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AUDIT: 2013 ARC - GASB #45 1 JEFFERSON COUNTY, MONTANA Calculations of the ' Annual Required Contribution (ARC) required by GASB #45 ' Fiscal Year Ended June 30,2013 ' Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANATS ' JEFFERSON COUNTY, MONTANA Fiscal Year Ended June 30, 2013 1 TABLE OF CONTENTS Introduction Letter I ' Definitions 2-4 ' Methods and Assumptions 5 ' Footnotes 6-7 Required Supplementary Information 8 ' Adjustments 9 1 1 1 ' -i- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS P.D. Box 1957,Kalispell, MT 59903-1957 ' (406) 756-6879•FAX(406)157-7879•E-ddail dda!adauditxom Kim M Downey, CPA, CGFM, CFF, CITP Robert K Denning, CPA, CGFM, CFF, CITP ' October 8, 2013 Jefferson County Attn: Bonnie Ramey P.O. Box H Boulder, MT 59632 ' We have prepared this report from census data and underlying assumptions that were presented to us by the Jefferson County. We used this information to assist you in implementing the ' Governmental Accounting Standards Board (GASB) Statement No. 45 `Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions". We have not audited the results of the GASB 445 calculation, accordingly, we express no opinion on ' it. Use of this report is limited to the management of the Jefferson County. 1 /� ,t�A", 6" "-1, lLae.o2.catav ,, CPN s, PC. ' Denning, Downey and Associates CPA's P.C. -1- ' Definitions GASB 45 defines several unique terms not commonly employed. The definitions of the terms ' used in the GASB actuarial valuations are noted below. Actuarial Accrued Liability That portion, as determined by a particular Actuarial (AAL) Cost Method, of the Actuarial Present Value of plan benefits and expenses which is not provided for by the future Normal Costs. Actuarial Assumptions Assumptions as to the occurrence of future events affecting health care costs, such as: mortality, ' withdrawal, disablement and retirement; changes in compensation and Government provided health care benefits; rates of investment earnings and assets ' appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants of Open Group Actuarial Cost ' Methods; and other relevant items. Actuarial Cost Method A procedure for determining the Actuarial Present Value ' of future benefits and expenses and for developing and actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost and an ' Actuarial Accrued Liability. Actuarial Present Value The value of an amount or series of amounts payable or ' receivable at various times, determined as of a given date by the application of a particular set of Actuarial ' Assumptions. For purposes of this standard, each such amount or series of amounts is: a) Adjusted for the probable financial effect of ' certain intervening events (such as changes in compensation levels, Social Security, marital status, etc.); ' b) Multiplied by the probability of the occurrence of an event (such as survival death, disability, termination of employment, etc.) on which the ' payment is conditioned; and c) Discounted according to an assumed rate (or rates) of return to reflect the time value of ' money. Annual OPEB Cost An accrual-basis measure of the periodic cost of an employer's participation in a defined benefit OPEB plan. ' -2 Annual Required Contribution The employer's periodic required contributions to a (ARC) defined benefit OPEB plan, calculation in accordance ' with the parameters. Funded Ratio The actuarial value of assets expressed as a percentage ' of the actuarial accrued liability. Healthcare cost trend rate The rate of change in the per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. ' Implicit Subsidy In an experience-rated healthcare plan that includes both active employees and retirees with blended premium rates for all plan members,the difference between: a) The age-adjusted premiums approximating claim costs for retirees in the group (which, because of the effect of age on claim costs, generally will be higher than the blended premium rates for all group members); and b) The amounts required to be contributed by the retirees. ' Member A member is defined as: 1. An employee in active service. 2. Terminated employees that can receive benefits. 3. Retired employees currently receiving benefits. 4. Spouses of retired employees currently receiving ' benefits. Net OPEB Obligation The cumulative difference since the effective date of this Statement between annual OPEB cost and the employer's contributions to the plan, including the OPEB liability (asset) at transition, if any, and excluding: a) Short-term differences; and b) Unpaid contributions that have been converted to OPEB- related debt. ' Normal Cost The portion of the Actuarial Present Value of plan benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. ' -3- ' Pay-as-you-go A method of financing a benefit 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. ' Per Capita Costs The current cost of providing postretirement health care benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan. Present Value of Future Benefits Total projected benefits include all benefits estimated to ' be payable to plan members (retirees and beneficiaries, terminated employees entitled to benefits but not yet receiving them, and current active members) as a result ' of their service through the valuation date and their expected future service. The actuarial present value of total projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value (present value) of money and the ' probabilities of payment. -4- Actuarial Methods and Assumptions ' Measurement Date June 30, 2013 with results projected backwards to July 1, 2012 Retirement date 62 Discount Rate 0.34% ' Covered Payroll $ 4,015,587 Payroll as a percentage ' Governmental 93% Enterprise 7% ' Cost Method Unit Credit Cost Method Amortization Level over 30 years Employer Funding Policy Pay-as-you-go cash basis ' Turnover rate Obtained from GASB's Table#1 on page #26 ofGASB#34 Health Care Cost Rate Obtained from projections of the Office of the Actuary at the Centers for Medicare and Medicaid Services, as published in National Health Care Expenditures Projections: 2004- 2019,Table 3:National Health Expenditures;Aggregate and per Capita Amounts, Percent Distribution and Annual Percent Change by Source of Funds: Calendar Years 2004-2019, published by the Health Care Financing Administration. ' http://www.ems.gov/National HealthExpendData/downloads/proj2009.pdf Wage Inflation Factor 2.8% obtained from the 2010 Annual Report of the Board of Trustees of the Federal Old- , Age and Survivors Insurance and Disability Insurance Trust Funds. www.ssa.gov/OACT/TR/2010/trIO/pdf ' Calculation of age adjusted Premiums Obtained from Table#3 of GASB #45 Page#31 ' Implicit Subsidy Member $ 6,033 ' Member and Spouse $ 11,107 % of Members using benefits 100% ' -5- Footnote for GASB#45 -Implicit Rate Subsidy ONLY Note X. Postemployment Healthcare Plan Plan Description. The healthcare plan provides for, and Montana State Law (2-18-704) requires local ' governments to allow employees with at least 5 years of service and who are at least age 50 along with surviving spouses and dependents to stay on the government's health care plan as long as they pay the same premium. Since retirees are usually older than the average age of the plan participants they receive ' a benefit of lower insurance rates. This benefit is reported as the Other Post Employment Benefits (OPEB) liability. The government has less than 100 plan members and thus qualifies to use the "Alternative Measurement Method" for calculating the liability. The above described OPEB plan does not provide a stand-alone financial report. Funding Policy. The government pays OPEB liability costs on a pay-as-you-go basis. A trust fund for future liabilities has not been established ' Funding Status and funding Progress. The funded status of the plan as of June 30, 2013, was as follows: Actuarial Accrued Liability(AAL) $ 6,168,911 Actuarial value of plan assets $ Unfunded Actuarial Accrued Liability(UAAL) $ 6,168,911 ' Funded ratio (actuarial value of plan assets/AAL) 0% Covered payroll (active plan members) $ 4,015,587 UAAL as a percentage of covered payroll 153.62% Annual OPEB Cost and Net OPEB Obligation. The government's annual other post employment benefit ' (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount determined in accordance with the parameter of GASB statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and ' amortize any unfunded acurarial liabilities (or funding excess) over a period not to exceed thirty (30) years. The following table shows the components of the government's annual OPEB cost for the year, ' the amount actually contributed to the plan, and changes in the government's net OPEB obligation. ' Annual Required Contribution (ARC) $ 442,103 Interest on net OPEB obligation $ Adjustment to ARC $ - ' Annual OPEB cost (expense) $ 442,103 Contributions made $ Increase in net OPEB obligation $ 442,103 Net OPEB obligation -beginning of year $ 704,974 Net OPEB obligation- end of year $ 1,147,077 ' -6- ' Actuarial Methods and Assumptions. The following actuarial methods and assumptions were used: Actuarial cost method Unit Credit Cost Method Average age of retirement (based on historical data) 62 Discount rate (average anticipated rate) 0.34% Average salary increase (Consumer Price Index) 2.80% Health care cost rate trend(Federal Office of the Actuary) ' Year % Increase 2012 3.8% ' 2013 4.0% 2014 7.8% 2015 6.4% ' 2016 6.2% 2017 6.0% 2018 6.4% 2019 6.8% 2020 6.9% 2021 6.7% 2022 and thereafter 6.9% 1 1 ' -7- REQUIRED SUPPLEMENTAL INFORMATION Schedule of Funding Progress Actuarial UAAL as a Accrued Unfunded Percentage Actuarial Liability(AAL) AAL Funded Covered of Covered Actuarial Value of Assets Unit Credit Cost Method (UAAL) Ratio Payroll Payroll Valuation Date (a) (b) (b-a) (alb) (c) ((b-a)/(c) July 1, 2012 $ - $ 6,168,911 $ 6,168,911 0% $ 4,015,587 154% ! Denning Downey and Associates CPA's P.C. P.O.Box1957 Kalispell MT 59901 ! ddaAddaudit.com 406-756-6879 Adjustments ! GASB#45 Para#19 OPEB Expenditures from governmental funds should be recognized on the modified accrual basis. ! GASB#45 Para#20 OPEB expense of proprietary and fiduciary funds should be recognized on the accrual basis in fund ! financial statements. GASB#45 Para#21 ! OPEB expense reported in government-wide financial statements should be recognized on the accrual basis. Government Wide Financials ! Account DR CR OPEB Liability $ 411,156 OPEB Expense $ 411,156 ! Business type fund#1 Solid Waste OPEB Liability $ 30,947 ! OPEB Expense $ 30,947 ! OPEB WORKSHEET Total Liability to be reported $ 442,103 ! Percent to each fund % $ Allocated Total Governmental Funds 93% $ 411,156 Business type fund#1 7% $ 30,947 ! Total(must equal 100%) 100% $ 442,103 ! ! ! !