HomeMy WebLinkAbout2023 12 11 Consent 302 - Actuarial Experience StudyCONSENT AGENDA ITEM 302
CITY COMMISSION AGENDA | DECEMBER 11, 2023 REGULAR MEETING
TITLE
Actuarial Experience Study
SUMMARY
City staff requested the City's Actuaries to perform an analysis of the fiscal
performance of the City's Pension Plan to determine if additional contributions will be
required to ensure the fiscal soundness of the plan. This analysis was completed on
October 23rd 2023 and a copy of the Actuarial experience study with their
recommendation is attached.
On November 10th, 2023, the Board of Trustees voted unanimously to formally
recommend to The City Commission approval the Actuaries recommendations.
FUNDING SOURCE
RECOMMENDATION
City Staff is requesting the City Commission to review the Actuarial Experience Study
and consider approval of the Actuary's recommendations.
82
October 23, 2023
Board of Trustees
c/o Ms. Melissa Hermes
Payroll and Benefits Coordinator
City of Winter Springs
1126 East State Road 434
Winter Springs, Florida 32708
Re: City of Winter Springs Defined Benefit Plan - Experience Study
Dear Melissa:
As requested, we are pleased to enclose ten (10) copies of the Experience Study for the Six
Years Ended September 30, 2022 for the City of Winter Springs Defined Benefit Plan.
We appreciate the opportunity to have performed this important work assignment on behalf
of the Board.
We look forward to presenting the highlights of our Report at the upcoming Board Meeting
on November 9th.
If you should have any question concerning the above, please do not hesitate to contact us.
Sincerest regards,
Gabriel, Roeder, Smith & Company
Shelly L. Jones, A.S.A.
Consultant and Actuary
Enclosures
83
City Of Winter Springs
Defined Benefit Plan
EXPERIENCE STUDY FOR THE SIX YEARS ENDED
SEPTEMBER 30, 2022
October 23, 2023
84
85
October 23, 2023
Board of Trustees
c/o Ms. Melissa Hermes
Payroll and Benefits Coordinator
City of Winter Springs
1126 East State Road 434
Winter Springs, Florida 32708
Re: City of Winter Springs Defined Benefit Plan - Experience Study
Dear Board Members:
Gabriel, Roeder, Smith & Company is pleased to provide the results of an experience study for the City of
Winter Springs Defined Benefit Plan (Plan). The purpose of our Report is to assist in assumption and
method selection for future actuarial valuations by comparing actual to expected experience over a recent
period of time and review economic assumptions based on current economic environment and forecasts.
This Experience Study covers the six-year period from October 1, 2016 through September 30, 2022 and
uses census data provided by the Board for the annual actuarial valuation applicable for each year in this
period.
Based upon the results, certain changes in actuarial assumptions for actuarial valuation purposes are
recommended. With the Board’s approval of the recommendations in this report, we believe the actuarial
condition of the Plan will be more accurately portrayed. The Board’s decisions should be based on the
appropriateness of each recommendation, not on their collective effect on the expected contribution.
The Table of Contents, which immediately follows, sets out the material contained in this Report.
This Experience Study is based upon assumptions regarding future events, which may or may not
materialize and based upon financial data, member census data and Plan provisions as outlined in our
October 1, 2022 Actuarial Valuation Report. Should you have reason to believe the assumptions used are
unreasonable, the Plan provisions are incorrectly described, important and relevant Plan provisions are not
described or that conditions have changed since the date of the calculations, you should contact the
undersigned prior to relying on information in this Experience Study.
As you may be aware, in the event that more than one change is being considered, it is important to note
separate valuations cannot generally be added together to produce a total. The total can be considerably
greater or less than the sum of the parts due to interaction of various Plan provisions, actuarial assumptions
and actuarial methods with each other.
This Experience Study is intended to describe the estimated future financial effects of the proposed
assumption changes on the Plan.
86
Pension Board
October 23, 2023
Page Two
Future actuarial measurements may differ significantly from the current measurements presented in our
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 the actuary’s assignment, the actuary did not perform an analysis of the potential range of such
future measurements.
This Report 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.
This Experience 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 date of this Experience Study. 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 Report 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 Report may be provided to parties other than the Board only in its entirety and only with the
permission of an approved representative of the Board. GRS is not responsible for unauthorized use of
this Report.
The signing actuaries are independent of both the Plan and the City. 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 opinions contained in this Report. We are available to respond to any
questions with regards to matters covered in this Report.
Sincerely,
GABRIEL, ROEDER, SMITH & COMPANY
Shelly L. Jones, A.S.A., E.A., M.A.A.A., F.C.A.
Consultant and Actuary
Jennifer M. Borregard, E.A., M.A.A.A., F.C.A.
Consultant and Actuary
87
EXPERIENCE STUDY
TABLE OF CONTENTS
Page
Summary of Findings 1
Experience Study Results ....................................................................................................... 3
Methodology ............................................................................................................. 3
Basic Results and Conclusions
Rates of Salary Increases .................................................................................. 4
Rates of Withdrawal ......................................................................................... 5
Rates of Retirement ......................................................................................... 6
Rates of Mortality............................................................................................. 7
Rates of Disability ............................................................................................. 8
Amortization Period ......................................................................................... 9
Investment Return and Inflation .................................................................... 10
Appendices
Table I: Comparison of Actual and Expected Annual Salaries ................................ 17
Table II: Comparison of Actual and Expected Terminations .................................. 19
Table III: Comparison of Actual and Expected Retirements ................................... 20
Purpose of an Actuarial Valuation .......................................................................... 22
Role of the Actuarial Assumptions .......................................................................... 22
88
City of Winter Springs Defined Benefit Plan 1
EXPERIENCE STUDY
SUMMARY OF FINDINGS
The six-year period (October 1, 2016 to September 30, 2022) covered by this Experience Study provided
sufficient data to form a basis for recommending updates in the following demographic and financial
assumptions used in the actuarial valuation of the Retirement Plan.
Recommended changes in actuarial assumptions and methodologies resulting from this Experience Study
including the expected contribution as a percentage of projected payroll ($4,102,020) and as a dollar
amount are summarized below. As a reference, the total required contribution is $1,051,898 (25.6% of
payroll) as of the October 1, 2022 Actuarial Valuation. (Note: the amortization period for the change in
actuarial accrued liability resulting from modeled assumption changes is 30 years, except as otherwise
stated.)
• Update the future salary increase assumption to reflect higher than expected past salary
increase experience in order to better reflect future anticipated salary increase experience.
Expected Contribution
+3.3% / +$136,672
• Update assumed rates of future withdrawal to reflect higher actual observed withdrawals and
to better reflect future anticipated withdrawal experience.
Expected Contribution
-1.7% / -$68,439
• Update assumed rates of future retirement to reflect higher retirement for all members and
longer employment with the City for General employees in order to better reflect future
anticipated retirement experience.
Expected Contribution
+0.8% / +$32,400
• Combined effect of updated salary increase assumptions, rates of future withdrawal and rates
of future retirement.
Expected Contribution
+1.9% / +$78,665
89
City of Winter Springs Defined Benefit Plan 2
EXPERIENCE STUDY
SUMMARY OF FINDINGS
• Update investment return assumption to 6.75% (includes price inflation of 2.75%) to reduce
investment return risk.
Expected Contribution
+4.1% / +$167,525
• Combined effect of updated salary increase assumptions, rates of future withdrawal, rates of
future retirement and investment return assumption of 6.75% (includes price inflation of
2.75%).
Expected Contribution
+6.0% / +$247,647
• Reduce amortization period from 30 years to 25 years for newly created bases to better reflect
future expected service (illustrated effective as of October 1, 2022).
Expected Contribution
+0.6% / +$23,968
• Combined effect of updated salary increase assumptions, rates of future withdrawal, rates of
future retirement, amortization period and investment return assumption of 6.75% (includes
price inflation of 2.75%).
Expected Contribution
+7.0% / +$285,858
90
City of Winter Springs Defined Benefit Plan 3
EXPERIENCE STUDY RESULTS
The methodology, basic results and conclusions of the six-year experience study of the actuarial
assumptions are described below.
Methodology
The expected salaries at the end of each year were obtained by use of the salary scale assumption (3.0%
to 4.5%) used in the most recent actuarial valuation. The resulting expected salaries were then compared
with the actual salaries reported.
The number of members exposed to risk during each period was tabulated (exposure) and the expected
incidence of withdrawal (vested and non-vested) and retirement were obtained by use of the withdrawal
and retirement rate assumptions employed in the most recent actuarial valuation. The actual number of
separations and retirees were tabulated and compared with those expected.
There are no active Firefighters in the Plan as of October 1, 2022.
Actuaries are guided by the Actuarial Standards of Practice (ASOP) adopted by the Actuarial Standards
Board (ASB).
One of these standards is ASOP No. 35, Selection of Demographic and Other Noneconomic Assumptions for
Measuring Pension Obligations. This standard provides guidance to actuaries giving advice on selecting
noneconomic assumptions for measuring obligations under defined benefit systems.
Additionally, Actuarial Standards of Practice (ASOP) No. 27, Selection of Economic Assumptions for
Measuring Pension Obligations, provides guidance to actuaries on giving advice on selecting economic
assumptions for measuring obligations for defined benefit pension systems.
91
City of Winter Springs Defined Benefit Plan 4
EXPERIENCE STUDY RESULTS
Rates of Salary Increase
The expected salaries at the end of each year were obtained by the current salary increase assumption.
Resulting expected salaries were compared with actual salaries. Observed pay increases were generally
higher than those expected based upon the current pay increase assumptions. The proposed salary
increase assumption varies on age rather than years of service. Pay increases during any years with
partial pay were not included in the analysis due to large fluctuations in pay and incomplete data.
The current and proposed salary increase assumptions are the following:
Years Assumed Promotion Total Assumed Promotion Total
of Wage and Current Wage and Current
Service Inflation Seniority Rates Inflation Seniority Rates
Under 5 3.00%1.50%4.50%3.00%1.50%4.50%
5 - 14 3.00%0.25%3.25%3.00%0.25%3.25%
15 - 19 3.00%0.00%3.00%3.00%0.25%3.25%
20 and over 3.00%0.00%3.00%3.00%0.00%3.00%
Assumed Promotion Total Assumed Promotion Total
Wage and Proposed Wage and Proposed
Age Inflation Seniority Rates Inflation Seniority Rates
Under 30 3.00%4.00%7.00%3.00%3.25%6.25%
30 - 39 3.00%4.00%7.00%3.00%1.75%4.75%
40 - 49 3.00%1.75%4.75%3.00%1.75%4.75%
50 - 54 3.00%1.75%4.75%3.00%0.75%3.75%
55 and older 3.00%1.00%4.00%3.00%0.75%3.75%
Police Officers and Forensic Prof.General Employees
CURRENT SALARY INCREASE
PROPOSED SALARY INCREASE
General Employees *Police Officers and Forensic Prof.
* The Plan is closed to new General Employees and there are no active General
Employees under age 30 as of October 1, 2022.
92
City of Winter Springs Defined Benefit Plan 5
EXPERIENCE STUDY RESULTS
Rates of Withdrawal
The actual number of withdrawals for participants was generally higher than the total number of expected
withdrawals under the assumed rates of withdrawal used in the latest actuarial valuation.
We propose updating the withdrawal rates based on gender and service illustrated as follows:
Years of Service
Current
Assumed
Rates
Proposed
Rates
Current
Assumed
Rates
Proposed
Rates
Under 5 *20.5%15.0%15.5%10.0%
5 - 9 *8.0%15.0%12.0%10.0%
10 - 14 4.5%15.0%5.0%10.0%
15 and Over 4.5%7.5%5.0%10.0%
Years of Service
Current
Assumed
Rates
Proposed
Rates
Current
Assumed
Rates
Proposed
Rates
Under 5 13.5%20.0%4.0%15.0%
5 - 9 9.0%10.0%4.0%15.0%
10 - 14 4.5%5.0%4.0%4.0%
15 and Over 4.5%5.0%4.0%4.0%
Male Female
WITHDRAWAL EXPERIENCE
(General Employees)
WITHDRAWAL EXPERIENCE
(Police Officers and Forensic Professionals)
* The Plan is closed to new General Employees and all current General
Employees have ten (10) or more years of service as of October 1, 2022.
Male Female
93
City of Winter Springs Defined Benefit Plan 6
EXPERIENCE STUDY RESULTS
Rates of Retirement
Observed experience indicates generally higher retirement for all members and longer employment for
General employees.
Current and proposed retirement rates are shown in the following tables.
Age 0 - 14 15 - 24 25 or more
Under 55 0%0%0%
55 - 64 4%18%12%
65 and above 100%100%100%
Age 0 - 14 15 - 24 25 or more
Under 55 0 0%10%
55 - 64 4%20%25%
65 - 66 65%80%100%
67 and above 100%100%100%
Years of Service
CURRENT RETIREMENT RATES (GENERAL EMPLOYEES)
PROPOSED RETIREMENT RATES (GENERAL EMPLOYEES)
Years of Service
Age 0 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 or more
Under 55 0.0%0.0%0.0%0.0%3.5%40.0%
55 0.0%5.0%25.0%25.0%70.0%80.0%
56 - 64 0.0%5.0%7.5%7.5%7.5%10.0%
65 and above 100.0%100.0%100.0%100.0%100.0%100.0%
Age 0 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 or more
Under 55 0.0%0.0%0.0%0.0%6.0%35.0%
55 0.0%5.0%12.5%12.5%70.0%90.0%
56 - 64 0.0%2.5%12.5%40.0%7.5%10.0%
65 and above 100.0%100.0%100.0%100.0%100.0%100.0%
Years of Service
CURRENT RETIREMENT RATES (POLICE OFFICERS AND FORENSIC PROFESSIONALS)
PROPOSED RETIREMENT RATES (POLICE OFFICERS AND FORENSIC PROFESSIONALS)
Years of Service
94
City of Winter Springs Defined Benefit Plan 7
EXPERIENCE STUDY RESULTS
Rates of Mortality
We recommend no changes to the assumed mortality rates for healthy or disabled lives, which are
currently based upon the assumptions used by the Florida Retirement System (FRS) as required under F.S.
Chapter 2015-157.
95
City of Winter Springs Defined Benefit Plan 8
EXPERIENCE STUDY RESULTS
Rates of Disability
There were too few incidences of active employees becoming disabled to analyze the current rate
assumptions. The current disability assumption is the disability assumption used by the FRS. We
recommend no change in assumed disability rates.
96
City of Winter Springs Defined Benefit Plan 9
EXPERIENCE STUDY RESULTS
Amortization Period
Currently, the Plan uses the level dollar amortization method and a closed amortization period of 30 years.
We recommend reducing the amortization period for new bases to 25 years to better align the assumption
with future expected service. If the amortization period is reduced to 25 years, the amortization payment
would be higher for the 25 years but overall less interest would be paid since the Unfunded Actuarial
Accrued Liability would be paid off sooner. Please see the below chart for a graphical example.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2022202420262028203020322034203620382040204220442046204820502052UAAL Balance (in Millions)Year
UAAL Sample Projection by Year
Different Amortization Period
Level $ over 30 years Level $ over 25 years
97
City of Winter Springs Defined Benefit Plan 10
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
Economic assumptions include long-term rates of investment return (net after investment expenses),
inflation and wage inflation (the across-the-board portion of salary increases). Unlike demographic
activities, economic activities do not lend themselves to analysis solely on the basis of internal historical
patterns because both salary increases and investment return are more affected by external forces;
namely inflation (both wage and price), general productivity changes and the local economic
environment which defy accurate long-term prediction. Estimates of economic activities are generally
selected on the basis of the expectations in an inflation-free environment and then both are increased
by some provision for long-term inflation.
If wage inflation and/or productivity increases are higher than expected, it will probably result in both
actual rates of salary increases and investment return which exceed the assumed rates. Salaries
increasing faster than expected produce unexpected liabilities. Investment return exceeding the
assumed rates (whether due to manager performance, change in the mix of assets, or general market
conditions) results in unanticipated assets. To the extent that inflation, productivity, and other factors
have about the same effect on both sides of the balance sheet, these additional assets and liabilities
can offset one another over the long-term.
Wage Inflation. The average rate of increase in National Average Earnings over the 60 years ending
December 31, 2022 is higher than the current 3.0% assumption (see schedule on page 12). The
difference between the long-term averages and more recent experience is related to the excess rates
of price and wage inflation during the 1970s and recent couple of years, which most observers do not
expect to see repeated. When the decade of high inflation is factored out, long term national averages
are just above 4.0%. We recommend retaining the current long term wage inflation assumption of
3.0%.
Inflation. The average rate of increase in Consumer Price Index over the 60 years ending December 31,
2022 is higher than the current 2.75% assumption (see schedule on page 12). The difference between
the long-term averages and more recent experience is related to the excess rates of price and wage
inflation during the 1970s and recent couple of years, which most observers do not expect to see
continue. We recommend retaining the current inflation assumption of 2.75%.
Investment Return and Spread. The current asset portfolio for the retirement program is a diversified
mix of equity and fixed income investments. Real market returns (the spread between recognized net
investment return and inflation) for balanced portfolios have averaged 4.7% over the last 60 years (see
schedule on page 12). Only hindsight will tell whether a particular combination of economic
assumptions is optimal. If future economic patterns are as favorable as in the 1980’s and 1990’s, this
spread would prove to be conservative. If, on the other hand, the investment markets produce lower
real returns, contribution rate increases will become likely at some future date.
98
City of Winter Springs Defined Benefit Plan 11
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
The current real return assumption for the pension valuation is 4.25% (7.00% nominal rate less 2.75%
inflation). This combination of assumptions could be considered to be somewhat on the optimistic side
of an acceptable range for a program with the equity exposure of the City of Winter Springs Defined
Benefit Plan. We have modeled a change to a 4.00% real return assumption (a 6.75% nominal rate less
2.75% inflation), net of investment expenses.
An example of the relationship between economic assumptions based on a 4.00% spread (6.75%
investment return and 2.75% inflation) is illustrated below:
Assumed
Rate
= 6.75%
3.00%
Price Inflation
= 2.75%
Real Wage
Growth = 0.25%
Implied Real
Return = 4.00%
Investment Return Wage Inflation
99
City of Winter Springs Defined Benefit Plan 12
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
National
Calendar Cash Price Average
Year U.S.Corp.Equivalents Stocks Inflation Earnings Total Spread:
Period Treasury (S&P AA)(T-Bills)(S&P 500)(CPI) (NAE)Return (I)I - CPI - e
1950-1959 (0.1)% 1.0 % 1.9 % 19.4 % 2.2 % 4.5 % 12.2 % 9.5 %
1960-1969 1.4 % 1.7 % 3.9 % 7.8 % 2.5 % 4.3 % 5.7 % 2.7 %
1970-1979 5.5 % 6.2 % 6.3 % 5.9 % 7.4 % 6.9 % 6.2 % (1.7)%
1980-1989 12.6 % 13.0 % 8.9 % 17.5 % 5.1 % 5.8 % 15.7 % 10.1 %
1990-1999 8.8 % 8.4 % 4.9 % 18.2 % 2.9 % 4.2 % 14.4 % 11.0 %
2000-2009 7.7 % 7.6 % 2.8 % (0.9)% 2.5 % 3.3 % 3.2 % 0.2 %
2010-2019 6.9 % 8.1 % 0.5 % 13.6 % 1.8 % 2.9 % 11.0 % 8.7 %
2000 21.5 % 12.9 % 5.9 % (9.1)% 3.4 % 5.5 % 1.1 % (2.8)%
2001 3.7 % 10.7 % 3.8 % (11.9)% 1.6 % 2.4 % (4.6)% (6.7)%
2002 17.8 % 16.3 % 1.7 % (22.1)% 2.4 % 1.0 % (7.2)% (10.1)%
2003 1.5 % 5.3 % 1.0 % 28.7 % 1.9 % 2.4 % 18.4 % 16.0 %
2004 8.5 % 8.7 % 1.2 % 10.9 % 3.3 % 4.7 % 9.6 % 5.8 %
2005 7.8 % 5.9 % 3.0 % 4.9 % 3.4 % 3.7 % 5.5 % 1.6 %
2006 1.2 % 3.2 % 4.8 % 15.8 % 2.5 % 4.6 % 10.4 % 7.4 %
2007 9.9 % 2.6 % 4.7 % 5.5 % 4.1 % 4.5 % 5.9 % 1.3 %
2008 25.9 % 8.8 % 1.6 % (37.0)% 0.1 % 2.3 % (15.6)% (16.2)%
2009 (14.9)% 3.0 % 0.1 % 26.5 % 2.7 % (1.5)% 13.4 % 10.2 %
2010 10.1 % 12.4 % 0.1 % 15.1 % 1.5 % 2.4 % 12.9 % 10.9 %
2011 28.2 % 18.0 % 0.0 % 2.1 % 3.0 % 3.1 % 9.6 % 6.1 %
2012 3.3 % 10.7 % 0.1 % 16.0 % 1.7 % 3.1 % 11.9 % 9.7 %
2013 (11.4)% (7.1)% 0.0 % 32.4 % 1.5 % 1.3 % 16.1 % 14.1 %
2014 23.9 % 17.3 % 0.0 % 13.7 % 0.8 % 3.6 % 15.6 % 14.3 %
2015 (1.3)% (4.8)% 0.0 % 1.4 % 0.7 % 3.5 % (0.1)% (1.3)%
2016 1.2 % 10.8 % 0.2 % 12.0 % 2.1 % 1.1 % 9.0 % 6.4 %
2017 8.6 % 11.7 % 0.8 % 21.8 % 2.1 % 3.5 % 16.6 % 14.0 %
2018 (1.5)% (7.0)% 1.8 % (4.4)% 1.9 % 3.6 % (3.9)% (6.3)%
2019 14.3 % 23.9 % 2.1 % 31.5 % 2.3 % 3.8 % 25.4 % 22.6 %
2020 17.6 % 13.3 % 0.5 % 18.4 % 1.4 % 2.8 % 16.6 % 14.7 %
2021 (5.0)% (1.7)% 0.0 % 28.7 % 7.0 % 8.9 % 16.0 % 8.5 %
2022 (29.4)% (25.5)% 1.5 % (18.1)% 6.5 % 3.3 % (20.5)% (27.5)%
Last 6 Years (0.6)% 1.1 % 1.1 % 11.4 % 3.5 % 4.3 % 7.1 % 3.1 %
Last 60 Years 6.3 % 6.7 % 4.4 % 10.3 % 3.9 % 4.6 % 9.1 % 4.7 %
Stocks (S&P 500)60 %
Bonds, Long (U.S. Treasury)20 %
Bonds, Long (Corp., S&P AA)15 %
Cash Equivalents (T-Bills)5 %
Total 100 %
Fund Expenses (e)0.50 %
Historical Patterns of Investment Return, Inflation & Pay Increases (1950 - 2022)
Gross Market Returns
Bonds, Long Sample Balanced Fund*
* Sample Balanced Fund
100
City of Winter Springs Defined Benefit Plan 13
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
INVESTMENT RETURN EXPERIENCE
This Table sets forth the results of an analysis made of investment yields on the assets held under the
City of Winter Springs Defined Benefit Plan. The basic sources for this analysis were the Statements
produced by the City.
Valuation Net Market Net Smoothed Assumed Rate
Date Value Yield Value Yield of Return
10/01/2022 (12.69%)6.76%7.40%
10/01/2021 25.50%11.45%7.40%
10/01/2020 7.81%8.42%7.50%
10/01/2019 2.69%7.90%7.75%
10/01/2018 10.89%9.49%7.75%
10/01/2017 13.9%9.9%8.0%
10/01/2016 10.8%10.2%8.0%
10/01/2015 0.0%9.4%8.0%
10/01/2014 11.9%10.5%8.0%
10/01/2013 16.0%8.5%8.0%
Last 3 Years 5.71%8.86%7.43%
Last 5 Years 6.11%8.79%7.56%
Last 10 Years 8.2%9.2%7.8%
101
City of Winter Springs Defined Benefit Plan 14
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
SHORT TERM INVESTMENT RETURN FORECASTS
These tables set forth the results of an analysis made on the assets held under the Plan. The target
allocations were obtained from the most recent Investment Policy Statement.
The short term forward-looking investment returns of eleven investment consultants were used to
project the rate of return of the Plan based on its target allocation. The table below shows the expected
nominal return from each investment consultant based on the Plan’s target allocation and short-run
(mainly 10 year) assumptions.
1 6.43%2.50%3.93%2.75%6.68%12.05%
2 7.00%2.90%4.10%2.75%6.85%12.04%
3 7.43%2.90%4.53%2.75%7.28%12.18%
4 7.15%2.50%4.65%2.75%7.40%12.25%
5 7.18%2.26%4.92%2.75%7.67%12.67%
6 7.29%2.31%4.98%2.75%7.73%13.00%
7 7.53%2.51%5.01%2.75%7.76%12.99%
8 7.44%2.41%5.03%2.75%7.78%12.47%
9 7.78%2.28%5.50%2.75%8.25%12.41%
10 8.24%2.54%5.71%2.75%8.46%12.68%
11 8.26%2.62%5.64%2.75%8.39%11.93%
Average 7.43%2.52%4.91%2.75%7.66%12.42%
Standard
Deviation
of Expected
Return
(1-Year)
Capital
Market
Assumption
Set (CMA)
CMA
Expected
Nominal
Return
CMA Inflation
Assumption
Expected
Real Return
Plan Inflation
Assumption
Expected
Nominal
Return
102
City of Winter Springs Defined Benefit Plan 15
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
SHORT TERM INVESTMENT RETURN FORECASTS
The table below shows select percentiles of the distribution of average geometric returns over 10-years
and the probability of exceeding the current and proposed investment return assumption.
Probability of
exceeding
Probability of
exceeding
40th 50th 60th 7.00%6.75%
1 5.05%6.00%6.96%39.64%42.19%
2 5.23%6.18%7.14%41.39%43.97%
3 5.63%6.60%7.57%45.79%48.39%
4 5.74%6.71%7.68%46.95%49.55%
5 5.93%6.93%7.94%49.29%51.81%
6 5.93%6.96%7.99%49.57%52.03%
7 5.96%6.99%8.02%49.89%52.35%
8 6.09%7.07%8.06%50.72%53.28%
9 6.57%7.55%8.54%55.63%58.17%
10 6.72%7.72%8.73%57.24%59.71%
11 6.80%7.74%8.69%57.87%60.49%
Average 5.97%6.95%7.94%49.45%51.99%
Capital
Market
Assumption
Set (CMA)
Distribution of 10-Year Average Geometric
Net Nominal Return
The average expected nominal return net of expense from the last 3 years of our model is 5.98%.
103
City of Winter Springs Defined Benefit Plan 16
EXPERIENCE STUDY RESULTS
Investment Return and Inflation
LONG TERM INVESTMENT RETURN FORECASTS
Seven of the eleven investment consultants included in our analysis provided long-term expectations
(20 to 30 years). The long-term investment returns of the seven investment consultants were used to
project the rate of return of the Plan based on its target allocation. The table below shows select
percentiles of the distribution of average geometric over 20-year and the probability of exceeding the
current and proposed investment return assumption based on the long-run assumptions.
Probability of
exceeding
Probability of
exceeding
40th 50th 60th 7.00%6.75%
1 5.52%6.15%6.79%36.79%40.60%
2 6.06%6.74%7.43%46.17%49.85%
3 6.22%6.89%7.57%48.39%52.12%
4 6.35%7.07%7.81%51.03%54.50%
5 6.50%7.20%7.89%52.84%56.45%
6 6.70%7.42%8.14%55.89%59.37%
7 7.61%8.31%9.03%68.12%71.27%
Average 6.42%7.11%7.81%51.32%54.88%
Capital
Market
Assumption
Set (CMA)
Distribution of 20-Year Average Geometric
Net Nominal Return
104
City of Winter Springs Defined Benefit Plan 17
APPENDIX
TABLE I
COMPARISON OF ACTUAL AND EXPECTED
ANNUAL MEMBER SALARIES
Age Prior Year Actual % Incr Expected % Incr Proposed % Incr
Under 40 1,500,958 1,664,955 10.93%1,549,003 3.20%1,606,025 7.00%
40 - 49 2,381,621 2,527,059 6.11%2,454,546 3.06%2,494,748 4.75%
50 - 54 1,300,681 1,391,096 6.95%1,341,437 3.13%1,362,463 4.75%
55 and older 3,094,797 3,248,616 4.97%3,189,952 3.07%3,218,589 4.00%
Total 8,278,057 8,831,726 6.69%8,534,938 3.10%8,681,825 4.88%
Age Prior Year Actual % Incr Expected % Incr Proposed % Incr
Under 30 891,562 964,540 8.19%930,600 4.38%947,285 6.25%
30 - 39 3,147,414 3,347,070 6.34%3,259,516 3.56%3,296,916 4.75%
40 - 49 4,659,583 4,949,906 6.23%4,804,663 3.11%4,880,913 4.75%
50 - 54 2,527,452 2,633,817 4.21%2,605,787 3.10%2,622,231 3.75%
55 and older 1,267,042 1,326,421 4.69%1,307,863 3.22%1,314,556 3.75%
Total 12,493,053 13,221,754 5.83%12,908,429 3.32%13,061,901 4.55%
ANNUAL SALARY INCREASES (GENERAL EMPLOYEES)
By Attained Age
ANNUAL SALARY INCREASES (POLICE OFFICERS AND FORENSIC PROFESSIONALS)
By Attained Age
105
City of Winter Springs Defined Benefit Plan 18
APPENDIX
TABLE I
COMPARISON OF ACTUAL AND EXPECTED
ANNUAL MEMBER SALARIES (Continued)
Years of
Service Prior Year Actual % Incr Expected % Incr
Under 5 N/A N/A N/A N/A N/A
5 - 9 960,383 1,046,368 8.95%991,597 3.25%
10 - 14 2,455,480 2,619,416 6.68%2,535,282 3.25%
15 - 19 2,504,368 2,683,163 7.14%2,579,500 3.00%
20 and over 2,357,826 2,482,779 5.30%2,428,559 3.00%
Total 8,278,057 8,831,726 6.69%8,534,938 3.10%
Years of
Service Prior Year Actual % Incr Expected % Incr
Under 5 1,646,476 1,772,716 7.67%1,720,564 4.50%
5 - 9 1,358,943 1,451,579 6.82%1,403,110 3.25%
10 - 14 2,105,412 2,228,118 5.83%2,173,840 3.25%
15 - 19 2,891,382 3,057,281 5.74%2,985,351 3.25%
20 and over 4,490,840 4,712,060 4.93%4,625,564 3.00%
Total 12,493,053 13,221,754 5.83%12,908,429 3.32%
By Years of Service (For Information Only)
ANNUAL SALARY INCREASES (POLICE OFFICERS AND FORENSIC PROFESSIONALS)
By Years of Service (For Information Only)
ANNUAL SALARY INCREASES (GENERAL EMPLOYEES)
106
City of Winter Springs Defined Benefit Plan 19
APPENDIX
TABLE II
COMPARISON OF ACTUAL AND EXPECTED TERMINATIONS
Years of
Service Exposure
Current
Assumed
Rates
Current
Expected
Withdrawal
Actual
Withdrawal Actual Rates
Proposed
Rates
Proposed
Expected
Withdrawal
Under 5 N/A 20.5%N/A N/A N/A N/A N/A
5 - 9 17 8.0%1.4 1 5.9%N/A N/A
10 - 14 26 4.5%1.2 7 26.9%15.0%3.9
15 and Over 44 4.5%2.0 6 13.6%7.5%3.3
Total 87 4.5 14 7.2
Under 5 N/A 15.5%N/A N/A N/A N/A N/A
5 - 9 10 12.0%1.2 2 20.0%N/A N/A
10 - 14 10 5.0%0.5 1 10.0%10.0%1.0
15 and Over 13 5.0%0.7 3 23.1%10.0%1.3
Total 33 2.4 6 2.3
Years of
Service Exposure
Current
Assumed
Rates
Current
Expected
Withdrawal
Actual
Withdrawal Actual Rates
Proposed
Rates
Proposed
Expected
Withdrawal
Under 5 67 13.5%9.0 19 28.4%20.0%13.4
5 - 9 29 9.0%2.6 3 10.3%10.0%2.9
10 - 14 32 4.5%1.4 2 6.3%5.0%1.6
15 and Over 50 4.5%2.3 3 6.0%5.0%2.5
Total 178 15.3 27 20.4
Under 5 21 4.0%0.8 5 23.8%15.0%3.2
5 - 9 2 4.0%0.1 1 50.0%15.0%0.3
10 - 14 5 4.0%0.2 0 0.0%4.0%0.2
15 and Over 23 4.0%0.9 1 4.3%4.0%0.9
Total 51 2.0 7 4.6
(General Employees - Female)
WITHDRAWAL EXPERIENCE
(Police Officers and Forensic Professionals - Male)
(Police Officers and Forensic Professionals - Female)
WITHDRAWAL EXPERIENCE
(General Employees - Male)
107
City of Winter Springs Defined Benefit Plan 20
APPENDIX
TABLE III
COMPARISON OF ACTUAL AND EXPECTED RETIREMENTS
Years of
Service Exposure
Current
Assumed
Rates
Current
Expected
Retirements
Actual
Retirements Actual Rates
Proposed
Retirement
Rates
Proposed
Expected
Retirements
< 15 0 0.0%0.0 0 0.0%0.0%0.0
15 - 24 0 0.0%0.0 0 0.0%0.0%0.0
25 +8 0.0%0.0 2 25.0%10.0%0.8
Subtotal 8 0.0 2 0.8
< 15 20 4.0%0.8 2 10.0%4.0%0.8
15 - 24 31 18.0%5.6 7 22.6%20.0%6.2
25 +18 12.0%2.2 6 33.3%25.0%4.5
Subtotal 69 8.5 15 11.5
< 15 3 100.0%3.0 1 33.3%65.0%2.0
15 - 24 2 100.0%2.0 1 50.0%80.0%1.6
25 +0 100.0%0.0 0 100.0%100.0%0.0
Subtotal 5 5.0 2 3.6
All 1 100.0%1.0 1 100.0%100.0%1.0
Total 83 14.5 20 16.9
RETIREMENT EXPERIENCE - GENERAL EMPLOYEES
Age: Under 55
Age: 55 - 64
Age: 65 - 66
Age: 67 or more
108
City of Winter Springs Defined Benefit Plan 21
APPENDIX
TABLE III
COMPARISON OF ACTUAL AND EXPECTED RETIREMENTS (Continued)
Years of
Service Exposure
Current
Assumed
Rates
Current
Expected
Retirements
Actual
Retirements
Actual
Rates
Proposed
Retirement
Rates
Proposed
Expected
Retirements
< 25 0 0.0%0.0 0 0.0%0.0%0.0
25 - 29 23 3.5%0.8 2 8.7%6.0%1.4
30 +4 40.0%1.6 1 25.0%35.0%1.4
Subtotal 27 2.4 3 2.8
< 10 0 0.0%0.0 0 0.0%0.0%0.0
10 - 14 0 5.0%0.0 0 0.0%5.0%0.0
15 - 24 4 25.0%1.0 0 0.0%12.5%0.5
25 - 29 0 70.0%0.0 0 0.0%70.0%0.0
30 +1 80.0%0.8 1 100.0%90.0%0.9
Subtotal 5 1.8 1 1.4
< 10 0 0.0%0.0 0 0.0%0.0%0.0
10 - 14 5 5.0%0.3 0 0.0%2.5%0.1
15 - 19 6 7.5%0.5 1 16.7%12.5%0.8
20 - 24 4 7.5%0.3 3 75.0%40.0%1.6
25 - 29 0 7.5%0.0 0 0.0%7.5%0.0
30 +0 10.0%0.0 0 0.0%10.0%0.0
Subtotal 15 1.0 4 2.5
All 2 100.0%2.0 2 100.0%100.0%2.0
Total 49 7.2 10 8.7
Age: 65 or more
RETIREMENT EXPERIENCE - POLICE OFFICERS AND FORENSIC PROFESSIONALS
Age: Under 55
Age: 55
Age: 56 - 64
109
City of Winter Springs Defined Benefit Plan 22
APPENDIX
Purpose of the Actuarial Valuation
In a defined benefit pension Plan, an employer makes a promise to its employees of a lifetime pension.
The amount of the monthly pension is determined by a benefit formula which is often based upon a
multiplier percentage and the number of years of service and the average final earnings of the
employee.
The employer must design and follow a systematic Plan for advance-funding this obligation. That is
accomplished by establishing a pension plan and performing annual actuarial valuations to measure the
liabilities associated with the obligation and to calculate how much the employer must contribute to
the pension plan in order to make good on its promise.
The calculations in the actuarial valuation are performed each year to re-measure the liabilities. The
stakeholders need to know how the Plan is doing in its goal of systematically financing the promised
benefits. So it is important to make the actuarial calculations in accordance with the professional
actuarial standards of practice and the accounting standards.
Role of Actuarial Assumptions
The nature of the pension promise and its systematic funding require long term projections of the
employee workforce (using demographic assumptions) and long term projections of the salaries and
investment returns (using economic assumptions). The entire actuarial valuation process depends on
the selection and use of reasonable actuarial assumptions as to future demographics and future
economics. There are many different actuarial assumptions employed in an actuarial valuation. The
primary actuarial assumptions include:
1. Rates of Salary Increases
2. Rates of Termination of Employment
3. Rates of Retirement
4. Rates of Mortality
5. Rates of Disability
6. Rates of Investment Return
The actuary and Plan management must be comfortable with the actuarial assumptions. The
assumptions must be reasonable. Without a level of confidence in the reasonableness of the actuarial
assumptions, the stakeholders and users of the valuation results cannot have confidence in the results.
However, there is no way to have confidence in the actuarial assumptions unless an actuarial experience
study is performed to assess the reasonableness of the current assumptions or to change them to be
more in line with past experience and with future expectations.
For this reason the Board has requested that we undertake an actuarial experience study to recommend
changes to the actuarial assumptions used in the annual actuarial valuation.
110