose their retiree healthcare liabilities for the financial statement of the employer.

GASB 75 allows an actuarial valuation date no earlier than thirty months and one day prior to the fiscal year end reporting date and a measurement date no earlier than one year and one day prior to the fiscal year end reporting date. For the reporting year ending December 31, 2018, we have used an actuarial valuation date of January 1, 2018 and a measurement date of December 31, 2018.

The table below sets forth the key results of our GASB 75 valuation for the fiscal year ending December 31, 2018, compared to the prior GASB 45 valuation conducted for the fiscal year ending December 31, 2016.

GASB 45 GASB 75

Valuation as of 1/1/2016 1/1/2018

Measurement Date 1/1/2016 12/31/2018

Reporting Date 12/31/2016 12/31/2018

Discount Rate 4.00% 3.71%

Total OPEB Liability (TOL)(1) $55,146 $34,975

OPEB Expense(2) $16,943 $3,904

Deferred Inflows of Resources N/A $2,701

Deferred Outflows of Resources N/A $0

(1) Net OPEB Obligation under GASB 45

(2) OPEB Cost under GASB 45

BENEFITS AND CONTRIBUTIONS

The City provides post-employment medical, prescription drug and dental insurance benefits on behalf of its eligible retirees and their dependents. To be eligible to continue coverage under the City’s plan, an employee must meet the service requirements established by the City. Wisconsin Professional Police Association (“WPPA”) employees are eligible for benefits upon retirement at any age with a minimum of 20 years of service with the City. All other employees are eligible for benefits upon retirement at age 50 with a minimum of 15 years of service with the City. For each year of service beyond 15, the required retirement age is reduced by 1 year.

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Upon retirement, the City converts unused accumulated sick leave at the employee’s rate of pay, up to a maximum of 120 days, and deposits the funds into an HRA. Medical and dental premiums may be paid from the HRA account. After the HRA funds are exhausted, retirees may choose to continue coverage for the duration of COBRA by self-paying 100% of the premium. For the purposes of our valuation, we assumed that 20% of future retirees elect medical coverage and 80% of future retirees elect dental coverage. Retirees using sick leave to pay for benefits are assumed to maintain medical and or dental coverage for one year and then terminate coverage.

The City does not contribute to retiree premiums for medical or dental coverage. However, due to the blended premium rate for actives and retirees, an implicit subsidy for retiree coverage is created.

The following table shows the development of the fiscal year 2018 benefits paid by the City – which is entirely the result of the implicit subsidy.

Development of City-Paid Benefits Medical Dental Total

Actual Premiums Paid $27,036 $7,088 $34,124

Implicit Subsidy $29,461 ($1,105) $28,356

Retiree Contribution ($27,036) ($7,088) ($34,124)

Total $29,461 ($1,105) $28,356

ACTUARIAL ASSUMPTIONS

Our valuation of the City’s plan is based on assumptions with regard to the survival of plan members, the average per-capita claims costs, when current employees are expected to retire, and so forth. The assumptions were derived from a combination of plan experience, actuarial judgement, and the selected decrement rates used in Wisconsin Retirement System’s (“WRS”) 12/31/2017 actuarial valuation. The assumptions are disclosed in Appendix E attached to this report.

As this is the first year of reporting for the City under GASB 75 standards, there are no changes in assumptions to disclose. The following is the summary of the key assumptions used (see Appendix E for more details):

• Discount Rate: The discount rate was 3.71%. See the next section for more details.

• Mortality Rates: We used the RPH-2014 Employee and Healthy Annuitant generational mortality tables (for actives and retirees, respectively) with mortality improvement scale MP- 2018.

• Medical Trend Rates: Medical trend is based on the Getzen SOA Long Term Healthcare Cost Trend model. First year trend is assumed to be 6.0%.

• Actuarial Cost Method: GASB 75 requires the use of the Entry-Age Normal, Level Percent of Pay cost method. Under GASB 45, the Projected Unit Credit cost method was used.

• Withdrawal Rates: Withdrawal rates are based on the termination rates published in the WRS actuarial valuation for Protective members with Social Security and for General employees..

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• Retirement Rates: Retirement rates are based on the retirement rates published in the WRS actuarial valuation for Protective members with Social Security and for General employees..

• Participation Rates: We based participation rates on recent retirees’ election for medical and dental coverage. We selected a 20% participation rate for medical benefits for future retirees and 80% participation rate for dental benefits for future retirees. Coverage for both medical and dental benefits is assumed to terminate after one year.

• Spouse Assumption: We observed little to no spousal coverage included in benefit elections made by current retirees. For active members we observed approximately 65% of enrollees had coverage for a spouse. We tested our projection model with a 0% spouse assumption and with the 65% spouse assumption and found the difference in total liability to be immaterial.

Therefore, due to immateriality and to reflect actual retiree coverage elections, we assumed that retirees will not elect spousal coverage.

DISCOUNT RATE

One of the most important assumptions is the discount rate, which is used by the model to compute the present value of future post-retirement benefits. The higher the discount rate, the lower the present values, and therefore the total OPEB liability. For plans that are not funded through irrevocable trusts, paragraph 36 of GASB 75 requires that the discount rate equal the “expected yield or index rate for 20-year, tax-exempt obligation municipal bonds with an average rating of AA/Aa or higher…” determined as of the measurement date, which in this case is December 31, 2018.

For the valuation, we used the Fidelity General Obligation AA 20 Year Yield as of the measurement date, which is 3.71%.

RECOGNITION OF DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES

According to paragraph 43 of GASB 75, differences between (1) the expected and actual experience and

(2) the changes in assumptions are recognized in OPEB expense using a systematic and rational method over a closed period equal to the average of the expected remaining service lives of all employees that are provided with OEPB through the OPEB plan (active employees and inactive members) determined as of the beginning of the measurement period.

As of January 1, 2018, for purposes of recognizing the applicable deferred outflows and inflows of resources in the 2018 fiscal year, the closed period was determined as follows.

Average Expected Remaining Service Life

Total expected remaining services lives of all employees (years): 1,555

Total Plan Members: 213

Average expected remaining service life (years): 7.3

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ACA EXCISE TAX ON HIGH COST EMPLOYER-SPONSORED HEALTH

COVERAGE

Paragraph 32 of Statement 75 requires us to “include taxes or other assessments expected to be imposed on benefit payments…” (our emphasis). GASB 45 makes no mention of including such taxes, and it’s our understanding that previous valuations have not included the cost of the so-called “Cadillac Tax” on high-cost health plans, which is the results of the Affordable Care Act.

The Cadillac tax is a 40% excise tax on high-cost employer health benefit plans. It is now scheduled to be implemented in 2022, which was delayed from 2018. Under the ACA, if the aggregate cost of employer-sponsored health insurance coverage for an employee or retiree (including surviving spouses) exceeds $10,200 for individual coverage and $27,500 for family coverage, a non-deductible 40% excise tax is applied to the amount of the employee benefit that exceeds the tax threshold. These thresholds will be updated before the tax takes effect in 2022 and indexed for inflation in future years. The thresholds will also be increased if the majority of covered employees are engaged in specified high-risk professions such as law enforcement and construction, and for group demographics including age and gender. For pre-65 retirees and individuals in high-risk professions, the threshold amounts are currently $11,850 for individual coverage and $30,950 for family coverage. Again, these amounts will be indexed further before the tax takes effect.

In our opinion, the cost of the Cadillac Tax is high enough that one of two events will occur. Either Congress will permanently repeal the tax altogether, or if not, local government systems will conclude that paying the tax will not be tolerable and will take whatever action is needed to avoid the tax.

We have therefore concluded that it is reasonable to assume that the excise taxes will not be paid and have thus not included the cost of them in my determination of the City’s projected benefit payments.

APPROACH AND METHODOLOGY

Our general approach is to apply assumed retirement probabilities and survivorship factors to the current profile of covered members, along with projected benefits, expenses, and retiree contributions, to estimate total OPEB benefits for future retirees and their dependents over each individual’s respective lifetime.

Our projections are based on employee census information, historical claims and expenses, and premium rates for the benefits provided by the City. We have reviewed the data for reasonableness but have not audited it. To the extent that there are material inaccuracies in the data, our results are accordingly affected.

The City provided us with a current census of active and retired employees, including age, current plan elected, and dependent status. The data was taken as of January 1, 2018. There were 14 retirees and 199 active employees included in our projection. We excluded one active member who was hired after the valuation date.

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Our actuarial model computes a present value of all future net costs (after recognition of retiree contributions) and allocates a portion of that present value to the current fiscal year. The methodology of that allocation is called an “Actuarial Cost Method.” GASB 75 requires the use of the Entry Age, Level Percent of Pay method.

For current employees, the Entry Age cost method spreads the actuarial present value of future benefits (“PVB”) from the employee’s date of hire to the expected retirement date as a level percent of expected salary. The portion of the PVB attributable to the current fiscal year is called the Service Cost under GASB 75. The portion attributable to service prior to the current fiscal year is called the Total OPEB Liability (“TOL”) under GASB 75.

NOTES TO FINANCIAL STATEMENT

Paragraphs 50 through 58 of Statement 75 describe the information that employers should include in the notes to their financial statements.

We have provided the actuarial information that is required to be disclosed in the Notes to the Financial Statement in Appendix A and Appendix B. We are available to discuss any other aspects of the required disclosures, as needed by the City.

DISCLOSURES AND LIMITATIONS

See Appendix H.

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ACTUARIAL CERTIFICATION

This actuarial valuation has been prepared and presented in accordance with the terms of GASB Statements No. 75. I make no representation to the applicability of this report for any purpose other than that for which it was originally provided and accept no responsibility or liability in this regard.

In preparing the results presented in this report, I have relied upon information provided by the City regarding plan provisions and plan participants. I have reviewed this information for reasonableness but have not audited it. The accuracy of the results presented in this letter is dependent upon the accuracy and completeness of the underlying information.

All costs, liabilities and other factors under the plan were determined in accordance with generally accepted actuarial principles and procedures using assumptions that I believe reasonably estimate the anticipated experience of the plan. The calculations reported herein are consistent with my understanding of the provisions of GASB Statement 75.

The determination of present values, cost allocations and future cash flows have been performed in accordance with generally accepted actuarial principles as set forth in the following Actuarial Standards of Practice:

• ASOP No. 6 – Measuring Retiree Group Benefit Obligations

• ASOP No. 21 – Responding to or Assisting Auditors or Examiners in Connection with Financial Statements for All Practice Areas

• ASOP No. 23 – Data Quality

• ASOP No. 41 – Actuarial Communications

The undersigned actuary is a member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein.

To the best of our knowledge, the information supplied in this actuarial valuation is complete and accurate. Further, in our opinion, the assumptions used in this valuation and described in Appendix E are reasonably related to the experience of and the expectations for the Plan. The actuarial projections are based on these assumptions and the plan of benefits as summarized in Appendix F. I believe the contents of this report fully and fairly disclose the actuarial position of the plan. I am available to respond to any questions on the information contained in the results and to provide explanation or further details as may be appropriate.

Yuri Nisenzon, ASA, MAAA, EA, FCA Assistant Vice President Lewis & Ellis, Inc.

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APPENDIX A – NOTES TO FINANCIAL STATEMENT

Assumptions and Other Inputs

Measurement Date

Actuarial Valuation Date:

Inflation: 3.00%

Salary Increases, including inflation: 3.00%

Discount Rate as of Measurement Date: 3.71%

Prior Year Discount Rate: N/A

Health Care Cost Trend Rates: See Appendix E

Retirees' Share of Benefit-Related Costs: See Appendix F

OPEB Plan - Number of Employees Covered

Inactive employees currently receiving benefits payments 14

Inactive employees entitled to but not yet receiving benefit payments 0

Active Employees 199

Total 213

Changes in Total OPEB Liability

Balance at 12/31/2017 $62,128

Changes for the year:

Service Cost 2,658

Interest 1,675

Differences between expected and actual experience (2,070)

Changes in Assumptions/Inputs (1,060)

Change in Benefit Terms 0

Benefit payments (28,356)

Administrative Expense 0

Net Changes ($27,153)

Balance at 12/31/2018 $34,975

Actuarial Assumptions: The Total OPEB Liability was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified.

The discount rate was based on the 12/31/2018 Fidelity General Obligation AA 20-Year Yield.

December 31, 2018

January 1, 2018

Mortality rates for active employees were based on the RPH-2014 Employee Mortality Table, Generational with Projection Scale MP-

2018 for males or females, as appropriate.

Mortality rates for retirees were based on the RPH-2014 Healthy Annuitant Mortality Table, Generational with Projection Scale MP-

2018 for males or females, as appropriate.

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APPENDIX A – NOTES TO FINANCIAL STATEMENT

Sensitivity of the Total OPEB Liability

1% Decrease No Change 1% Increase

Discount Rate: $37,353 $34,975 $32,578

Healthcare Cost Trend Rates: $30,914 $34,975 $40,363

OPEB Expense and Deferred Outflows and Deferred Inflows of Resources Related to OPEB

OPEB Expense

Service Cost $2,658

Interest on the Total OPEB Liability $1,675

Projected Earnings on plan Investments $0

Expensed portion of current-period differences between expected & actual experience in the TOL ($284)

Expensed portion of current-period differences between actual & projected earnings on plan investments $0

Expensed portion of current-period changes of assumptions or other inputs ($145)

Expensed portion of current-period benefit changes $0

Recognition of beginning of year deferred outflows of resources as OPEB expense $0

Recognition of beginning of year deferred inflows of resources as OPEB expense $0

Total OPEB Expense $3,904

Deferred Outflows and Inflows Outflows Inflows

Differences between actual and expected experience $0 $1,787

Changes of assumptions or other inputs $0 $914

Differences between actual and projected earnings on plan investments $0 $0

Employer amounts for OPEB subsequent to measurement date $0 $0

Total Deferred Outflows and Inflows $0 $2,701

Year Ended December 31:

2019 ($429)

2020 ($429)

2021 ($429)

2022 ($429)

2023 ($429)

Thereafter ($557)

Amounts reported and deferred outlflows of resources and deferred inflows of resources related to OPEB expense will be recognized in OPEB expense as follows:

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APPENDIX B - REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Changes in the Total OPEB Liabillity and Related Ratios

2018 2019 2020 2021 2022

Total OPEB Liability

Service Cost $2,658

Interest $1,675

Changes of benefit terms $0

Differences btwn expected and actual experience ($2,070)

Changes in assumptions or other inputs ($1,060)

Benefit payments ($28,356)

Net Change in Total OPEB Liability ($27,153)

Total OPEB Liability - beginning $62,128

Total OPEB Liability - end $34,975

Covered Employee Payroll $11,696,103

Total OPEB Liability as a percentage of covered employee payroll 0.3%

Notes to Schedule:

Changes of Benefit Terms: None

Changes of Assumptions:

2018 3.71%

Changes of assumptions and other inputs reflect the effects of changes in the discount rate each period. This is the first year under the new GASB

75 requirements, so there are no changes from the prior valuation to disclose. The summary of the key actuarial assumptions is included in

Appendix E. The following is the discount rate used for this reporting period

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APPENDIX C - SCHEDULE OF DEFERRED INFLOWS AND OUTFLOWS OF

RESOURCES DUE TO ECONOMIC/DEMOGRAPHIC GAINS/LOSSES

Fiscal Year Ending

December 31 2018 2019 2020 2021 2022 2023 2024

Total - Sum by Layer

Balance

December 31

Amortization Period 7.3

Deferred Amount - - -

2018 - - -

2019 - - -

2020 - - -

2021 - - -

2022 - - -

2023 - - -

2024 - - -

2025 - - -

2026 - - -

2027 - - -

2028 - - -

2029 - - -

2030 - - -

2031 - - -

2032 - - -

2033 - - -

Total Amount - - - - - - - -

Fiscal Year Ending

December 31 2018 2019 2020 2021 2022 2023 2024

Total - Sum by Layer

Balance

December 31

Amortization Period 7.3

Deferred Amount 2,070 2,070

2018 284 284 1,787

2019 284 284 1,503

2020 284 284 1,219

2021 284 284 936

2022 284 284 652

2023 284 284 368

2024 284 284 85

2025 85 85 (0)

2026 - - (0)

2027 - - (0)

2028 - - (0)

2029 - - (0)

2030 - - (0)

2031 - - (0)

2032 - - (0)

2033 - - (0)

Total Amount 2,070 - - - - - - 2,070

Deferred Outflows of Resources

Deferred Inflows of Resources

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APPENDIX C – SCHEDULE OF DEFERRED INFLOWS AND OUTFLOWS OF

RESOURCES DUE TO CHANGES IN ASSUMPTIONS AND INPUTS

Fiscal Year Ending

December 31 2018 2019 2020 2021 2022 2023 2024

Total - Sum by Layer

Balance

December 31

Amortization Period 7.3

Deferred Amount - -

2018 - -

2019 - -

2020 - -

2021 - -

2022 - -

2023 - -

2024 - -

2025 - -

2026 - -

2027 - -

2028 - -

2029 - -

2030 - -

2031 - -

2032 - -

2033 - -

Total Amount - - - - - - - -

Fiscal Year Ending

December 31 2018 2019 2020 2021 2022 2023 2024

Total - Sum by Layer

Balance

December 31

Amortization Period 7.3

Deferred Amount 1,060 1,060 1,060

2018 145 145 914

2019 145 145 769

2020 145 145 624

2021 145 145 479

2022 145 145 334

2023 145 145 189

2024 145 145 43

2025 43 43 -

2026 - - -

2027 - - -

2028 - - -

2029 - - -

2030 - - -

2031 - - -

2032 - - -

2033 - - -

Total Amount 1,060 - - - - - - 1,060

Deferred Outflows of Resources

Deferred Inflows of Resources

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APPENDIX D - SUMMARY OF PARTICIPANT DATA

Active Members

Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40 + Total

0-19 3 - - - - - - - - 3

20-24 5 - - - - - - - - 5

25-29 23 1 - - - - - - - 24

30-34 20 9 - - - - - - - 29

35-39 16 3 5 2 - - - - - 26

40-44 10 5 9 7 1 - - - - 32

45-49 8 4 4 5 5 - - - - 26

50-54 1 - 4 5 4 2 - - - 16

55-59 6 1 4 7 1 1 - - - 20

60-64 3 1 2 1 2 - 1 1 - 11

65-69 1 1 - 3 - 1 - 1 - 7

70-74 - - - - - - - - - -

75 & over - - - - - - - - - -

Total 96 25 28 30 13 4 1 2 - 199

Retirees, Disabled Retirees & Beneficiaries

Age Count

<49 1

50-54 -

55-59 1

60-64 6

65-69 4

70-74 1

75-79 1

80+ -

Total 14

Years of Service

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APPENDIX E

ACTUARIAL METHODS AND ASSUMPTIONS

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future.

Calculations are based on the types of benefits provided under the terms of the substantive plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future.

Actuarial calculations reflect a long-term perspective.

Valuation Date: January 1, 2018

Discount rate: 3.71%

Salary Scale: 3.00%

Medical and Dental Age-based claims costs were derived from the actual premiums, Claim Costs: adjusted for the risk characteristics of the group. An illustration of the claim costs per member per month (before the application of trend factors) at quinquennial ages is as follows.

Sample Medical Dental

Age Male Female Male Female

25 $146.75 $293.50 $35.99 $41.61

30 $176.10 $352.20 $35.61 $40.86

35 $225.02 $420.69 $35.61 $40.49

40 $288.61 $469.60 $34.86 $40.11

45 $376.66 $518.52 $34.11 $39.36

50 $542.00 $629.07 $34.11 $38.99

55 $755.28 $760.17 $32.24 $37.11

60 $1,020.41 $921.60 $31.86 $37.11

65 $0.00 $0.00 $31.86 $36.74

70 $0.00 $0.00 $31.86 $36.74

75 $0.00 $0.00 $31.86 $36.74

80 $0.00 $0.00 $31.86 $36.74

85 $0.00 $0.00 $31.86 $36.74

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ACTUARIAL METHODS AND ASSUMPTIONS

Claim Cost Trend: Claim amounts are assumed to increase at the following annual rates.

Projection Medical Dental Year Trend Trend

1 6.00% 4.00% 2 6.00% 3.75% 3 6.00% 3.50% 4 6.00% 3.25% 5 6.00% 3.00%

6-26 6.00% 3.00% 27 5.88% 3.00% 28 5.82% 3.00% 29 5.77% 3.00% 30 5.73% 3.00% 31 5.69% 3.00% 32 5.66% 3.00% 33 5.64% 3.00% 34 5.61% 3.00% 35 5.59% 3.00% 36 5.57% 3.00% 37 5.55% 3.00% 38 5.53% 3.00% 39 5.51% 3.00% 40 5.50% 3.00% 41 5.48% 3.00% 42 5.46% 3.00% 43 5.45% 3.00% 44 5.43% 3.00% 45 5.42% 3.00% 46 5.41% 3.00% 47 5.39% 3.00% 48 5.31% 3.00% 49 5.22% 3.00% 50 5.15% 3.00% 51 5.07% 3.00% 52 5.00% 3.00% 53 4.92% 3.00% 54 4.85% 3.00% 55 4.78% 3.00% 56 4.72% 3.00%

57+ 4.65% 3.00%

Contribution Rates: The City makes no contributions for retirees.

Mortality Pre-Retirement: RPH-2014 Employee Mortality Table, Generational Mortality

Improvement with Projection Scale MP-2018.

Post-Retirement: RPH-2014 Healthy Annuitant Mortality Table, Generational Mortality Improvement with Projection Scale MP-2018.

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ACTUARIAL METHODS AND ASSUMPTIONS

Employee Turnover: Employee turnover rates are based on the December 31, 2017 Wisconsin Retirement System actuarial valuation.

Years of Service

General Male

General Female

Protective /w

SS

0 30.2% 36.0% 30.6% 1 22.9% 25.4% 14.4% 2 16.2% 19.8% 9.0% 3 13.1% 16.0% 7.7% 4 12.6% 15.3% 6.8% 5 8.6% 12.1% 5.6% 6 7.7% 10.1% 5.4% 7 7.6% 9.0% 5.2% 8 6.1% 8.5% 4.5% 9 5.6% 8.1% 4.0%

10+ 4.5% 8.1% 3.6%

Retirement: Retirement rates were based on the December 31, 2017 Wisconsin

Retirement System actuarial valuation. These rates apply only to those individuals eligible to retire.

Attained

Age General

Male General Female

Protective /w SS

50 0.0% 0.0% 4.8% 51 0.0% 0.0% 5.6% 52 0.0% 0.0% 7.2% 53 0.0% 0.0% 18.4%

54-56 0.0% 0.0% 15.2% 57 14.4% 12.0% 15.2% 58 14.4% 12.0% 14.4% 59 14.4% 12.0% 12.8%

60-61 14.4% 12.0% 16.0% 62 20.0% 20.0% 17.6% 63 24.0% 20.0% 20.8% 64 20.0% 20.0% 13.6% 65 20.0% 22.4% 24.0% 66 25.6% 25.6% 20.0% 67 20.8% 20.8% 24.0%

68-69 15.2% 17.6% 24.0% 70-74 15.2% 16.0% 100.0% 75+ 100.0% 100.0% 100.0%

Retiree Participation Current Retirees: Current retirees are assumed to continue their current benefits for one year and then terminate coverage.

Future Retirees: 20% of future eligible retirees are assumed to elect medical coverage.

80% of future eligible retirees are assumed to elect dental coverage.

Dependent Status

Current Retirees: Current status is assumed to persist for one year. Wives are assumed to be three years younger than husbands.

Future Retirees: 0% of future retirees are assumed to have a covered spouse.

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APPENDIX F

SUMMARY OF PLAN PROVISIONS

Eligibility for Retiree: Wisconsin Professional Police Association (“WPPA”) employees are eligible for benefits upon retirement at any age with a minimum of 20 years of service with the City. All other employees are eligible for benefits upon retirement at age 50 with a minimum of 15 years of service with the City. For each year of service beyond 15, the required retirement age is reduced by 1 year.

Retirement Benefits: Eligible retirees can continue the following fully-insured benefits at retirement.

• Fully-Insured Medical Plan

• Fully-Insured Dental

Dependent Eligibility: Eligible spouses and dependents can remain on the plan if the retiree is covered. However, upon the death of the retiree, spouses and dependents can remain on the plan if otherwise eligible.

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APPENDIX G

GLOSSARY OF TERMS

Actuarial Present Value of The value of all benefits expected to be paid by the employer, net Future Benefits (PVB): of expected retiree contributions, discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment.

Actuarial Accrued Liability The portion of the Actuarial Present Value of Future Benefits which (AAL): is allocated to all period prior to valuation year, as determined by a particular Actuarial Cost Method.

Actuarial Cost Method: A procedure for determining the Actuarial Present Value of benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost (NC) and an Actuarial Accrued Liability (AAL).

Entry Age Normal A method under which the Actuarial Present Value (PVB) of the Actuarial Cost Method: Projected Benefits of each individual included in the Actuarial

Valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit age(s), required under GASB 75

Net OPEB Liability: The positive excess of the Total OPEB Liability over the assets on the measurement date.

OPEB Expense: The amount of expense recognized by the employer during the fiscal year. Equals the change to the OPB liability during the measurement period, with adjustment for deferral of experience and investment gains or losses.

Pay-as-You-Go: A method of financing an OPEB plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due.

Service Cost: The portion of the Actuarial Present Value (PVB) which is allocated to a valuation year by the Actuarial Cost Method. Also referred to as Normal Cost.

Total OPEB Liability (TOL): The Actuarial Accrued Liability on the measurement date.

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APPENDIX H

COMPARISON OF GASB 75 AND GASB 45

Statement 45 Statement 75

Development of accounting liabilities

Actuarial present value of future employer-paid benefits and expenses

Treatment of benefit excise taxes

Not mentioned

Should be included in the determination of accounting liabilities to the extent that such taxes are expected

Liability recognition in the balance sheet

Net OPEB Obligation: the accumulated excess of Annual Required Contributions (ARC) over employer contributions

Net OPEB Liability: the excess of the Total OPEB Actuarial Accrued Liability over the Market Value of Plan's Assets

Actuarial cost method Six methods permitted Entry Age Level Percent of Pay

Discount rate Expected rate of return on assets available to pay benefits

Single rate of return that, when applied to all projected benefit payments, results in an actuarial present value of projected benefit payments equal to the sum of:

1. The actuarial present value of benefit payments projected to be made in future periods where the plan assets are projected to be sufficient to meet benefit payments, calculated using the Long-Term Expected Rate of Return.

2. The actuarial present value of projected benefit payments not included in (1), calculated using the Municipal Bond Rate.

Other actuarial assumptions Best estimate

Expense recognized during the measurement period

OPEB Cost: the Annual Required Contribution (ARC), plus accrued interest on the Net OPEB Obligation, less an ARC adjustment. The ARC is actuarially determined with a focus on financing or paying off the unfunded actuarial liability over a number of years.

OPEB Expense: the change in the Net OPEB Liability during the measurement period, included service cost plus interest on total OPEB liability plus current-period benefit changes minus member contributions minus assumed earnings on plan investments plus administrative expenses plus recognition of deferred outflows minus recognition of deferred inflows.

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APPENDIX H

COMPARISON OF GASB 75 AND GASB 45

Statement 45 Statement 75

Deferred Inflows and Outflows of Resources

Not applicable

Financial statement disclosures

Annual Required Contribution, OPEB Cost, Net OPEB Obligation, Unfunded Actuarial Accrued Liability, actuarial methods and assumptions

Net OPEB Liability and changes thereto during the measurement period, OPEB Expense, Deferred inflows and outflows, ten-year history of OPEB liability changes and other required supplementary information (RSI)

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APPENDIX I

ASOP 41 DISCLOSURES

The Actuarial Standards Board (ASB), vested by the U.S.-based actuarial organizations1, promulgates actuarial standards of practice (ASOPs) for use by actuaries when providing professional services in the United States. Each of these organizations requires its members, through its Code of Professional Conduct2, to observe the ASOPs of the ASB when practicing in the United States.

The ASOPs are not narrowly prescriptive and neither dictate a single approach nor mandate a particular outcome. ASOPs are intended to provide actuaries with a framework for performing professional assignments and to offer guidance on relevant issues, recommended practices, documentation, and disclosure. Each ASOP articulates a process of analysis, documentation, and disclosure that, in the ASB’s judgment, constitutes appropriate practice within the scope and purpose of the ASOP.

ASOP 41 provides guidance to actuaries with respect to actuarial communications and requires certain disclosures which are contained in this Appendix.

Identification of the Responsible Actuary

The responsible actuary is Yuri Nisenzon, ASA, MAAA, Assistant Vice President of Lewis & Ellis, Inc. This actuary is available to provide supplementary information and explanation.

Identification of Actuarial Documents

The date of this document is April 2, 2019, its subject is the City of Sun Prairie’s GASB 75 OPEB liabilities, and the document version identification is Version #1 (4/2/2019 11:07 AM).

Disclosures in Actuarial Reports

• The contents of this report are intended for the use of the officers, employees, and elected officials of the City and the City’s appointed auditor. The City may distribute this report to those parties that have a legal right to require the City to provide it, in which case it will be provided in its entirety including all assumptions, caveats, and limitations. In addition, we request that the City notify Lewis & Ellis, Inc. to whom it was distributed.

• The purpose of this engagement was to provide the City with analysis of the GASB 75 OPEB liabilities.

• The responsible actuary identified above is qualified as specified in the Qualification Standards of the American Academy of Actuaries.

• Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future.

1 The American Academy of Actuaries (Academy), the American Society of Pension Professionals and Actuaries, the Casualty Actuarial Society, the Conference of Consulting Actuaries, and the Society of Actuaries.

2 These organizations adopted identical Codes of Professional Conduct effective January 1, 2001

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APPENDIX I

ASOP 41 DISCLOSURES

• Actuarial computations under GASB 75 are for purposes of fulfilling financial accounting requirements of the City. Determinations for purposes other than meeting these financial accounting requirements may be significantly different from the results contained in this report.

These communications should not be relied upon for any other purpose.

• The City of Sun Prairie has agreed to pay Lewis & Ellis, Inc. a fee for preparing this report. Other than with regard to that contract, we are financially and organizationally independent from the City and any entity or individual related to the City. There is nothing in our relationship with the City that would impair or seem to impair the objectivity of our work.

• The City provided the employee/retiree data, premium rates and other information used to prepare our report. We have reviewed the data for reasonableness but have not audited it. To the extent that there are material inaccuracies in the data, our results may be accordingly affected.

• The date through which data or other information has been considered in developing the findings included in this report is December 31, 2018.

• We are not aware of any subsequent events that may have a material effect on the actuarial findings.

• The various documents comprising the actuarial report are contained within the document to which these disclosures are attached.

Actuarial Findings

The actuarial findings of the report can be found in the report to which these disclosures are attached.

Methods, Procedures, Assumptions, and Data

The methods, procedures, assumptions and data used by the actuary can be found in the report to which these disclosures are attached.

Assumptions or Methods Prescribed by Law

While not legally binding, our determinations were made in accordance with our understanding of Statement No. 75 of the Governmental Accounting Standards Board. Actuarial computations under GASB 75 are for purposes of fulfilling employer accounting requirements. Determinations for purposes other than meeting such requirements may be significantly different from these results. Accordingly, additional determinations may be needed for other purposes.

Responsibility for Assumptions and Methods

The actuary does not disclaim responsibility for any material assumption(s) or method(s).

Deviation from the Guidance of an ASOP

The actuary has not deviated materially from the guidance set forth in an applicable ASOP.