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TY19 OPEB Indirect Tax Levy Actuarial Report - Not Taking Liquid Assets & A-R Into Account Lauterbach & Amen, LLP 668 N. River Road Naperville, IL 60563 Actuarial Valuation as of May 1, 2019 VILLAGE OF ALSIP, ILLINOIS Utilizing Data as of April 30, 2019 For the Contribution Year May 1, 2019 to April 30, 2020 LAUTERBACH & AMEN, LLP Actuarial Valuation – OPEB Funding Recommendation VILLAGE OF ALSIP, ILLINOIS Contribution Year Ending: April 30, 2020 Actuarial Valuation Date: May 1, 2019 Utilizing Data as of April 30, 2019 Submitted by: Lauterbach & Amen, LLP 630.393.1483 Phone www.lauterbachamen.com Contact: Todd A. Schroeder August 21, 2019 LAUTERBACH & AMEN, LLP TABLE OF CONTENTS Village of Alsip, Illinois Table of Contents ACTUARIAL CERTIFICATION .............................................................................................................. 1 MANAGEMENT SUMMARY .................................................................................................................. 2 Contribution Recommendation ............................................................................................................................................ 3 Funded Status ...................................................................................................................................................................... 3 Management Summary – Comments and Analysis ............................................................................................................. 4 Actuarial Recommended Contribution – Reconciliation ..................................................................................................... 7 VALUATION OF PLAN ASSETS ............................................................................................................ 8 Fair Market Value of Assets ................................................................................................................................................ 9 Market Value of Assets (Gain)/Loss .................................................................................................................................. 10 Development of the Actuarial Value of Assets .................................................................................................................. 11 (Gain)/Loss on the Actuarial Value of Assets ................................................................................................................... 11 Historical Asset Performance ............................................................................................................................................ 12 RECOMMENDED CONTRIBUTION DETAIL ..................................................................................... 13 Actuarial Accrued Liability ............................................................................................................................................... 14 Funded Status .................................................................................................................................................................... 14 Contribution Recommendation .......................................................................................................................................... 15 Normal Cost as a Percentage of Expected Payroll ............................................................................................................. 15 Schedule of Amortization – Unfunded Actuarial Liability ................................................................................................ 15 Actuarial Methods – Recommended Contribution ............................................................................................................ 16 ACTUARIAL VALUATION DATA ....................................................................................................... 17 Active Employees .............................................................................................................................................................. 18 Inactive Employees ............................................................................................................................................................ 18 Summary of Average Age and Service .............................................................................................................................. 18 Actuarial Numbers By Group ............................................................................................................................................ 19 ACTUARIAL FUNDING POLICIES ...................................................................................................... 20 Actuarial Cost Method ....................................................................................................................................................... 21 Financing Unfunded Actuarial Accrued Liability.............................................................................................................. 21 Actuarial Value of Assets .................................................................................................................................................. 21 ACTUARIAL ASSUMPTIONS ............................................................................................................... 22 Nature of Actuarial Calculations ....................................................................................................................................... 23 Actuarial Assumptions in the Valuation Process ............................................................................................................... 23 Actuarial Assumptions Utilized ......................................................................................................................................... 24 Actuarial Assumptions Utilized – Continued .................................................................................................................... 25 Actuarial Assumptions Utilized – Continued .................................................................................................................... 26 Actuarial Assumptions Utilized – Continued .................................................................................................................... 27 Actuarial Assumptions Utilized – Continued .................................................................................................................... 28 Actuarial Assumptions Utilized – Continued .................................................................................................................... 29 SUMMARY OF PRINCIPAL PLAN PROVISIONS .............................................................................. 30 Summary of Eligibility and Coverage ............................................................................................................................... 31 TABLE OF CONTENTS Village of Alsip, Illinois Table of Contents GLOSSARY OF TERMS ......................................................................................................................... 35 Glossary of Terms .............................................................................................................................................................. 36 Village of Alsip, Illinois Page 1 ACTUARIAL CERTIFICATION This report documents the results of the actuarial valuation of Village of Alsip, Illinois’s Other Postemployment Benefits (OPEB) Plan. The purpose is to report the actuarial contribution requirement for the contribution year May 1, 2019 to April 30, 2020. Determinations for purposes other than meeting the employer’s actuarial contribution requirements may be significantly different from the results herein. The results shown throughout this report reflect funding using assets of $0, pursuant to GASB standards. Note that GASB does not require funding and does not provide any mandates on funding if it is elected. The results in this report are based on information and data submitted by the Village of Alsip, Illinois. This is the first year we have prepared the OPEB funding actuarial valuation as this is the first year the OPEB Plan is funded by a designated OPEB Trust. An audit of the information was not performed, but high-level reviews were performed for general reasonableness, as appropriate, based on the purpose of the valuation. The accuracy of the results is dependent upon the accuracy and completeness of the underlying information. The results of the actuarial valuation and these supplemental disclosures rely on the information provided. The valuation results summarized in this report involve actuarial calculations that require assumptions about future events. The Village of Alsip, Illinois selected certain assumptions, while others were the result of guidance and/or judgment. We believe that the assumptions used in this valuation are reasonable and appropriate for the purposes for which they have been used. To the best of our knowledge, all calculations are in accordance with the applicable funding requirements, and the procedures followed and presentation of results conform to generally accepted actuarial principles and practices. The undersigned of Lauterbach & Amen, LLP, with actuarial credentials, meets the Qualification Standards of the American Academy of Actuaries to render this Actuarial Opinion. There is no relationship between the Village of Alsip, Illinois and Lauterbach & Amen, LLP that impairs our objectivity. The information contained in this report was prepared for the use of the Village of Alsip, Illinois in connection with our actuarial valuation. It is not intended or necessarily suitable for other purposes. It is intended to be used in its entirety to avoid misrepresentations. Respectfully Submitted, LAUTERBACH & AMEN, LLP Todd A. Schroeder, EA MANAGEMENT SUMMARY Contribution Recommendation Funded Status Management Summary Actuarial Recommended Contribution – Reconciliation MANAGEMENT SUMMARY Village of Alsip, Illinois Page 3 CONTRIBUTION RECOMMENDATION Prior Current Valuation Valuation OPEB Contribution Recommendation^$2,942,824 $3,116,804 Annual Covered Payroll $8,573,319 $8,839,089 Contribution Recommendation as a Percent of Annual Covered Payroll 34.33%35.26% The Recommended Contribution has Increased by $173,980 from the Prior Valuation. ^The Contribution Recommendation for the current valuation includes $0 for administrative expenses. In future years, the contribution will include an administrative cost based upon the three-year average of administrative expenses. FUNDED STATUS Prior Current Valuation Valuation Normal Cost $680,590 $647,999 Administrative Expenses $0 $0 Market Value of Trust Assets $0 $0 Actuarial Value of Assets $0 $0 Actuarial Accrued Liability $33,646,876 $34,659,557 Unfunded Actuarial Accrued Liability $33,646,876 $34,659,557 Percent Funded Market Value of Assets 0.00%0.00% Actuarial Value of Assets 0.00%0.00% The Percent Funded has Increased by 0.00% on an Actuarial Value of Assets Basis. MANAGEMENT SUMMARY Village of Alsip, Illinois Page 4 MANAGEMENT SUMMARY – COMMENTS AND ANALYSIS This is the second funding report for the Village of Alsip, Illinois. The Village is currently in the process of setting up a Trust dedicated to the payment of OPEB benefits. The results shown throughout this report reflect funding using assets of $0, pursuant to GASB standards. Note that GASB does not require funding and does not provide any mandates on funding if it is elected. Contribution Results The contribution recommendation is based on the funding policies and procedures that are outlined in the “Actuarial Funding Policies” section of this report. OPEB Plan Risks Asset Growth: OPEB funding involves preparing plan assets to pay benefits for the members when they retire. During their working careers, assets need to build with contributions and investment earnings, and then the OPEB plan distributes assets during retirement. As the Village is currently in the process of setting up an OPEB Trust, there are no plan assets in existence to evaluate for the current year. Asset growth is important long-term. Long-term cash flow out of the OPEB Trust is primarily benefit payments. Expenses make up a smaller portion. The plan should monitor the impact of expected benefit payments and the impact on asset growth in the future. In the next 5 years, benefit payments are anticipated to increase 15-20%, or approximately $190,000. In the next 10 years, the expected increase in benefit payments is 35-40%, or approximately $450,000. Unfunded Liability: Unfunded liability represents dollars we expect to be in the OPEB Trust already for the plan members based on funding policy. To the extent dollars are not in the plan, the plan is losing investment returns on those dollars going forward. Payments to unfunded liability pay for the lost investment earnings, as well as the outstanding unfunded amount. If payment is not made, the unfunded liability will grow. The current contribution includes a payment to unfunded liability that is approximately $170,000 greater than the interest on the unfunded liability. All else being equal and contributions being made, unfunded liability would still be expected to decrease. The Village and the plan should anticipate currently that improvement in the funded percent will be mitigated in the short-term. The Village and the plan should understand this impact as we progress forward to manage expectations. Actuarial Value of Assets: The OPEB plan smooths asset returns that vary from expectations over a five-year period. The intention over time is that asset returns for purposes of funding recommendations are a combination of several years. The impact is intended to smooth out the volatility of contribution recommendations over time, but not necessarily increase or decrease the level of contributions over the long-term. MANAGEMENT SUMMARY Village of Alsip, Illinois Page 5 When asset returns are smoothed, there are always gains or losses on the Market Value of Assets that are going to be deferred for current funding purposes and recognized in future years. As the Village is currently in the process of setting up a Trust, there are no assets gains or losses to be deferred or recognized. Prospectively the gains/losses on the assets will be smoothed over 5 years. Plan Assets The results in this report are based on the assets held in the OPEB plan. Assets consist of funds held for investment and for benefit payments as of the valuation date. In addition, assets may be adjusted for other events representing dollars that are reasonably expected to be paid out from the OPEB plan or deposited into the OPEB plan after the actuarial valuation date as well. The Village is currently in the process of setting up a Trust dedicated to the payment of OPEB benefit. There are currently no OPEB plan assets. The actuarial value of assets under the funding policy is equal to the fair market value of assets, with unexpected gains and losses smoothed over 5 years. More detail on the Actuarial Value of Assets can be found in the funding policy section of the report. Demographic Data Demographic factors can change from year to year within an OPEB plan. Changes in this category include hiring new employees who are eligible for OPEB benefits, employees retiring and continuing or waiving OPEB benefits, retirees receiving OPEB benefits passing away, and other changes. Demographic changes can cause an actuarial gain (contribution that is less than expected compared to the prior year) or an actuarial loss (contribution that is greater than expected compared to the prior year). Demographic gains and losses occur when the assumptions over the one-year period for employee changes do not meet our long-term expectation. For example, if all retiring participants waive OPEB benefits during the year, we would expect a liability gain. If more retiring participants elect spousal coverage than anticipated last year, we would expect a liability loss. Generally, we expect short-term fluctuations in demographic experience to create 1%-3% gains or losses in any given year, but to balance out in the long-term. In the current report, the key demographic changes were as follows: New Hires: There are 32 new active participants in the current census. Since these new participants will not be eligible for Village-paid coverage once Medicare-eligible, this caused a decrease in the actuarial liability in the current year. There are Currently No Trust Assets. MANAGEMENT SUMMARY Village of Alsip, Illinois Page 6 Retirement: There was 1 active participant who retired since the prior valuation and did not continue coverage. Since we assume 100% participation at retirement, this caused a decrease in the actuarial liability in the current year. Mortality: There were 3 retirees who passed since the prior valuation. They passed away sooner than expected which caused a decrease in the actuarial liability in the current year. Changes The current valuation includes explicit liability based on the 40% Excise Tax. The tax is assumed to be applied for annual health plan costs that exceed $11,850 for single coverage and $30,950 for non-single coverage. This threshold is assumed to increase by the CPI-U plus 1% in 2019 and just by the CPI-U thereafter. The CPI-U is assumed to be 2.50%. Funding Policy Changes The Funding Policy was not changed from the prior year. MANAGEMENT SUMMARY Village of Alsip, Illinois Page 7 ACTUARIAL RECOMMENDED CONTRIBUTION – RECONCILIATION Actuarial Accrued Liability is expected to increase each year for both interest for the year and as active employees earn additional service years towards retirement. Similarly, Actuarial Accrued Liability is expected to decrease when the Plan pays benefits to inactive participants. Actuarial Recommended Liability Contribution Prior Valuation $33,646,876 $2,942,824 Expected Changes 1,394,591 88,285 Initial Expected Current Valuation $35,041,467 $3,031,109 Other increases or decreases in Actuarial Accrued Liability (key changes noted below) will increase or decrease the amount of Unfunded Liability in the plan. To the extent Unfunded Liability increases or decreases unexpectedly, the contribution towards Unfunded Liability will also change unexpectedly. Actuarial Recommended Liability Contribution Demographic Changes (1,074,287) (175,521) Differences Between Expected and Actual Experience ^692,377 95,479 Asset Return Less than Expected *- 3,030 Contributions Less than Expected - 162,707 Total Actuarial Experience (381,910)$ 85,695$ Current Valuation 34,659,557$ 3,116,804$ ^The differences between expected and actual experience is based on the inclusion of the Excise Tax in the current valuation. Key demographic changes were discussed in the Demographic Data section of this report. Changes in assumptions were discussed in the Assumption Changes section of this report. VALUATION OF PLAN ASSETS Fair Market Value of Assets Actuarial Value of Assets VALUATION OF PLAN ASSETS Village of Alsip, Illinois Page 9 FAIR MARKET VALUE OF ASSETS Statement of Assets Cash and Cash Equivalents $- $- Fixed Income - - Mutual Funds - - Receivables (Net of Payables)$- $- Net Assets Available for OPEB Benefits - - Prior Current Valuation Valuation There are Currently No Trust Assets. Statement of Changes in Assets Total Market Value - Prior Year $- Plus - Employer Contributions - Plus - Employee Contributions - Plus - Return on Investments - Less - Benefit and Related Payments - Less - Other Expenses - Total Market Value - Current Valuation $- There are Currently No Trust Assets. The return on investments will be determined as the Return on Assets from the statement of changes in assets, as a percent of the average of the beginning and ending Market Value of Assets. Return on Investment will not be net of the Other Expenses as shown, as the Village will explicitly handle the cost of the administrative expense for the OPEB plan. The Return on Investments will be excluded from the Total Fair Market Value of Assets at the end of the year for future calculation. The assets will be reviewed for reasonableness, but we will make no representation as to the accuracy of the measurement of the fair market value of the investments or the designation as an irrevocable Trust used solely for the purpose of paying OPEB benefits. VALUATION OF PLAN ASSETS Village of Alsip, Illinois Page 10 MARKET VALUE OF ASSETS (GAIN)/LOSS Current Year (Gain)/Loss on Market Value of Assets Total Market Value - Prior Year $- Contributions - Benefit Payments - Expected Return on Investments - Expected Total Market Value - Current Valuation - Actual Total Market Value - Current Valuation - Current Market Value (Gain)/Loss $- Expected Return on Investments $- Actual Return on Investments (Net of Expenses)- Current Market Value (Gain)/Loss $- There are Currently No Trust Assets. As there are currently no assets in the OPEB Trust, there is no (Gain)/Loss on the Market Value of Assets. In the future, the (Gain)/Loss on the Market Value of Assets will be determined on expected returns at the actuarial rate. VALUATION OF PLAN ASSETS Village of Alsip, Illinois Page 11 DEVELOPMENT OF THE ACTUARIAL VALUE OF ASSETS Total Market Value - Current Valuation $- Adjustment for Prior (Gains)/Losses First Preceding Year $- - Second Preceding Year - - Third Preceding Year - - Fourth Preceding Year - - Total Deferred (Gain)/Loss - Initial Actuarial Value of Assets - Current Valuation $- Less Contributions for the Current Year and Interest - Less Adjustment for the Corridor - Actuarial Value of Assets - Current Valuation $- Full Amount There are Currently No Trust Assets. (GAIN)/LOSS ON THE ACTUARIAL VALUE OF ASSETS Total Actuarial Value - Prior Valuation $- Plus - Employer Contributions - Plus - Employee Contributions - Plus - Return on Investments - Less - Benefit and Related Payments - Less - Other Expenses - Total Actuarial Value - Current Valuation $- There are Currently No Trust Assets. The Actuarial Value of Assets incorporates portions of gains and losses over multiple years. VALUATION OF PLAN ASSETS Village of Alsip, Illinois Page 12 HISTORICAL ASSET PERFORMANCE The chart below shows the historical rates of return on plan assets for both Market Value of Assets and Actuarial Value of Assets. Market Actuarial Value Value First Preceding Year N/A N/A Second Preceding Year N/A N/A No historical rates have been developed as the Village does not currently have a Trust dedicated to the payment of OPEB benefits. We will begin developing a historical asset performance in the following valuation. RECOMMENDED CONTRIBUTION DETAIL Actuarial Accrued Liability Funded Status Contribution Recommendation Normal Cost as a Percentage of Expected Payroll Schedule of Amortization – Unfunded Actuarial Liability Actuarial Methods – Recommended Contribution RECOMMENDED CONTRIBUTION DETAIL Village of Alsip, Illinois Page 14 ACTUARIAL ACCRUED LIABILITY Total Active Employees $13,108,075 $13,143,761 Inactive Employees Currently Receiving Benefit Payments 20,538,801 21,515,796 Entitled to But Not Yet Receiving Benefit Payments - - Total Inactive Employees 20,538,801 21,515,796 Total Actuarial Accrued Liability $33,646,876 $34,659,557 Prior Current Valuation Valuation The Total Actuarial Liability has Increased $1,012,681 from Prior Year. FUNDED STATUS Total Actuarial Accrued Liability $33,646,876 $34,659,557 Total Actuarial Value of Assets - - Unfunded Actuarial Accrued Liability $33,646,876 $34,659,557 Total Market Value of Assets $- $- Percent Funded Actuarial Value of Assets Market Value of Assets 0.00%0.00% Prior Current Valuation Valuation 0.00%0.00% Funded Percentage as of the Valuation Date is Subject to Volatility on Assets and Liability in the Short-Term. RECOMMENDED CONTRIBUTION DETAIL Village of Alsip, Illinois Page 15 CONTRIBUTION RECOMMENDATION Employer Normal Cost*$680,590 $690,119 Adminstrative Expenses - - Amortization of Unfunded Accrued Liability/(Surplus)2,262,234 2,426,685 Funding Requirement $2,942,824 $3,116,804 Valuation Valuation Prior Current The Recommended Contribution has Increased 5.91% from the Prior Year. *Employer Normal Cost Contribution includes interest through the end of the year. NORMAL COST AS A PERCENTAGE OF EXPECTED PAYROLL Expected Payroll $8,787,652 $9,104,261 Employer Normal Cost Rate 7.27%7.12% Prior Current Valuation Valuation Ideally, the Employer Normal Cost Rate will Remain Stable. SCHEDULE OF AMORTIZATION – UNFUNDED ACTUARIAL LIABILITY Below is the schedule of remaining amortization balances for the unfunded liability. Initial Date Current Years Unfunded Liability Base Balance Established Balance Remaining Payment Initial Unfunded Liability 33,646,876$ 4/30/2018 33,571,689$ 21 2,330,101 New Unfunded Liability 1,087,868$ 4/30/2019 1,087,868$ 15 96,584 Total 34,659,557$ 2,426,685$ RECOMMENDED CONTRIBUTION DETAIL Village of Alsip, Illinois Page 16 ACTUARIAL METHODS – RECOMMENDED CONTRIBUTION Actuarial Valuation Date Data Collection Date Actuarial Cost Method Entry Age Normal (Level % of Pay) Amortization Method Level % of Pay (Closed) Amortization Target Layered - See Page 15 Asset Valuation Method 5- Year Smoothed Market Value May 1, 2019 April 30, 2019 The contribution and benefit values of the plan are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described. The actuarial cost and amortization method allocates the projected obligations of the plan over the working lifetimes of the plan participants. The recommended contribution amount shown in this report is based on the methods summarized on the previous page. The Actuarial Funding Policies section of the report will include a more detailed description of the funding methods being used. The Actuarial Funding Methods are meant to provide a systematic process for determining contributions on an annual basis. The methods do not impact the expectation of future benefit payments. The methods only impact the way dollars are contributed towards future benefit payments. Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain methods are more efficient and more stable on an annual basis. ACTUARIAL VALUATION DATA Active Employees Inactive Employees Summary of Average Age and Service Actuarial Numbers by Group ACTUARIAL VALUATION DATA Village of Alsip, Illinois Page 18 ACTIVE EMPLOYEES Not Yet Fully Eligible 113 111 Fully Eligible 9 7 Total Active Employees 122 118 Total Payroll $8,573,319 $8,839,089 Prior Current Valuation Valuation Participant count is shown as of the fiscal year end date. Pay is the total covered payroll as of the fiscal year end date. The above active census counts include 6 IMRF participants, 3 firefighter participants, and 2 police participants who have waived medical coverage. If an employee has waived active medical coverage, it is assumed they will elect coverage in the retiree medical plan at 1/3 the rate of active employees currently with coverage. INACTIVE EMPLOYEES Retired Employees 68 73 Disabled Employees 15 14 Total Inactive Employees 83 87 Prior Current Valuation Valuation SUMMARY OF AVERAGE AGE AND SERVICE Actives Not Yet Fully Eligible Average Age (in Years)38 38 Average Service (in Years)8 9 Actives Fully Eligible Average Age (in Years)55 54 Average Service (in Years)26 23 Retired Employees Average Age (in Years)66 67 Disabled Employees Average Age (in Years)61 62 Valuation Valuation Prior Current ACTUARIAL VALUATION DATA Village of Alsip, Illinois Page 19 ACTUARIAL NUMBERS BY GROUP Actuarial Accrued Liability Active Employees 5,297,883$ 5,114,736$ 1,012,069$ 1,037,587$ 681,485$ 13,143,761$ Retired Employees 5,184,032 7,131,517 2,163,585 874,227 681,360 16,034,721 Disabled Employees 3,614,291 1,866,784 - - - 5,481,075 Total Actuarial Accrued Liability 14,096,207$ 14,113,037$ 3,175,654$ 1,911,814$ 1,362,845$ 34,659,557$ Contribution Recommendation Employer Normal Cost*281,787$ 290,601$ 37,552$ 50,460$ 29,720$ 690,119$ Administrative Expense - - - - - - Amortization of Unfunded Accrued Liability/(Surplus)990,899 987,207 205,519 144,132 98,928 2,426,685 Funding Recommendation 1,272,686$ 1,277,808$ 243,071$ 194,592$ 128,648$ 3,116,804$ Participant Counts Active Employees 40 43 14 13 8 118 Retired Employees 22 29 18 2 2 73 Disabled Employees 11 3 0 0 0 14 Total Participants 73 75 32 15 10 205 Active Employee Statistics Average Age (in Years)39 35 0 39 43 39 Average Service (in Years)10 9 0 10 11 10 TotalWater DepartmentDivisionFirePoliceGeneral Fund - IMRF Road and Bridge Fund *Employer Normal Cost Contribution includes interest through the end of the year. ACTUARIAL FUNDING POLICIES Actuarial Cost Method Financing Unfunded Accrued Liability Actuarial Value of Assets ACTUARIAL FUNDING POLICIES Village of Alsip, Illinois Page 21 ACTUARIAL COST METHOD The actuarial cost method allocates the projected obligations of the plan over the working lifetimes of the plan participants. In accordance with the OPEB Plan’s funding policy, the actuarial cost method for the recommended contribution basis is Entry Age Normal (Level Percent of Pay). The Entry Age Normal Cost Method is a method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age. The portion of this actuarial present value allocated to a valuation year is called normal cost. The portion of the actuarial present value not provided at a valuation date by the actuarial present value of future normal costs is called the actuarial liability. FINANCING UNFUNDED ACTUARIAL ACCRUED LIABILITY The Unfunded Actuarial Accrued Liability may be amortized over a period either in level dollar amounts or as a level percentage of projected payroll. In accordance with the OPEB Plan’s Funding Policy for the recommended contribution, the unfunded actuarial accrued liabilities are amortized by level percent of payroll contributions to a 100% funding target over a layered amortization target. See page 14 for further details. ACTUARIAL VALUE OF ASSETS The OPEB plan is an ongoing plan. The employer wishes to smooth the effect of volatility in the market value of assets on the annual contribution. The Actuarial Value of Assets is equal to the Market Value of Assets with unanticipated gains/losses recognized over five years. The asset valuation method is intended to create an Actuarial Value of Assets that remains reasonable in relation to the Market Value of Assets over time. The method produces results that can fall above and below the Market Value of Assets. The period of recognition is short. It is intended that the period of recognition is short enough to keep the Actuarial Value of Assets within a decent range of the Market Value. The employer has placed a corridor around the Market Value of Assets of 90% - 110%. ACTUARIAL ASSUMPTIONS Nature of Actuarial Calculations Actuarial Assumptions in the Valuation Process Actuarial Assumptions Utilized ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 23 NATURE OF ACTUARIAL CALCULATIONS The results documented in this report are estimates based on data that may be imperfect and on assumptions about future events. Certain plan provisions may be approximated or deemed immaterial, and, therefore, are not valued. Assumptions may be made about participant data or other factors. Reasonable efforts were made in this valuation to ensure that significant items in the context of the actuarial liabilities or costs are treated appropriately, and not excluded or included inappropriately. Actual future experience will differ from the assumptions used in the calculations. As these differences arise, the expense for accounting purposes will be adjusted in future valuations to reflect such actual experience. A range of results different from those presented in this report could be considered reasonable. The numbers are not rounded, but this is for convenience only and should not imply precision which is not inherent in actuarial calculations. ACTUARIAL ASSUMPTIONS IN THE VALUATION PROCESS The contribution and benefit values of the OPEB plan are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described in the previous section. The principal areas of financial risk which require assumptions about future experience are:  Long-term Rates of Investment Return  Patterns of Pay Increases for Members  Rates of Mortality Among Members and Beneficiaries  Rates of Election of Coverage upon Retirement  Rates of Disability Among Members  Age Patterns of Actual Retirement Actual experience of the OPEB plan will not coincide exactly with assumed experience. Each valuation provides a complete recalculation of assumed future experience and takes into account all past differences between assumed and actual experience. The result is a continual series of adjustments to the computed contribution requirement. From time to time it becomes appropriate to modify one or more of the assumptions, to reflect experience trends (but not random year-to-year fluctuations). ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 24 ACTUARIAL ASSUMPTIONS UTILIZED Assumptions (Economic) Long-Term Expected Rate of Return on Plan Assets 6.50% Total Payroll Increases 3.00% Claims and Premiums See Accompanying Tables Healthcare Cost Trend Rates See Accompanying Tables Retiree Contribution Rates Same as Healthcare Cost Trend Rates Claims See accompanying tables for the HCA and HDHP with H.S.A. Plan data: Age Male Female Male Female 50 $10,240 $12,252 $17,625 $17,818 55 $12,999 $13,969 $17,599 $16,918 60 $16,267 $16,810 $18,668 $17,853 64 $19,250 $20,114 $20,185 $20,596 65 N/A N/A N/A N/A 70 N/A N/A N/A N/A 75 N/A N/A N/A N/A 80 N/A N/A N/A N/A 85 N/A N/A N/A N/A 90+N/A N/A N/A N/A HCA Retiree Spouse ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 25 ACTUARIAL ASSUMPTIONS UTILIZED – CONTINUED Claims – Continued Age Male Female Male Female 50 $9,270 $11,092 $15,955 $16,130 55 $11,767 $12,646 $15,932 $15,316 60 $14,726 $15,218 $16,900 $16,162 64 $17,426 $18,208 $18,273 $18,645 65 N/A N/A N/A N/A 70 N/A N/A N/A N/A 75 N/A N/A N/A N/A 80 N/A N/A N/A N/A 85 N/A N/A N/A N/A 90+N/A N/A N/A N/A HDHP with H.S.A. Retiree Spouse Blended Premium Rates See accompanying table for premiums charged for coverage: Retiree Spouse Retiree Spouse HCA $10,312 $9,991 N/A N/A HDHP with H.S.A.$9,364 $9,060 N/A N/A Benistar N/A N/A $5,782 $5,782 Annual Blended Premiums Under Age 65 Age 65-&-Over ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 26 ACTUARIAL ASSUMPTIONS UTILIZED – CONTINUED Health Care Trend Rates Healthcare Trend (FY = Fiscal Year) Period U65 65+ FY 18 to FY 19 8.00%5.00% FY 19 to FY 20 7.50%5.00% FY 20 to FY 21 7.50%5.00% FY 21 to FY 22 7.00%5.00% FY 22 to FY 23 7.00%5.00% FY 23 to FY 24 6.50%5.00% FY 24 to FY 25 6.50%5.00% FY 25 to FY 26 6.00%5.00% FY 26 to FY 27 6.00%5.00% FY 27 to FY 28 5.50%5.00% FY 28 to FY 29 5.50%5.00% FY 29 to FY 30 5.00%5.00% Ultimate 5.00%5.00% Medical Assumptions (Demographic) Election at Retirement Rates Election at retirement is assumed at the following rates: IMRF 100% Firefighters 100% Police 100% IMRF - Waiving Coverage 33% Firefighters - Waiving Coverage 33% Police - Waiving Coverage 33% If an employee has waived active medical coverage, it is assumed they will elect coverage in the retiree medical plan at 1/3 the rate of active employees currently with coverage. Spousal Election Of those employees assumed to elect coverage in retirement, 75% are assumed to elect spousal coverage. Female spouses are assumed to be 3 years younger than male spouses. ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 27 ACTUARIAL ASSUMPTIONS UTILIZED – CONTINUED Plan Participation Rate Of those employees assumed to elect coverage in retirement, it is assumed they will elect coverage in the available medical plans at the following rates: IMRF Firefighters Police HCA 100%100%100% HDHP with H.S.A.0%0%0% Retiree Lapse Rates Retirees receiving medical coverage are expected to lapse all coverages at age 65 at the following rates: IMRF 0% Firefighters 0% Police 0% Retirement Rates IMRF 2017 for IMRF Employees 100% of the L&A Assumption Study Cap Age 65 for Firefighters 2016. Sample Rates as Follows: Age Rate Age Rate 50 0.068 53 0.111 51 0.080 54 0.132 52 0.094 55 0.155 100% of the L&A Assumption Study Cap Age 65 for Police 2016. Sample Rates as Follows: Age Rate Age Rate 50 0.117 53 0.139 51 0.124 54 0.147 52 0.131 55 0.156 ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 28 ACTUARIAL ASSUMPTIONS UTILIZED – CONTINUED Termination Rates IMRF 2017 for IMRF Employees 100% of the L&A Assumption Study for Firefighters 2016. Sample Rates as Follows: Age Rate Age Rate 25 0.046 40 0.010 30 0.034 45 0.002 35 0.022 50 0.000 100% of the L&A Assumption Study for Police 2016. Sample Rates as Follows: Age Rate Age Rate 25 0.041 40 0.027 30 0.039 45 0.014 35 0.036 50 0.003 Disability Rates IMRF 2017 for IMRF Employees 100% of the L&A Assumption Study for Firefighters 2016. Sample Rates as Follows: Age Rate Age Rate 25 0.0001 40 0.0030 30 0.0003 45 0.0055 35 0.0013 50 0.0092 100% of the L&A Assumption Study for Police 2016. Sample Rates as Follows: Age Rate Age Rate 25 0.0005 40 0.0028 30 0.0010 45 0.0043 35 0.0018 50 0.0064 ACTUARIAL ASSUMPTIONS Village of Alsip, Illinois Page 29 ACTUARIAL ASSUMPTIONS UTILIZED – CONTINUED Mortality Rates Active IMRF Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study. These Rates are Improved Generationally using MP-2017 Improvement Rates and Weighted Based on the IMRF December 31, 2017 Actuarial Valuation. Retiree and Spousal IMRF Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2017 Improvement Rates. Active Firefighter Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Retiree Firefighter Mortality follows the L&A Assumption Study for Firefighters 2016. These Rates are Experience Weighted with the Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment and Improved Generationally using MP-2016 Improvement Rates. Active Police Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Retiree Police Mortality follows the L&A Assumption Study for Police 2016. These Rates are Experience Weighted with the Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment and Improved Generationally using MP-2016 Improvement Rates. Disabled Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study for Disabled Participants, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Spouse Mortality follows the Sex Distinct Raw Rates as developed in the RP-2014 Study. These rates are improved generationally using MP-2016 Improvement Rates. SUMMARY OF PRINCIPAL PLAN PROVISIONS Summary of Eligibility and Coverage Medical/Prescription Coverage Provisions Dental and Vision Coverage Provisions SUMMARY OF PRINCIPAL PLAN PROVISIONS Village of Alsip, Illinois Page 31 SUMMARY OF ELIGIBILITY AND COVERAGE Eligibility Provisions – To Retire with Applicable Pension Full-Time Employees- IMRF, Police, and Fire Tier I Full-Time IMRF employees: Age 55 with at least 8 years of service (Reduced Pension) Age 55 with at least 30 years of service (Reduced Pension) Age 55 with at least 35 years of service (Full Pension) Age 60 with at least 8 years of service (Full Pension) Tier II Full-Time IMRF employees: Age 62 with at least 10 years of service (Reduced Pension) Age 62 with at least 30 years of service (Reduced Pension) Age 62 with at least 35 years of service (Full Pension) Age 67 with at least 10 years of service (Full Pension) Tier I Full-Time Police Officers: Age 50 with at least 20 years of service Tier II Full-Time Police Officers: Age 55 with at least 10 years of service Tier I Full-Time Firefighters: Age 50 with at least 20 years of service Tier II Full-Time Firefighters: Age 55 with at least 10 years of service Eligibility Provisions – To Receive an OPEB Benefit In order to receive the OPEB benefit from the Village, full-time employees must meet the applicable pension requirements detailed above and have a least 20 years of service. SUMMARY OF PRINCIPAL PLAN PROVISIONS Village of Alsip, Illinois Page 32 Medical/Prescription Coverage Types of Coverage: Blue Cross Blue Shield HCA Medical Plan (No Post-Medicare Coverage) Blue Cross Blue Shield HDHP with H.S.A. Medical Plan (No Post-Medicare Coverage) Benistar Medical Plan (Post-Medicare Coverage Only) Coverage Provisions Note: There are current Retirees who have been grandfathered into a previous system based on the contract they retired under. Retiree: If an Employee meets the minimum statutory requirements for receipt of the full retirement pension benefits under the Illinois Pension Code at the time of retirement, the Employee will pay a % of the cost for whichever covered plan (Single, Family, etc.) they elect based on the graduated scale shown detailed at the end of this document. The Village pays the remaining applicable %. Deferred Retiree: Eligible employees who leave employment prior to retirement age and for whom the State of Illinois requires continued coverage, will be required to pay 100% of the current COBRA rates (Police and Fire) or 100% of the current premium rates (IMRF) until they are eligible to receive a pension. If a deferred retiree has met the 20 years of service requirement necessary to receive an OPEB benefit, upon obtaining pension eligibility age they will be subject to the same provisions as a typical retiree. Duty-Disabled: OPEB Tier I (hired before 4/19/2016): For a non-PSEBA, the Employee will pay the Village employee rate for whichever covered plan they elect as dictated by State statue. Upon reaching normal retirement age, the appropriate Village ordinance stated above will apply. For a PSEBA Employee, the Village pays for 100% of the cost of coverage for the SUMMARY OF PRINCIPAL PLAN PROVISIONS Village of Alsip, Illinois Page 33 Duty-Disabled: OPEB Tier II (hired after 4/18/2016): For a non-PSEBA, the Employee will pay the Village employee rate for whichever covered plan they elect as dictated by State statue. Upon reaching normal retirement age, the appropriate Village ordinance stated above will apply. For a PSEBA Employee, the Village pays for 100% of the cost of coverage for the Employee and all applicable dependents for life. They are permitted to remain on insurance past Medicare eligibility. Dependents: Dependent coverage may continue should the Retiree pass away, with the Dependent paying for the applicable percent of the premium they would be paying if the Retiree were alive. OPEB Tier I (hired before 4/19/2016): Should a Retiree become Medicare eligible while their eligible spouse is not, the Retiree would pay 10% of the Medicare plan rate with the Spouse continuing to pay the applicable % of the non-Medicare plan rate. Once the Spouse is Medicare eligible, they would then pay 10% of the Medicare plan rate as well. The rates for Dependent Children are not impacted by the Retiree and/or Spouse becoming Medicare eligible with continuation being based restrictions further detailed in the ACA. OPEB Tier II (hired after 4/18/2016): Should a Retiree become Medicare eligible while their eligible spouse is not, the Retiree would no longer be allowed to continue Village insurance with the Spouse continuing to pay the applicable % of the non-Medicare plan rate. Once the Spouse is Medicare eligible, they too would no longer be allowed to continue Village insurance. The rates for Dependent Children are not impacted by the Retiree and/or Spouse becoming Medicare eligible with continuation being based restrictions further detailed in the ACA. SUMMARY OF PRINCIPAL PLAN PROVISIONS Village of Alsip, Illinois Page 34 % of COBRA Rate (Police and Fire) or Premium (IMRF) Retiree Pays Tier I Tier II Hired before 4/19/2016 Tier II Hired after 4/18/2016 Age at Retirement Years of Service Retiree Coverage Dependent Coverage Retiree Coverage Dependent Coverage 50 – 54 20 50% 50% 75% 100% 55 - 65 20 25% 25% 75% 100% 21 24% 24% 75% 100% 22 23% 23% 75% 100% 23 22% 22% 75% 100% 24 21% 21% 75% 100% 25 20% 20% 75% 100% 26 19% 19% 75% 100% 27 18% 18% 75% 100% 28 17% 17% 75% 100% 29 16% 16% 75% 100% 30+ 15% 15% 75% 100% 65+ 20 10% 10% N/A N/A Dental and Vision Coverage Types of Coverage: Dental Vision Coverage Provisions OPEB Tier I: OPEB Tier I Retirees can continue Dental and/or Vision insurance, paying 100% of the COBRA rate. Coverage may continue past Medicare eligibility. OPEB Tier II: OPEB Tier II Retirees cannot continue Dental and/or Vision insurance. Note: Unlike with medical, PSEBA recipients do not receive Dental and Vision coverage paid by the Village for life. Instead, they are subject to the normal restrictions for participants detailed above. GLOSSARY OF TERMS GLOSSARY OF TERMS Village of Alsip, Illinois Page 36 GLOSSARY OF TERMS Actuarial Accrued Liability –The actuarial present value of future benefits based on employees’ service rendered to the measurement date using the selected actuarial cost method. It is that portion of the Actuarial Present Value of plan benefits and expenses allocated to prior years of employment. It is not provided for by future Normal Costs. Actuarial Cost Method – The method used to allocate the projected obligations of the plan over the working lifetimes of the plan participants. Actuarial Value of Assets – The value of the assets used in the determination of the Unfunded Actuarial Accrued Liability. The Actuarial Value of Assets is related to Market Value of Assets, with adjustments made to spread unanticipated gains and losses for a given year over a period of several years. Actuarial Value of Assets is generally equally likely to fall above or below the Market Value of Assets, and generally does not experience as much volatility over time as the Market Value of Assets. Asset Valuation Method – A valuation method designed to smooth random fluctuations in asset values. The objective underlying the use of an asset valuation method is to provide for the long-term stability of employer contributions. Funding Policy – A set of procedures for a Plan that outlines the “best practices” for funding the OPEB benefits based on the goals of the plan sponsor. A Funding Policy discusses items such as assumptions, Actuarial Cost Method, assets, and other parameters that will best help the sponsor meet their goal of working in the best interest of the plan participant. Market Value of Assets – The value of the cash, bonds, securities and other assets held in the OPEB trust as of the measurement date. Normal Cost –The present value of future benefits earned by employees during the current fiscal year. It is that portion of the Actuarial Present Value of benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. Unfunded Actuarial Accrued Liability – The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. The Unfunded Actuarial Accrued Liability is amortized over a period either in level dollar amounts or as a level percentage of projected payroll.