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HomeMy WebLinkAboutActuarial Valuation and Annual Report for the Plan Year Ended September 30, 2007CITY OF WINTER SPRINGS DEFINED BENEFIT PENSION PLAN ACTUARIAL VALUATION AND ANNUAL REPORT for the Plan Year Ended September 30, 2007 Prepared By Retirement Plan Specialists, Inc. Employee Beneirts Adminisfrafors, Actuaries 8 Consultants w CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN TABLE OF CONTENTS Paae Part I Introduction 2 Part II Summary of Plan Provisions 4 Part III Trust Fund Transactions 7 Part IV Unfunded Actuarial Liability 9 Part V Determination of Normal Cost 9 Part VI Contribution for the Plan Year Commencing 10 October 1, 2006 Part VII Present Value of Accrued Benefits 1 1 Part VIII Actuarial Method and Assumptions 12 APPENDIX - I Participant Reconciliation 14 APPENDIX - II Age & Service Statistics 15 APPENDIX -III Past Service Funding Illustrations 17 APPENDIX - IV Market Value vs. Actuarial Asset Valuation Chart 18 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART I INTRODUCTION The actuarial valuation presented in this report covers the employees of the City of Winter Springs, Florida that are participants in the City of Winter Springs Defined Benefit Plan. The pension plan is being maintained and administered as a government plan since it covers municipal employees and is sponsored by the City of Winter Springs. The report analyzes the current funding status of the Pension Plan as of October 1, 2006. It also includes the calculation of the annual contribution requirement for the Plan Year beginning October 1, 2006 and ending September 30, 2007. The contributions together with the corresponding items from the immediately preceding valuation, are as follows: October 1 Valuation Date for Plan Year Ending: Change Between September 30, 2006 September 30, 2007 Years Contribution $1,448,359 $1,673,817 $225,458 Percentage of 13.2% 14.2% 1.0% Payroll The employee census data as of October 1, 2006 was submitted by the City. This data was not audited by us but appears to be sufficient and reliable for purposes of the report. The total participant count is as follows: October 1, 2005 October 1, 2006 Active participants 251 252 Retired participants 14 17 Terminated participants with vesting 84 85 Total 349 354 The actuarial assumptions and cost method remain unchanged from the preceding year. A review of the actuarial assumptions is performed each year with changes recommended when actual experience under the plan deems it appropriate. Actuarial computations have been made by the Aggregate Entry Age Normal with Frozen Initial Liability Method of calculation, which is designed to keep prior service costs unaffected by any difference That may develop between the actual experiences as it unfolds and the assumptions used for calculations. The effects of any differences that do develop are reflected in current and future normal costs. If additional assumptions are changed or benefits and other plan features are updated at any time, current thinking supposes adjustment of the frozen initial liability to allocate costs between prior and future service once again. It is believed that the actuarial methods and assumptions are individually reasonable, and in combination, they offer the actuary's best estimate of anticipated experience under the Plan. 2 The Plan was amended effective October 1, 2004 to increase the benefit formula percentage for service prior to October 1, 2000 by .25% increments each year beginning October 1, 2005 until a full 3% is reached effective with the plan year beginning October 1, 2008. In addition, the employer contribution rate was increased effective October 1, 2006. This report reflects the impact of the second incremental increase of .50% in the past service amendment October 1, 2006. The actuarial valuation report was prepared and completed by me or under my direct supervision, and I acknowledge responsibility for the result. To the best of my knowledge, the results are complete and accurate, and in my opinion, the techniques and assumptions used are reasonable and meet the requirements and intent of Part VII, Chapter 122, Florida Statutes. there is no benefit or expense to be provided by the plan and/or paid from the plan's assets for which liabilities or current costs have not been established or otherwise taken into account in the valuation. All known events or trends that may require a material increase in the plan costs or required contribution rates have been Laken into account in the valuation. We would be pleased to provide further information or answer any questions with respect to the results of our actuarial valuation. Respectfully submitted, /~ ~ ~~ Date RETIRE f~1T PLAN SP Act rie~ for the P}C Donald D. ~ipi~ig Enrolled Actuary No ISTS, INC. M.A.A.A., M.S.P.A. 2234 Sandra R. Turner C.P.C., Q.P.A. President 3 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART II SUMMARY OF PLAN PROVISIONS 1. History The Plan was adopted as a Money Purchase Floor Offset plan on October 1, 1997. The Plan was amended and restated as a Defined Benefit Plan effective October 1, 2000. SunTrust Trust and Investment Services is the investment medium. Valuations are made annually, as of October 1 each year. The latest amendment to the Plan was effective October 1, 2004. 2. Eligibility: Continuous Service and Participation Service Each employee working more than 29 hours per week is eligible to join the Plan on the first day of the month following completion of 6 months of service. 3. Normal Retirement The first day of the calendar month following the 65~h birthday 4. Normal Form of Pension The normal form of pension is a life annuity with monthly payments commencing on the participant's retirement date 5. Retirement Benefit The yearly amount of pension a participant will receive is equal to the sum of (a) and (b), but for years not greater than (c) below: (a) An amount equal to 2.50 % of Average Compensation multiplied by years of service completed prior to October 1, 2000 effective October 1, 2006; (b) For each year of service on and after October 1, 2000, 3 % of Average Compensation multiplied by years of service after October 1, 2000. (c) The maximum number of years of service for determining benefits is the first 30 years. Average Compensation is the 3 highest consecutive compensation periods during employment with the City. 4 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN SUMMARY OF PLAN PROVISIONS (continued) 6. Late Retirement A Participant may elect a late retirement date any time after normal retirement date. The pension will be the greater of the accrued benefit earned on the Late Retirement Date or the benefit earned at the Normal Retirement Dote actuarially increased to the Late Retirement Date. 7. Early Retirement After age 55 and 10 years of service, a Participant is eligible far early retirement. The pension starting immediately is fhe accrued benefit as of the early retirement date. The benefit will be paid monthly for life. If a participant has 25 years of service, the accrued benefit is not actuarially reduced. A participant with 25 years of service may retire earlier than 55 with the benefit payable as the actuarial equivalent of the benefit at age 55. 8. Death Benefit The beneficiary is entitled to a death benefit equal to the present value of the non- forfeitable accrued benefit at the time of the participant's death. 1f death occurs after actual retirement, the beneficiary receives whatever is payable under the form of benefit option elected. 9. Disability Benefit The plan does not provide for disability benefits. Disability benefits are provided under the City's Fong-term disability program 10. Termination Benetit A participant is 100% vested in the required participant contributions made under the plan. Required participant contributions made after October 1, 2000 shall be included in the deferred vested benefit payable at normal retirement date. All other non-forfeitable accrued benefits shall be determined by the following vesting schedule upon termination. Years of Service Percentage Less than 3 years none 3 20% 4 40% 5 60% 6 80% 7 100% CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN SUMMARY OF PLAN PROVISIONS (continued) 11. Contributions All participants are required to contribute 3 % of compensation The City is contributing at the rate of 12% of compensation for the Plan Year beginning October 1, 2006. The total City and participant contribution as a percentage of compensation is 15%. 12. Optional Forms of Payment A participant may elect, in writing, to have the normal form of pension converted to an actuarially equivalent optional form. These are (a) the joint and survivor annuity form in which the participant receives a smaller amount monthly in return for the continuing payments to the named beneficiary in the same amount, 2/s rds of the amount, or '/~ of the amount as designated as long as the beneficiary may live after the death of the pprticipant; fib) the life annuity form in which the participant receives a lesser amount monthly in return for the guarantee of continuing payments for a certain year period, CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART III TRUST FUND TRANSACTIONS 2004-2005 2005-2006 Plan Assets, October 1, $8,942,442 $11,251,277 Contributions during the year 1,260,627 1,505,020 Participant service buy back deposit 151,645 0 Net Investment experience 1,098,012 1,026,962 Participant Payments (132,697) (171,697) Administration Expenses (68,752) (84,340) Plan Assets, September 30, $1 1,251,277 $13,527,222 Approximate rate of return: 1 1.5% 8.6~ COMPOSITION OF TRUST FUND Cash 0 (304,974) Short term Investments 173,367 339,294 Bonds 1,587,392 2,066,269 Common Stocks 9,490,518 11,426,633 Total Assets $1 1,251,277 $13,527,222 7 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN ACTUARIAL VALUE OF ASSETS The Long Range Yield Method of asset valuation is described in the actuarial assumptions and is determined as follows: 1. Actuarial value of assets, October 1, 2005 $9,716,089 2. Contributions during year (includes buy back deposits) 1,505,020 3. Disbursements during year (256,037) 4. Interest to September 30, 2006 at 8% 827,246 5. Tentative value, as of September 30, 2006 - (1) + (2) + I3) + (4) $1 1,792,318 6. Market value of assets, September 30, 2006 $13,527,222 7. Excess of market value over tentative value as of September 30, 2006 = (b) - (5) 1,734,904 8. Deferred investment gain (loss) not yet recognized as of September 30, 2006 A. 2002: ($1,527,731) x .20 = ($305,546) B. 2003: " ($856,508) x .40 = ($342,603) C. 2004: $237,999 x .60 = $142,799 D. 2005: $1,206,666 x .80 = $965,332 E. Total $459,982 9. Deferred investment gain (loss) recognized for 2006: 20% x [(7)] 346,980 10. Deferred investment gain (loss) recognized during A. 2002: ($305,546) B. 2003: ($171,302) C. 2004: $47,600 D. 2005: $241,333 E. Total ($187,915) 1 1. Actuarial Value of Assets as of September 30, 2006 = (5) + (9) + (10) $1 1,951,383 ' Approximate rate of return on Actuarial Value of Assets for period ending September 30, 2006 is 9.5%. 8 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART IV UNFUNDED ACTUARIAL LIABILITY 2004-2005 2005-2006 1. Unfunded Actuarial Liability, October 1 $2,797,186 $3,462,396 2. Normal Cost for Plan Year 1,051,900 1,130,947 3. Interest at 8 % on (1) and (2) 307,926 367,467 4. Contributions for Plan Year 1,260,627 1,505,020 5. Interest on contributions 50,425 60,200 6. Unfunded Actuarial Liability, September 30, (I .+ 2.+3.-4.-5.) $2,845,960 3,395,590 7. Adjustment due to Actuarial Assumption/Amendment changes $616,436 695,776 8. Adjusted Unfunded Actuarial Liability, September 30 $3,462,396 4,091,366 PART V DETERMINATION OF NORMAL COST 2005-2006 2006-2007 1. Present value of benefits at October 1 $20,809,347 24,446,082 2. Actuarial Assets Value $9,716,089 1 1,951,383 3. Unfunded Actuarial Liability 3,462,396 4,091,366 4, Present value of future normal cost payments, (1.-2.-3.) 7,630,862 8,403,333 5. Present value of future compensation 65,175,360 67,846,689 6. Cost as a percentage of compensation, (4 / 5j 1 1.708% 12.386% 7. Total current covered participant compensation 9,659,446 10,489,087 8. Current plan year's normal cost at October 1, (6 x 7) $1,130,947 1,299,178 9 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VI CONTRIBUTION FOR THE YEAR COMMENCING OCTOBER 1, 2006 REQUIRED ANNUAL CONTRIBUTION 1. Normal Cost $1,299,178 2. 30-Year amortization of the Unfunded Frozen Initial Liability established October 1, 2000, and 374,639 adjusted for change in actuarial assumptions October 1, 2002, October 1, 2003 and amendment effective October 1, 2004, October 1, 2005 and October 1, 2006 3. Total, October 1, 2006 (l .+ 2.) 4. Interest at 8 % to end of Plan Year $1,673,817 133,905 5. Total contribution, September 30, 2007, (3.+4.) $1,807,722 6. Total contribution (3) as a percentage of 2006- 14.2% 2007 payroll ($1 1,759,010) 7. Total contribution (5) as a percentage of 2006- 15.4% 2007 payroll ($1 1,759,010) 10 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VII PRESENT VALUE OF ACCRUED BENEFITS OCTOBER 1,2005 OCTOBER 1, 2006 1. Present Value of Accrued Benefits Active Members $9,059,318 $11,356,490 Retired Members 1,401,890 1,595,357 Terminated Members with Vesting 829,377 991,484 Total $11,290,585 $13,943,331 2. Present Value of Vested Accrued Benefits Active Members $8,571,292 $10,877,654 Retired Members 1,401,890 1,595,357 Terminated Members with Vesting 665.196 783,183 Total $10,638,378 $13,256,194 3. Total Number of Members Active Members: Vested 191 196 Active Members: Non-vested 60 56 Retired Members 14 17 Terminated Members with Vesting 84 85 Total 349 354 4. Market Value of Assets $11,251,277 $13,527,222 5 Actuarial Value of Assets $9,716,089 $1 1,951,383 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VIII ACTUARIAL METHOD AND ASSUMPTIONS We have calculated the costs and liabilities for the actuarial valuation of the City of Winter Springs Defined Benefit Plan as of October 1, 2006 using the Aggregate Entry Age Normal Frozen Initial Liability Cost Method, and have analyzed the results. The employee data and the financial information relied on for the report were provided by the Employer and the SunTrust Trust and Investment Services. To the best of our knowledge, the information provided is complete and accurate. The actuarial assumptions used are as follows: a. Long Term Net Investment Return b. Mortality c. Retirement Age d. Normal Form 8 %, compounded annually. 1983 Group Annuity male rate table, with ages of women set back two years. Later of age 60 with 10 years of service or age on the valuation date. Life Annuity with payments for the life of the participant. e. Benefit Level Effective October 1, 2000, 2.5% of average earnings for years pre October 1, 2000 and 3% of average earnings for each year of service after October 1, 2000. f. Salary Projections g. Termination Forfeitures h. Expenses i. Asset Basis Current salaries are assumed to increase 3% per year. Assumed to occur at rates approximating 1 1.62% at age 25 graded down to .16% at age 60 and over. (T-8 withdrawal table) Assumed that the City will reimburse the Fund for actual expenses paid. Long Range Yield Method of asset valuation as explained on the following page. 12 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN long Range Yield Asset Valuation Method The actuarial value of assets is determined as follows: (A) A tentative asset value is determined. This value is equal to the actuarial value of assets on the preceding valuation date multiplied by the valuation rate of interest plus the excess of contributions over disbursements during the preceding Plan Year with interest at the valuation rate from date of payment to end of year. (B) The excess of market value over tentative value is determined. (C) For the first actuarial valuation in which the long range yield method is applied, the actuarial value of assets is (A) plus awrite-up equal to 20% of (B). An identical write-up is made in determining the actuarial value of assets in each of the next four years, thus fully recognizing (B) with five write-ups of equal amount. (D) On the next actuarial valuation, the actuarial value of assets is (A) plus the write-up of the previous year, plus an additional write-up equal to 20% of the excess of (B) on the valuation date over 80% of (B) on the preceding valuation date. A write-up identical to this additional write-up is also made in each of the next four years. (E) Each subsequent valuation includes (A), plus applicable write ups for previous years, plus an additional write up equal to 20% of the excess of (B) on the valuation date over the sum of portions of (B) for the previous years not yet fully recognized by prior write-ups. 13 APPENDIX - I CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PLAN PARTICIPANT RECONCILIATION ACTIVE PARTICIPANTS Active participants, October 1, 2005 Retired Terminated with lump sum Terminated with vesting Terminated without vesting Death Other: omitted in prior year New entrants Active participants, October 1, 2006 Total covered payroll Average Compensation RETIRED PARTICIPANTS AND BENEFICIARIES Retired participants, October 1, 2005 Retired during year Died - no further benefits due C & C benefit expired Retired participants, October 1, 2006 TERMINATED PARTICIPANTS WITH VESTING Number 251 -2 -5 -14 -4 -3 3U 252 October 1, 2005 October 1, 2006 $9,659,446 $10,489,087 $ 38,483 $41,623 Number Monthly Benefit 14 $10,823.36 3 3,596.19 0 0.00 p 0.00 17 $14,419.55 Number Terminated participants with vesting, October 1, 2005 Terminated with vesting during year Paid lump sum distribution or deemed ineligible Retired during year Previously omitted Terminated participants with vesting, October 1, 2006 84 14 -13 0 0 85 14 APPENDIX - III CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PAST SERVICE FUNDING ILLUSTRATIONS AS OF OCTOBER 1, 2006 30 Year Fund(ng 15 Year Funding 10 Year Funding Normal Cost $1,299,178 $1,299,178 $1,299,178 Past Service Cost 374,639 442.585 568,569 Total $1,673,817 $1,741,763 $1,867,747 2006/07 Total Comp $11,759,010 $11,759,010 $11,759,010 Percent of Comp 14.2% 14.8% 15.9% a) Present Value of Accrued Benefits: $13,943,331 b) Market Value of Assets: 13,527,222 c) Unfunded Present Value of Accrued Benefits: (a-b) $ 416,109 (97.0%) 17