HomeMy WebLinkAboutSubmittal-Commissioner Carollo-Assumption Change Consideration FIPO PensionSubmitted into the public
record for item(s) D ¶? •
on 2 • . City Clerk
CITY OF MIAMI FIRE FIGHTERS' AND
POLICE OFFICERS' RETIREMENT TRUST
Assumption Change Considerations
January 30, 2015
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Table of Contents
Submitted into the public
record for items) City Clerk
on �.'
nyhart
Summary of Results
Changing Assumptions
3
Assumptions — Salary Scale
Assumptions — Retirement
5
Assumptions —Asset Return
6
Assumptions — Mortality Tables
7
Recommendations
Assumption Changes — Impact on Funding
10
Certification
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Summary of Results ($ in Millions)
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Valuation Date Preliminary 10/01/2014
10/01/2013
Entry Age Accrued Liability*
$ 1,585.9
$ 1, 580.3,
Actuarial Value of Assets
1,151.0
1,145.5
Unfunded Accrued Liability
$ 434.9
$ 434.8
Funded Ratio
72.6%
72.4%
Market Value of Assets
$ 1,136.5 $ 1,121.2
Actuarial / Market Value
101% 102%
Plan Sponsor Contribution
Normal Cost
Expected Member Contribution
Plan Sponsor Contribution
- as a % of Covered Payroll
- as a % of Total Payroll
Covered Payroll
DROP Payroll
$ 51.5
8.1
$ 43.4
46.3%
34.0%
$ 93.7
$ 34.1
$ 52.5
8.5
$ 44.0
51.6%
35.3%
$ 85.2
$ 39.4
Projected Total Payroll
$127.8 $124.6
* Plan sponsor contribution determined by the aggregate cost method. Entry age accrued liability is shown for
reference.
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Changing Assumptions
Submitted into the public
record for item(s) 1)3 •
on ? •? (v. s . City Clerk
nyf-iart
Pension Board Consultants (Jarmon Welch) presented their review of valuation
assumptions to the Board on January 15, 2015. Recommended changes to the
assumptions included:
Decreasing Salary Scale
Increasing Retirement rates
➢ Decreasing Discount/expected return rate
➢ Changing Mortality
Changing Disability
Other than disability, we feel that each recommendation has the potential to
materially impact the annual funding requirement for Miami FIPO. The
remainder of this report provides reference information to the Board on the
funding impacts of various assumption changes.
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Assumptions -Salary Scale
Submitted into the public n h a r t
record for item(s) L 3 . y
on 2. 2 (a • ) t7 . City Clerk
Miami FIPO could anticipate a $1.6 million dollar increase in its funding
requirement if anticipated salary increases were lowered by 50 basis points.
Expected salary increases are a combination of expected inflation (3.25%),
promotional increases (1.50%) and merit scale (see below).
5.00%
5.00%
5.00%
0.00%
2.50%
1.00%
0.00%
➢ Plan liabilities are spread out over smaller salaries, which increases costs
(with a capped benefit, liabilities do not decrease as much as salaries).
Federal Reserve estimated inflation to be closer to 2.0% over the next 10
years.
Expected inflation lowered 25 basis points (i.e. to 3.25% from 3.50%) as a
result of previous experience study.
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Assumptions - Retirement
Submitted into the public
record for item(s) p3 .
on 2.76 is . City Clerk
Miami FIPO could anticipate a $2.2 million dollar increase in its annual
funding requirement if retirement rates at 20 years of service were
increased to 50%.
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Retirement rates were modified 10/1/2012 due to the replacement of DROP
with BackDROP for non -vested and new hires.
Service
Police%
<2012 >2012 <2012 >2012
<20
20
21-24
0
40
40
0
10
3
0
0
5 10
5 3
5
25 25
100 25
100 25
100 25
100 25
25-29 1 50 40 1 25
30-31 1 100 50
100 50
33-34 I 100 50
35 100 100
36 1 100 100
32
37 1 100 100 1 100 100
➢ Recent retirees still eligible for DROP program; evidence of entering DROP as
soon as possible.
➢ Insufficient data to determine how BackDROP program influences retirement
patterns for Miami FIPO.
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[�ubrnitted into the public n y h a r t
record for item(s) n .
on 2 7 (,) • I City Clerk
Miami FIPO could anticipate a $1.1 million increase in its annual funding
requirement for every 10 basis point drop in the return assumption (current
assumption is 7.50%
)•
Based on Milliman's Asset Allocation Study (October 27, 2014) and e-mail correspondence with
Bill Cottle, a return of 7.34% would be considered reasonable.
Return
6.34%
0.50%
0.50%
7.34%
Source
10-year geometric average return (Mix E-2) (1)
added benefit of 30-year investment horizon
added benefit of active management
Anticipated Tong -term return
Based on its survey of 126 State pension plans, the National Association of State
Retirement Administrators (NASRA) determined the median return assumption was 7.75%
with nearly 90% of survey respondents falling within the range of 7.0% - 8.0%. One-half
had reduced their return assumption since 2008 ["Issue Brief: Public Pension Plan
Investment Return Assumptions" (October, 2014).] Miami FIPO reduced its assumption by
25 basis points in 2010.
The average annual market rate of return for Miami FIPO over the past 20 years has been
8.7%.
(1) Based on 10-year investment horizon, 2.0% annual inflation, and no active management benefit.
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Assumptions - Mortality Tables nyFiart
Nationally, mortality experience is reviewed and new tables are created approximately
every 10 years. Recent tables include projection scales to allow for anticipated mortality
improvement, and the use of these "generational" tables is encouraged by the actuarial
profession. Displayed below are the expected remaining years of life anticipated through
the use of various mortality tables.
During the past three years in FIPO, more deaths were observed (133) than anticipated
(118), which would indicate that the current table is overestimating life expectancy.
Mortality Table
RP 2000 Projected to 2020 (Scale AA) (1)
Expected
Remaining Years
of Life
( Age 50 Male )
32.8
Expected
Remaining Years
of Life
( Age 65 Male )
19.2
RP 2000 Projected to 2025 (Scale AA)
33.3
19.6
RP 2006 Generational (Scale SSA) — Blue Collar
33.3
RP 2000 Generational (Scale AA) (2)
34.3
19.6
RP 2000 Projected to 2030 (Scale AA)
33.7
19.9
RP 2014 Generational (Scale MP14) — Blue Collar
34.2 20.6
Centers for Disease Control (3)
- U.S.
- Florida
17.7
19.0
(1) Current table in use for Miami FIPO
(2) Table required for State reporting under SB 534
(3) "State -Specific Healthy Life Expectancy at Age 65 Years — United States, 2007-2009",
Morbidity and Mortality Weekly Update, July 19, 2013 (Centers for Disease Control)
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Assumptions - Mortality Tablesnittedintothepublic n h a r t
record for item(s) 1)3 .
on %•Z( •S . City Clerk
Anticipated Increase in
Annual Funding Requirement
($ millions)
RP 2000 Projected to 2020 (Scale AA) (1)
_(2)
RP 2000 Projected to 2025 (Scale AA)
$0.8
RP 2006 Generational (Scale SSA) — Blue Collar $1.2
RP 2000 Generational (Scale AA)
$1.4
RP 2000 Projected to 2030 (Scale AA
$1.5
RP 2014 Generational (Scale MP14) — Blue Collar
(1) Current table in use for Miami FIPO
(2) Preliminary funding requirement is $43.4 million
$2.3
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Recommendations
Submitted into the public
record for item(s) c • )
on 7 • ? (Q • LT._. City Clerk
> Lower components of salary scale at least 50 basis points.
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> No change to retirement rates.
> Decrease expected rate of return. This could be done immediately or
by using a phased reduction over several years.
> Adopt a mortality table that captures generational improvement.
> Adopt a new disability table (this is not expected to have a significant
impact on costs)
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Assumption Changes
Impact on Funding
Source (1)
10/1/2014
(Baseline)
Salary Scale (lower 0.50%)
Funding
($ millions)
$43.4
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Submitted into the public
record for item(s) 3
on 1 City Clerk
Increase to Increase to
Funding Funding (2) Funding
($ millions) (% of pay) (% of pay)
$45.0 $1.6
46.3%
48.0%
1.7%
Retirement Rates (no changes)
$43.4 $0.0 46.3%
0.0%
Discount Rate (lower to 7.25%)
$46.2
$2.8
49.3%
3.0%
Mortality
(RP2006, Blue Collar,
Generational with Scale SSA)
Combined
$44.6 $1.2 47.6%
$49.0
$5.6 52.3%
1.3%
6.0%
(1) Other than the "Combined" result, all other assumption changes are reflected independent of
one another
(2) excluding DROP payroll
NOTE: The results above demonstrate the impact of alternative assumptions on funding
requirements. They have not been discussed with or approved by the Board.
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Certification
Submitted into the public
record for item(s) b3 .
on 2.2(0. City Clerk
nyl-iart
This report has been prepared for the primary purposes of costing various assumption changes to the actuarial
valuation for the Miami Fire Fighters' and Police Officers' Retirement Trust as of October 1, 2014, for consideration by
the Board. To the best of our knowledge, the reports summarized herein present fair positions of the funded status of
the plan in accordance with the Actuarial Standards of Practice as described by the American Academy of Actuaries,
and are based on the plan provisions and assumptions summarized within the valuation report.
Future actuarial measurements may differ significantly from the current measurements presented in this report due to
such facts 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 the end of an amortization period or
other additional cost or contribution requirement based on the plan's funded status); and changes in plan provisions
of applicable law. The scope of our assignment did not include an analysis of the potential range of future
measurements.
Neither Nyhart nor any of its employees have any relationship with the plan or its sponsor which could impair or
appear to impair the objectivity of this report. To the extent that this report or any attachment concerns tax matters, it
is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be
imposed by law.
The undersigned are compliant with the continuing education requirements of the Qualification Standards for
Actuaries Issuing Statements of Actuarial Opinion in the United States.
To our knowledge there have been no significant events prior to the current year's measurement date or as of the date
of this report which could materially affect the results contained herein.
Nyhart
David D. Harris, ASA, FCA, EA, MAAA
2000 RiverEdge Parkway, Suite 900
Atlanta, GA 30328
770-405-0755
Heath W. Merlak, FSA, FCA, EA, MAAA
101 West Vandalia Street, Suite 240
Edwardsville, IL 62025
618-307-5523
January 30, 2015
Date www.nyhart.com
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