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Home My WebLink About2023 02 09 Regular 502 - Actuarial Study - Investment Rate of Return Assumption Modification RSP: 1 F.954,525,0083 f w w.grsconsultingcom January 27, 2023 Ms. Casey Howard Deputy City Manager City of Winter Springs 1126 East State Road 434 Winter Springs, Florida 32708 Re: City of Winter Springs Defined Benefit Plan Actuarial Study as of October 1, 2021 Dear Casey: As requested, we have performed an Actuarial Study as of October 1, 2021 to determine the financial impact of a proposed investment return assumption change under the City of Winter Springs Defined Benefit Plan (Plan). Background—Currently the Plan utilizes the following actuarial assumption: ➢ Investment rate of return assumption is 7.40% (net of investment expenses), compounded annually. Proposed—We understand the Board is interested in an analysis of the financial effect of the following proposed change: ➢ Reduce the assumed rate of return from 7.40%to 7.00%. Results—The attached Exhibit sets out the key financial results of our Actuarial Study for the above proposed change. The following sets out the increase in minimum annual required County and City contribution for the Plan year beginning October 1, 2022 as a dollar amount and as a percentage of projected covered annual payroll for fiscal year beginning October 1, 2022 ($4,081,949). Item Increase in Required County and City Contribution 7.00% assumed rate of return $ 260,759 6.4 Ms. Casey Howard January 27, 2023 Page Two Other Considerations— For additional review of the assumed rate of return, the Board may consider an analysis of expected returns using our Capital Asset Assumption Modeler. Our analysis would be based upon the current target asset allocation. We would recommend our analysis include input from the Investment Consultant. Actuarial assumptions and methods, Plan provisions, financial data and member census data—The Plan provisions, financial data and member census data employed for purposes of our Actuarial Study are the same Plan provisions, financial data and member census data utilized for the October 1, 2021 Actuarial Valuation. The actuarial assumptions and methods employed for purposes of our Actuarial Study are the same actuarial assumptions and methods utilized for the October 1, 2021 Actuarial Valuation with the exception of the proposed change described above. Risk Assessment— Risk assessment may include scenario tests, sensitivity, or stress tests, stochastic modeling and a comparison of the present value of benefits at low-risk discount rates. We are prepared to perform such assessment to aid in the decision making process. Please refer to the October 1, 2021 Actuarial Valuation Report dated April 12, 2022 for additional discussion regarding the risks associated with measuring the accrued lability and the minimum funding payment. This Actuarial Study is intended to describe the estimated future financial effects of the proposed actuarial assumption change on the Plan and is not intended as a recommendation in favor of the proposed actuarial assumption change nor in opposition to this change. If all actuarial assumptions are met and if all current and future minimum required contributions are paid, Plan assets will be sufficient to pay all Plan benefits, future contributions are expected to remain relatively stable as a percent of payroll and the funded status is expected to improve. Plan minimum required contributions are determined in compliance with the requirements of the Florida Protection of Public Employee Retirement Benefits Act with normal cost determined as a level percent of covered payroll and a level dollar amortization payment using an initial closed amortization period of 30 years. The Unfunded Actuarial Accrued Liability (UAAL) may not be appropriate for assessing the sufficiency of Plan assets to meet the estimated cost of settling benefit obligations but may be appropriate for assessing the need for or the amount of future contributions. The UAAL would be different if it reflected the market value of assets rather than the actuarial value of assets. 4ZG R S 8 Ms. Casey Howard January 27, 2023 Page Three The Funded Ratios shown are for informational purposes and may not be appropriate for assessing the sufficiency of Plan assets to meet the estimated cost of settling benefit obligations but may be appropriate for assessing the need for or the amount of future contributions. These calculations are based upon assumptions regarding future events. However, the Plan's long term costs will be determined by actual future events, which may differ materially from the assumptions made. These calculations are also based upon present Plan provisions that are referenced in this Actuarial Study. If you have reason to believe the assumptions used are unreasonable, the Plan provisions are incorrectly described or referenced, important Plan provisions relevant to this Actuarial Study are not described or that conditions have changed since the calculations were made, you should contact the undersigned prior to relying on information in this Actuarial Study. If you have reason to believe that the information provided in this Actuarial Study is inaccurate, or is in any way incomplete, or if you need further information in order to make an informed decision on the subject matter of this report, please contact the undersigned prior to making such decision. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: Plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period) and changes in Plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of such future measurements. This Actuarial Study should not be relied on for any purpose other than the purpose described in the primary communication. Determinations of the financial results associated with the benefits described in this report in a manner other than the intended purpose may produce significantly different results. This study was prepared using ProVal's valuation model, a software product of Winklevoss Technologies. We are relying on the ProVal model. We performed tests of the ProVal model with this assignment and made a reasonable attempt to understand the developer's intended purpose of, general operation of, major sensitivities and dependencies within, and key strengths and limitations of the ProVal model. In our professional judgment, the ProVal valuation model has the capability to provide results that are consistent with the purposes of the valuation and has no material limitations or known weaknesses. �ZG R S 9 Ms. Casey Howard January 27, 2023 Page Four This Actuarial Study has been prepared by actuaries who have substantial experience valuing public employee retirement systems. To the best of our knowledge the information contained in this report is accurate and fairly presents the actuarial position of the Plan as of the valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices, with the Actuarial Standards of Practice issued by the Actuarial Standards Board and with applicable statutes. This Actuarial Study was prepared at the request of the Board and is intended for use by the Board and those designated or approved by the Board. This Actuarial Study may be provided to parties other than the Board only in its entirety and only with the permission of the Board. GRS is not responsible for unauthorized use of this Actuarial Study. The signing actuaries are independent of the Plan sponsor. The undersigned are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. If you should have any question concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, Gabriel, Roeder, Smith & Company d"n�� 41n-cdaAd- 12W� j-v-� Jennifer M. Borregard, E.A. Shelly L.Jones,A.S.A., E.A. 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