HomeMy WebLinkAbout2009-09-09 - Finance-Accounting Committee Meeting Agenda Packet
orb, Linda
Water District
AGENDA
YORBA LINDA WATER DISTRICT
FINANCE-ACCOUNTING COMMITTEE MEETING
Wednesday, September 9, 2009, 4:00 PM
1717 E Miraloma Ave, Placentia CA 92870
COMMITTEE STAFF
Director Michael J. Beverage, Chair Ken Vecchiarelli, General Manager
Director John W. Summerfield Cindy Navaroli, Interim Finance Director
Sandi Van Etten, Senior Accountant
1. PUBLIC COMMENTS
Any individual wishing to address the committee is requested to identify themselves and state the matter on
which they wish to comment. If the matter is on this agenda, the committee Chair will recognize the individual for
their comment when the item is considered. No action will be taken on matters not listed on this agenda.
Comments are limited to matters of public interest and matters within the jurisdiction of the Water District.
Comments are limited to five minutes.
2. DISCUSSION ITEMS
This portion of the agenda is for matters such as technical presentations, drafts of proposed policies, or similar
items for which staff is seeking the advice and counsel of the Committee members. This portion of the agenda
may also include items for information only.
2.1. FY 2008/09 Audit Update
2.2. GASB 43 & 45 Update
2.3. Bond Covenants
2.4. Monthly Portfolio Reports for August 2009
2.5. Future Agenda Items and Staff Tasks
3. ADJOURNMENT
3.1. The next regular meeting of the Finance-Accounting Committee will be held October 13,
2009 at 4:00 p.m.
Items Distributed to the Committee Less Than 72 Hours Prior to the Meeting
Pursuant to Government Code section 54957.5, non-exempt public records that relate to open session agenda items
and are distributed to a majority of the Committee less than seventy-two (72) hours prior to the meeting will be available
for public inspection in the lobby of the District's business office located at 1717 E. Miraloma Avenue, Placentia, CA
92870, during regular business hours. When practical, these public records will also be made available on the District's
internet website accessible at http://www.ylwd.com/.
Accommodations for the Disabled
Any person may make a request for a disability-related modification or accommodation needed for that person to be
able to participate in the public meeting by telephoning the Executive Secretary at 714-701-3020, or writing to Yorba
Linda Water District, P.O. Box 309, Yorba Linda, CA 92885-0309. Requests must specify the nature of the disability and
the type of accommodation requested. A telephone number or other contact information should be included so the
District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should
make the request with adequate time before the meeting for the District to provide the requested accommodation.
ITEM NO. 2.2
AGENDA REPORT
Meeting Date: September 9, 2009 Budgeted: N/A
Total Budget: N/A
To: Finance-Accounting Committee Cost Estimate: N/A
Funding Source: N/A
From: Ken Vecchiarelli, General Account No: N/A
Manager
Job No: N/A
Presented By: Cindy Navaroli, Interim Finance Dept: Administration
Director
Reviewed by Legal: N/A
Prepared By: Cindy Navaroli, Interim Finance CEQA Compliance: N/A
Director
Subject: GASB 43 & 45 Update
luuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuui~
DISCUSSION:
The District had an Actuarial Study of Retiree Health Liabilities performed pursuant to GASB 43 &
45 standards for FY 2008/09. The attached report from Total Compensation Systems explains the
GASB 43 & 45 accounting standards and provides support for the actuarial determined liability to
the District for retiree health benefits.
In summary, the report found that the District must include an additional $105,623 in liabilities on
the Statement of Net Assets to account for the amount that will be paid in the future for employees'
retiree benefits that have already been earned. This amount is in addition to the $112,356 that is
currently reflected on the books for payments for retiree health benefits paid throughout the year.
The report includes recommendations and possible action items that can be discussed at a future
committee meeting or workshop. Total Compensations Systems could not be present for today's
report, but will be happy to come to the District at a future meeting to facilitate such discussion.
ATTACHMENTS:
_ ascription: Type.
Final GASB 45 report from TCS.doc =inal GASB 45 report Backup Material
GASB 45 presentation [Compatibility Model.pdf ASB 45 presentation Backup Material
Total Compensation Systems, Inc.
Yorba Linda Water District
Actuarial Study of
Retiree Health Liabilities
Prepared by:
Total Compensation Systems, Inc.
Date: August 31, 2009
Total Compensation Systems, Inc.
Table of Contents
PART I: EXECUTIVE SUMMARY .............................................................................................................3
A. INTRODUCTION 3
B. GENERAL FINDINGS 4
C. DESCRIPTION OF RETIREE BENEFITS 5
D. RECOMMENDATIONS 5
PART II: BACKGROUND 7
A. SUMMARY 7
B. ACTUARIAL ACCRUAL .................................................................................................................................................................7
PART III: LIABILITIES AND COSTS FOR RETIREE BENEFITS ..................................................10
A. INTRODUCTION 10
B. MEDICARE 10
C. LIABILITY FOR RETIREE BENEFITS 10
D. COST TO PREFUND RETIREE BENEFITS 1 1
1. Normal Cost ..........................................................................................................................................................................11
2. Amortization of Unfunded Actuarial Accrued Liabilit~(UAAL) .........................................................................................12
3. Annual Required Contributions (ARC) ................................................................................................................................12
4. Other Components ofAnnual OPEB Cost (AOC) ...............................................................................................................13
PART IV: "PAY AS YOU GO" FUNDING OF RETIREE BENEFITS ...............................................14
PART V: RECOMMENDATIONS FOR FUTURE VALUATIONS ....................................................15
PART VI: APPENDICES ............................................................................................................................16
APPENDIX A: MATERIALS USED FOR THIS STUDY ..........................................................................................................16
APPENDIX B: EFFECT OF ASSUMPTIONS USED IN CALCULATIONS ............................................................................17
APPENDIX C: ACTUARIAL ASSUMPTIONS AND METHODS ...........................................................................................18
APPENDIX D: DISTRIBUTION OF ELIGIBLE PARTICIPANTS BY AGE ...........................................................................22
APPENDIX E: GLOSSARY OF RETIREE HEALTH VALUATION TERMS .........................................................................23
2
Total Compensation Systems, Inc.
Yorba Linda Water District
Actuarial Study of Retiree Health Liabilities
PART L• EXECUTIVE SUMMARY
A. Introduction
Yorba Linda Water District engaged Total Compensation Systems, Inc. (TCS) to analyze liabilities
associated with its current retiree health program as of June 1, 2009 (the valuation date).
This actuarial study is intended to serve the following purposes:
To provide information to enable Yorba Linda Water District to manage the costs and
liabilities associated with its retiree health benefits.
To provide information to enable Yorba Linda Water District to communicate the
financial implications of retiree health benefits to internal financial staff, the Board,
employee groups and other affected parties.
To provide information needed to comply with Governmental Accounting Standards
Board Accounting Standards 43 and 45 related to "other postemployment benefits"
(OPEB's).
Because this report was prepared in compliance with GASB 43 and 45, as appropriate, Yorba Linda Water District
should not use this report for any other purpose without discussion with TCS. This means that any discussions with
employee groups, governing Boards, etc. should be restricted to the implications of GASB 43 and 45 compliance.
This actuarial report includes several estimates for Yorba Linda Water District's retiree health program. In
addition to the tables included in this report, we also performed cash flow adequacy tests as required under Actuarial
Standard of Practice 6 (ASOP 6). Our cash flow adequacy testing covers a twenty-year period. We would be happy
to make this cash flow adequacy test available to Yorba Linda Water District in spreadsheet format upon request.
We calculated the following estimates separately for active employees and retirees. As requested, we also
separated results by the following employee classifications: Bargaining Unit and Management. We estimated the
following:
➢ the total liability created. (The actuarial present value of total projected benefits or
APVTPB)
➢ the ten year "pay-as-you-go" cost to provide these benefits.
➢ the "actuarial accrued liability (AAL)." (The AAL is the portion of the APVTPB
attributable to employees' service prior to the valuation date.)
➢ the amount necessary to amortize the UAAL over a period of 30 years.
➢ the annual contribution required to fund retiree benefits over the working lifetime of
eligible employees (the "normal cost").
➢ The Annual Required Contribution (ARC) which is the basis of calculating the annual
3
Total Compensation Systems, Inc.
OPEB cost and net OPEB obligation under GASB 43 and 45.
We summarized the data used to perform this study in Appendix A. No effort was made to verify this
information beyond brief tests for reasonableness and consistency.
All cost and liability figures contained in this study are estimates of future results. Future results can vary
dramatically and the accuracy of estimates contained in this report depends on the actuarial assumptions used.
Normal costs and liabilities could easily vary by 10 - 20% or more from estimates contained in this report. The best
way to respond to this uncertainty of future results is to have an actuarial study performed regularly - no less
frequently than every two or three years as provided by GASB 43 and 45.
B. General Findings
We estimate the "pay-as-you-go" cost of providing retiree health benefits in the year beginning June 1, 2009
to be $112,356 (see Section IV.A.). The "pay-as-you-go" cost is the cost of benefits for current retirees. Until GASB
43/45 become effective, the "pay-as-you-go" cost is the only amount that must be reflected as a retiree health
program expense on accrual basis accounting statements.
There are several reasons why it is important for public agencies to evaluate retiree health costs and
liabilities. The Governmental Accounting Standards Board (GASB) will soon require accounting for the costs and
liabilities associated with retiree health benefits on an accrual basis i.e. over the working lifetime of eligible
employees. (The effective date of the GASB accounting standard will range from 2007 to 2009, depending on the
annual revenue of the District during the 1998-99 fiscal year.) Auditors may require an actuarial study for an
unqualified audit based on AICPA Statement of Position 92-06.
Complying with accounting and regulatory requirements will require employers to expense more than what
is required to simply pay retiree health benefit costs. These excess expenses over time - plus interest - will
accumulate a liability related to retiree health benefits. These expenses and liabilities will be lower and more stable
for employers that establish irrevocable trusts. By funding retiree benefits through such a trust, there will be enough
funds available at retirement (on average) that, with interest, will be sufficient to pay all promised retiree health
benefits without the need for any post-retirement District contributions.
For current employees, the value of benefits "accrued" in the year beginning June 1, 2009 (the normal cost)
is $140,903. This normal cost would increase each year based on covered payroll. Had Yorba Linda Water District
begun accruing retiree health benefits when each current employee and retiree was hired, a substantial liability
would have accumulated. We estimate the amount that would have accumulated to be $1,740,127. This amount is
called the "actuarial accrued liability" (AAL).
We calculated the annual cost to amortize the unfunded actuarial accrued liability using a 5% discount rate.
We used a 30 year amortization period. The current year cost to amortize the unfunded "actuarial accrued liability"
is $77,076. This amortization payment would increase each year based on covered payroll. Payments would
continue for 30 years, after which time amortization payments would end.
Combining the normal cost and UAAL amortization costs in the first year produces a total first year annual
required contribution (ARC) of $217,979. The ARC is used as the basis for determining expenses and liabilities
under GASB 43/45. The ARC is used in lieu of (rather than in addition to) the "pay-as-you-go" cost. The additional
cost of compliance with GASB 43 and 45 is therefore $105,623.
We based all of the above estimates on employees as of May, 2009. Over time, liabilities and cash flow will
4
Total Compensation Systems, Inc.
vary based on the number and demographic characteristics of employees and retirees. It will be important to
periodically revalue costs and liabilities.
C. Description of Retiree Benefits
Following is a description of the current retiree benefit plan:
Bargaining Unit Management Supervisory/Confidential
Benefit types provided Medical and dental Medical and dental Medical and dental
Duration of Benefits One year per three years One year per three years One year per three years of
of service of service service
Required Service 5 years 5 years 5 years
Minimum Age 50 50 50
Dependent Coverage Yes Yes Yes
District Contribution % 100% 100% 100%
District Cap Active caps Active caps Active caps
D. Recommendations
It is outside the scope of this report to make specific recommendations of actions Yorba Linda Water
District should take to manage the substantial liability created by the current retiree health program. Total
Compensation Systems, Inc. can assist in identifying and evaluating options once this report has been studied. The
following recommendations are intended only to allow the District to get more information from this and future
studies. Because we have not conducted a comprehensive administrative audit of Yorba Linda Water District's
practices, it is possible that Yorba Linda Water District is already complying with some or all of our
recommendations.
➢ We recommend that Yorba Linda Water District inventory all benefits and services provided to
retirees - whether contractually or not and whether retiree-paid or not. For each, Yorba Linda
Water District should determine whether the benefit is material and subject to GASB 43 and/or 45.
➢ We recommend that Yorba Linda Water District conduct a study whenever events or
contemplated actions significantly affect present or future liabilities, but no less frequently
than every two or three years, as will be required under GASB 43/45.
➢ We recommend that the District communicate the magnitude of these costs to employees
and include employees in discussions of options to control the costs.
➢ Because of the significant liabilities created by the current retiree health program, the
District should consider earmarking funds to pay future benefits. Accrual basis costs under
GASB 43/45 will be lower and more stable to the extent liabilities are funded under an
irrevocable trust that qualifies under GASB 43/45 as a "plan."
➢ Under GASB 45, it is important to isolate the cost of retiree health benefits. We strongly urge
Yorba Linda Water District to have all premiums, claims and expenses for retirees separated from
active employee premiums, claims, expenses, etc. To the extent any retiree benefits are made
available to retirees over the age of 65 - even on a retiree-pay-all basis - all premiums, claims and
5
Total Compensation Systems, Inc.
expenses for post-65 retiree coverage should be segregated from those for pre-65 coverage.
Furthermore, Yorba Linda Water District should arrange for the rates or prices of all retiree benefits
to be set on what is expected to be a self-sustaining basis.
➢ Yorba Linda Water District should establish a way of designating employees as eligible or
ineligible for future OPEB benefits. Ineligible employees can include those in ineligible job classes;
those hired after a designated date restricting eligibility; those who, due to their age at hire cannot
qualify for District-paid OPEB benefits; employees who exceed the termination age for OPEB
benefits, etc.
➢ Several assumptions were made in estimating costs and liabilities under Yorba Linda Water
District's retiree health program. Further studies may be desired to validate any
assumptions where there is any doubt that the assumption is appropriate. (See Appendices
B and C for a list of assumptions and concerns.) For example, Yorba Linda Water District
should maintain a retiree database that includes - in addition to date of birth, gender and
employee classification - retirement date and (if applicable) dependent date of birth,
relationship and gender. It will also be helpful for Yorba Linda Water District to maintain
employment termination information - namely, the number of OPEB-eligible employees in
each employee class that terminate employment each year for reasons other than death,
disability or retirement.
➢ Segregating plan assets will allow taking advantage of California Government Code
Sections 53620 through 53622 to achieve greater investment income on plan assets. This
study assumes an investment return net of all investment and plan expenses of 5%. We
recommend Yorba Linda Water District take actions to achieve a long term rate of return
that reflects the long term nature of the liabilities.
Respectfully submitted,
1
Geoffrey L. Kischuk, FSA, MAAA, FCA
Consultant
Total Compensation Systems, Inc.
(805) 496-1700
6
Total Compensation Systems, Inc.
PART II: BACKGROUND
A. Summary
Accounting principles have long held that the cost of retiree benefits should be "accrued" over employees'
working lifetime. For this reason, the Governmental Accounting Standards Board (GASB) issued in 2004
Accounting Standards 43 and 45 for retiree health benefits. These standards will apply to all public employers that
pay any part of the cost of retiree health benefits for current or future retirees (including early retirees).
The GASB standards will become effective on a phased basis based on revenue during the 1998-99 fiscal
year. For employers, the first phase will be $100 million or more in revenue. The effective date will be the first fiscal
year on or after December 15, 2006. Successive annual phases will sweep in "$10 to $100 million" and "less than
$10 million" employers. The effective date for "plans" will be one year earlier than the dates for employers. A
"plan" is a trust or other arrangement that is exclusively for retiree health benefits and the assets of which are
protected from creditors.
Until the new GASB standards take effect, the Governmental Accounting Standards Board (GASB)
currently requires public employers to disclose the existence and/or cost of retiree health benefits. GASB
requirements are contained in GASB 12.
Prudent fiscal management of retiree health costs and liabilities requires establishment of a long-term plan.
For most public employers, the magnitude of the accrued liability makes it difficult to immediately begin to fully
accrue retiree health benefits on an actuarial basis. Fortunately, the current absence of stringent accounting or
regulatory funding requirements allows public employers flexibility to transition into full actuarial accrual over the
next few years. Transitioning into full actuarial accrual provides public employers with the time to establish fiscal
management plans that
➢ protect retiree benefit security to the greatest possible extent;
➢ involve employee groups in discussions of benefit design and funding options; and
➢ minimize disruptions to core services that could result from rapidly increasing retiree benefit costs.
Waiting to address retiree health benefit funding until the GASB accounting standards become effective will
dramatically reduce employers' fiscal options. By then, unfunded actuarial accrued liabilities will be bigger, thereby
increasing the expenses needed to amortize the unfunded liability. Higher future amortization expenses would
squeeze financial resources for vital services. Waiting to address these issues until required by GASB will result in
less time to evaluate options and take action to protect benefits for future retirees and/or reduce benefit costs. To the
extent retiree benefits are subject to collective bargaining, the timing and extent of benefit and funding changes may
be constrained.
B. Actuarial Accrual
To actuarially accrue retiree health benefits requires determining the amount to expense each year so that
the liability accumulated at retirement is, on average, sufficient (with interest) to cover all retiree health expenditures
without the need for additional expenses. There are many different ways to determine the annual accrual amount.
The calculation method used is called an "actuarial cost method."
7
Total Compensation Systems, Inc.
Conceptually, there are two components of actuarial cost - a "normal cost" and amortization of something
called the "unfunded actuarial accrued liability." Both accounting standards and actuarial standards usually address
these two components separately (though alternative terminology is sometimes used).
The normal cost can be thought of as the value of the benefit earned each year if benefits are accrued during
the working lifetime of employees. This report will not discuss differences between actuarial cost methods or their
application. Instead, following is a description of a commonly used, generally accepted actuarial cost method that
will be permitted under GASB 43 and 45. This actuarial cost method is called the "entry age normal" method.
Under the entry age normal cost method, an average age at hire and average retirement age are determined
for eligible employees. Then, the actuary determines what amount needs to be expensed each year from hire until
retirement to fully accrue the expected cost of retiree health benefits. This amount is the normal cost. Under GASB
43 and 45, the normal cost can be expressed either as a level dollar amount or as a level percentage of payroll.
The normal cost is determined using several key assumptions:
➢ The current cost of'retiree health benefits (often varying by age, Medicare status and/or dependent
coverage). The higher the current cost of retiree benefits, the higher the normal cost.
➢ The "trend" rate at which retiree health benefits are expected to increase over time. A higher trend
rate increases the normal cost. A "cap" on District contributions can reduce trend to zero once the
cap is reached thereby dramatically reducing normal costs.
➢ Mortality rates that vary by age and sex. (Unisex mortality rates are not usually used because an
individual's OPEB benefits do not depend on the mortality table used.) If employees die prior to
retirement, contributions attributable to deceased employees are available to fund benefits for
employees who live to retirement. After retirement, death results in benefit termination. Although
higher mortality rates reduce normal costs, the mortality assumption is not likely to vary from
employer to employer.
➢ Employment termination rates have the same effect as mortality inasmuch as higher termination
rates reduce normal costs. Employment termination can vary considerably between public agencies.
➢ Vesting rates reflect years of service required to earn full or partial retiree benefits. While longer
vesting periods reduce costs, cost reductions are not usually substantial unless full vesting requires
more than 20 years of service.
➢ Retirement rates determine what proportion of employees retire at each age (assuming employees
reach the requisite length of service). Retirement rates often vary by employee classification and
implicitly reflect the minimum retirement age required for eligibility. Higher retirement rates
increase normal costs but, except for differences in minimum retirement age, retirement rates tend
to be consistent between public agencies for each employee type.
➢ Participation rates indicate what proportion of retirees are expected to elect retiree health benefits
if a significant retiree contribution is required. Higher participation rates increase costs.
➢ The discount rate estimates investment earnings for assets earmarked to cover retiree health benefit
liabilities. The discount rate depends on the nature of underlying assets. For example, earmarked
funds earning money market rates in the county treasury are likely to earn far less than a diversified
8
Total Compensation Systems, Inc.
portfolio including stocks, bonds, etc. A higher discount rate can dramatically lower normal costs.
GASB 43 and 45 require the interest assumption to reflect likely long term investment return.
The assumptions listed above are not exhaustive, but are the most common assumptions used in actuarial
cost calculations. The actuary selects the assumptions which - taken together - will yield reasonable results. It's not
necessary (or even possible) to predict individual assumptions with complete accuracy.
If all actuarial assumptions were exactly met and an employer had expensed the normal cost every year for
all past and current employees and retirees, the funds would have accumulated to a sizeable amount (after adding
interest and subtracting retiree benefit costs from the accumulated funds). The fund that would have accumulated is
called the actuarial accrued liability or AAL. The excess of the AAL over funds earmarked for retiree health benefits
is called the unfunded actuarial accrued liability (or UAAL). Under GASB 43 and 45, in order for assets to count
toward offsetting the AAL, the assets have to be held in an irrevocable trust that is safe from creditors and can only
be used to provide OPEB benefits to eligible participants.
The actuarial accrued liability (AAL) can arise in several ways. First, at the inception of actuarial funding,
there is usually a substantial UAAL. Under GASB 43 and 45, some portion of this amount can be established as the
"transition obligation" subject to certain constraints. UAAL can also increase as the result of operation of a retiree
health plan - e.g., as a result of plan changes or changes in actuarial assumptions. Finally, AAL can arise from
actuarial gains and losses. Actuarial gains and losses result from differences between actuarial assumptions and
actual plan experience.
Under GASB 43 and 45, employers have several options on how the UAAL can be amortized as follows:
➢ The employer can select an amortization period of 1 to 30 years. (For certain situations that result in a
reduction of the AAL, the amortization period must be at least 10 years.)
➢ The employer may apply the same amortization period to the total combined UAAL or can apply
different periods to different components of the UAAL.
➢ The employer may elect a "closed" or "open" amortization period.
➢ The employer may choose to amortize on a level dollar or level percentage of payroll method.
UAAL amortization payments can be higher than the normal cost. The magnitude of the UAAL depends
not only on all the assumptions discussed earlier, but also on the average age of employees. The higher employees'
average age, the greater the AAL.
9
Total Compensation Systems, Inc.
PART III: LIABILITIES AND COSTS FOR RETIREE BENEFITS
A. Introduction.
We calculated the actuarial present value of projected benefits (APVPB) separately for each employee. We
determined eligibility for retiree benefits based on information supplied by Yorba Linda Water District. We then
selected assumptions for the factors discussed in the above Section that, based on plan experience and our training
and experience, represent our best prediction of future plan experience. For each employee, we applied the
appropriate factors based on the employee's age, sex and length of service.
We summari zed actuarial assumptions used for this study in Appendix C.
B. Medicare
The extent of Medicare coverage can affect projections of retiree health costs. The method of coordinating
Medicare benefits with the retiree health plan's benefits can have a substantial impact on retiree health costs. We
will be happy to provide more information about Medicare integration methods if requested.
C. Liability for Retiree Benefits.
For each employee, we projected future premium costs using an assumed trend rate (see Appendix Q. A
constant trend rate was used for all years. This rate may understate trend in some years but might overstate it in
others. As long as trend averages the assumed rate over a long period, it is not critical the rate be correct in any one
year.
We multiplied each year's projected cost by the probability that premium will be paid; i.e. based on the
probability that the employee is living, has not terminated employment and has retired. The probability that premium
will be paid is zero if the employee is not eligible. The employee is not eligible if s/he has not met minimum service,
minimum age or, if applicable, maximum age requirements.
The product of each year's premium cost and the probability that premium will be paid equals the expected
cost for that year. We discounted the expected cost for each year to the valuation date June 1, 2009 at 5% interest.
Finally, we multiplied the above discounted expected cost figures by the probability that the retiree would
elect coverage. A retiree may not elect to be covered if retiree health coverage is available less expensively from
another source (e.g. Medicare risk contract) or the retiree is covered under a spouse's plan.
For current retirees, the approach used was similar. The major difference is that the probability of payment
for current retirees depends only on mortality and age restrictions (i.e. for retired employees the probability of being
retired and of not being terminated are always both 1.0000).
We added the APVPB for all employees to get the actuarial present value of total projected benefits
(APVTPB). The APVTPB (sometimes called the expected postemployment benefit obligation or EPBO) is the
estimated present value of all future retiree health benefits for all current employees and retirees. The APVTPB is
the amount on June 1, 2009 that, if all actuarial assumptions are exactly right, would be sufficient to expense all
promised benefits until the last current employee or retiree dies or reaches the maximum eligibility age.
10
Total Compensation Systems, Inc.
Actuarial Present Value of Total Projected Benefits
June 1, 2009 Supervisory/
Total Bargaining Unit Management Confidential
Active: Pre-65 $1,038,079 $759,371 $101,669 $177,039
Post-65 $1,371,347 $1,008,538 $139,441 $223,368
Subtotal $2,409,426 $1,767,909 $241,110 $400,407
Retiree: Pre-65 $300,017 $81,022 $114,275 $104,720
Post-65 $240,685 $102,791 $122,012 $15,882
Subtotal $540,702 $183,813 $236,287 $120,602
Grand Total $2,950,127 $1,951,723 $477,396 $521,008
Subtotal Pre-65 $1,338,095 $840,393 $215,943 $281,759
Subtotal Post-65 $1,612,030 $1,111,329 $261,452 $239,249
The APVTPB should be accrued over the working lifetime of employees. At any time much of it has not
been "earned" by employees. The APVTPB is used to develop expense and liability figures. To do so, the APVTFB
is divided into two parts: the portions attributable to service rendered prior to the valuation date (the past service
liability or actuarial accrued liability under GASB 43 and 45) and to service after the valuation date but prior to
retirement (the future service liability).
The past service and future service liabilities are each funded in a different way. We will start with the
future service liability which is funded by the normal cost.
D. Cost to Prefund Retiree Benefits
1. Normal Cost
The average hire age for eligible employees is 34. To accrue the liability by retirement, the District would
accrue the retiree liability over a period of about 26 years (assuming an average retirement age of 60). We applied an
"entry age normal" actuarial cost method to determine funding rates for active employees. The table below
summarizes the calculated normal cost.
Normal Cost Year Beginning
June 1, 2009 Supervisory/
Total Bargaining Unit Management Confidential
# of Employees 79 56 11 12
Per Capita Normal Cost
Pre-65 Benefit N/A $738 $974 $979
Post-65 Benefit N/A $875 $1,215 $1,229
First Year Normal Cost
Pre-65 Benefit $63,790 $41,328 $10,714 $11,748
Post-65 Benefit $77,113 $49,000 $13,365 $14,748
Total $140,903 $90,328 $24,079 $26,496
11
Total Compensation Systems, Inc.
Accruing retiree health benefit costs using normal costs would level out the cost of retiree health benefits
over time and more fairly reflect the value of benefits "earned" each year by employees. This normal cost would
increase each year based on covered payroll.
2. Amortization of Unfunded Actuarial Accrued Liability (UAAL)
If actuarial assumptions are borne out by experience, the District could fully accrue retiree benefits by
expensing an amount each year that equals the normal cost. If no accruals had taken place in the past, there would be
a shortfall of many years' contributions, accumulated interest and forfeitures for terminated or deceased employees.
This shortfall is called the actuarial accrued liability (AAL). We calculated the AAL as the APVTPB minus the
present value of future normal costs.
The District can amortize the UAAL over many years. The table below shows the annual amount necessary
to amortize the UAAL over a period of 30 years at 5% interest. (Thirty years is the longest amortization period
allowable under GASB 43 and 45.) GASB 43 and 45 will allow amortizing the UAAL using either payments that
stay the same as a dollar amount, or payments that are a flat percentage of covered payroll over time. The figures
below reflect the level percentage of payroll method. This amortization payment would increase each year based on
covered payroll. Payments would continue for 30 years, after which time amortization payments would end.
Actuarial Accrued Liability
as of June 1, 2009 Supervisory/
Total Bargaining Unit Management Confidential
Active: Pre-65 $488,948 $356,545 $50,997 $81,406
Post-65 $710,477 $530,932 $76,231 $103,314
Subtotal $1,199,425 $887,477 $127,228 $184,720
Retiree: Pre-65 $300,017 $81,022 $114,275 $104,720
Post-65 $240,685 $102,791 $122,012 $15,882
Subtotal $540,702 $183,813 $236,287 $120,602
Subtot Pre-65 $788,964 $437,567 $165,271 $186,126
Subtot Post-65 $951,163 $633,724 $198,243 $119,196
Grand Total $1,740,127 $1,071,291 $363,514 $305,322
Funded at June 1, 2009 $0 $0 $0 $0
Unfunded AAL $1,740,127 $1,071,291 $363,514 $305,322
1st Year UAAL $77,076 $47,451 $16,101 $13,524
Amortization at 5.0% over
30 Years
3. Annual Required Contributions (ARC)
If the District determines retiree health plan expenses in accordance with GASB 43 and 45, first year costs
will include both normal cost and UAAL amortization costs. The sum of normal cost and UAAL amortization costs
is called the Annual Required Contribution (ARC) and is shown below.
12
Total Compensation Systems, Inc.
Annual Required Contribution (ARC) Year Beginning
June 1, 2009 Supervisory/
Total Bar2ainin2 Unit Management Confidential
Normal Cost $140,903 $90,328 $24,079 $26,496
UAAL Amortization $77,076 $47,451 $16,101 $13,524
ARC $217,979 $137,779 $40,180 $40,020
Pay-As-You-Go Cost $112,356 $47,881 $44,389 $20,086
Added Cost of GASB 43/45 $105,623 $89,898 -$4,209 $19,934
This amortization payment would increase each year based on covered payroll. Payments would continue
for 30 years, after which time amortization payments would end. The normal cost remains as long as there are active
employees who may some day qualify for District-paid retiree health benefits. This normal cost would increase each
year based on covered payroll.
Should Yorba Linda Water District decide to fund retiree health benefits as shown above, the cost of current
retiree benefits would be deducted from earmarked funds. This means the true cost is the difference between the
ARC and "pay-as-you-go" costs. The above table shows the additional cost necessary to fund retiree health benefits.
4. Other Components of Annual OPEB Cost (AOC)
Once GASB 43 and 45 are implemented, the expense and liability amounts may include more components
of cost than the normal cost plus amortization of the UAAL. This will apply to employers that don't fully fund the
Annual Required Cost (ARC) through an irrevocable trust.
➢ The annual OPEB cost (AOC) will include assumed interest on the net OPEB obligation
(NOO). The annual OPEB cost will also include an amortization adjustment for the net
OPEB obligation. (It should be noted that there is no NOO if the ARC is fully funded
through a qualifying "plan".)
➢ The net OPEB obligation will equal the accumulated differences between the (AOC) and
qualifying "plan" contributions.
13
Total Compensation Systems, Inc.
PART IV: "PAY AS YOU GO" FUNDING OF RETIREE BENEFITS
We used the actuarial assumptions shown in Appendix C to project ten year cash flow under the retiree
health program. Because these cash flow estimates reflect average assumptions applied to a relatively small number
of employees, estimates for individual years are certain to be inaccurate. However, these estimates show the size of
needed cash flow and also the rate of increase in annual costs. Because we have used trend rates that are constant
over time, it is likely that medical costs will be understated in some years and overstated in others.
The following table shows a projection of annual amounts needed to pay the District share of retiree health
premiums.
Year
Beginning
June 1 Supervisory/
Total Bar2ainin2 Unit Management Confidential
2009 $112,356 $47,881 $44,389 $20,086
2010 $125,215 $55,197 $47,472 $22,546
2011 $143,413 $66,444 $51,229 $25,740
2012 $111,189 $54,009 $30,380 $26,800
2013 $114,755 $54,379 $31,428 $28,948
2014 $86,934 $43,807 $32,445 $10,682
2015 $116,314 $56,815 $36,799 $22,700
2016 $120,215 $57,269 $37,714 $25,232
2017 $106,146 $63,425 $22,179 $20,542
2018 $99,525 $75,142 $14,598 $9,785
14
Total Compensation Systems, Inc.
PART V: RECOMMENDATIONS FOR FUTURE VALUATIONS
To effectively manage benefit costs, an employer must periodically examine the existing liability for retiree
benefits as well as future annual expected premium costs. We recommend every two or three years as will be
required under GASB 43/45. In addition, a valuation should be conducted whenever plan changes, changes in
actuarial assumptions or other employer actions are likely to cause a material change in accrual costs and/or
liabilities.
Following are examples of actions that could trigger a new valuation.
➢ An employer should perform a valuation whenever the employer considers or puts in place
an early retirement incentive program.
➢ An employer should perform a valuation whenever the employer adopts a retiree benefit
plan for some or all employees.
➢ An employer should perform a valuation whenever the employer considers or implements
changes to retiree benefit provisions or eligibility requirements.
➢ An employer should perform a valuation whenever the employer introduces or changes
retiree contributions.
We recommend Yorba Linda Water District take the following actions to ease future valuations.
➢ We have used our training, experience and information available to us to establish the
actuarial assumptions used in this valuation. We have no information to indicate that any of
the assumptions do not reasonably reflect future plan experience. However, the District
should review the actuarial assumptions in Appendix C carefully. If the District has any
reason to believe that any of these assumptions do not reasonably represent the expected
future experience of the retiree health plan, the District should engage in discussions or
perform analyses to determine the best estimate of the assumption in question.
15
Total Compensation Systems, Inc.
PART VI: APPENDICES
APPENDIX A: MATERIALS USED FOR THIS STUDY
We relied on the following materials to complete this study.
➢ We used paper reports and digital files containing employee demographic data from the
District personnel records.
➢ We used relevant sections of collective bargaining agreements provided by the District.
16
Total Compensation Systems, Inc.
APPENDIX B: EFFECT OF ASSUMPTIONS USED IN CALCULATIONS
While we believe the estimates in this study are reasonable overall, it was necessary for us to use
assumptions which inevitably introduce errors. We believe that the errors caused by our assumptions will not
materially affect study results. If the District wants more refined estimates for decision-making, we recommend
additional investigation. Following is a brief summary of the impact of some of the more critical assumptions.
1. Where actuarial assumptions differ from expected experience, our estimates could be
overstated or understated. One of the most critical assumptions is the medical trend rate.
The District may want to commission further study to assess the sensitivity of liability
estimates to our medical trend assumptions. For example, it may be helpful to know how
liabilities would be affected by using a trend factor 1% higher than what was used in this
study.
2. We used an "entry age normal" actuarial cost method to estimate the actuarial accrued
liability and normal cost. GASB will allow this as one of several permissible methods
under its upcoming accounting standard. Using a different cost method could result in a
somewhat different recognition pattern of costs and liabilities.
17
Total Compensation Systems, Inc.
APPENDIX C: ACTUARIAL ASSUMPTIONS AND METHODS
Following is a summary of actuarial assumptions and methods used in this study. The District should
carefully review these assumptions and methods to make sure they reflect the District's assessment of its underlying
experience. It is important for Yorba Linda Water District to understand that the appropriateness of all selected
actuarial assumptions and methods are Yorba Linda Water District's responsibility. Unless otherwise disclosed in
this report, TCS believes that all methods and assumptions are within a reasonable range based on the provisions of
GASB 43 and 45, applicable actuarial standards of practice, Yorba Linda Water District's actual historical
experience, and TCS's judgement based on experience and training.
ACTUARIAL METHODS AND ASSUMPTIONS:
ACTUARIAL COSTMETHOD: Entry age normal. The allocation of OPEB cost is based on years of
service. We used the level percentage of payroll method to allocate OPEB cost over years
of service.
Entry age is based on the average age at hire for eligible employees. The attribution period
is determined as the difference between the average retirement age and the average age at
hire. The present value of future benefits and present value of future normal costs are
determined on an employee by employee basis and then aggregated.
To the extent that different benefit formulas apply to different employees of the same class,
the normal cost is based on the benefit plan applicable to the most recently hired employees
(including future hires if a new benefit formula has been agreed to and communicated to
employees).
AMORTIZAT[ONMETHODS: We used the level percentage of payroll method to allocate amortization
cost by year. We used a 30 year amortization period. Because there has not been a previous
valuation to comply with GASB 43 and/or 45, it was not necessary at this time for Yorba
Linda Water District to make an election with respect to whether to use an "open" or
"closed" amortization period; or whether to use different amortization periods for different
sources of the UAAL.
SUBSTANTIVE PLAN.' As required under GASB 43 and 45, we based the valuation on the substantive
plan. The formulation of the substantive plan was based on a review of written plan
documents as well as historical information provided by Yorba Linda Water District
regarding practices with respect to employer and employee contributions and other relevant
factors.
18
Total Compensation Systems, Inc.
ECONOMIC ASSUMPTIONS:
Economic assumptions are set under the guidance of Actuarial Standard of Practice 27 (ASOP 27). Among other
things, ASOP 27 provides that economic assumptions should reflect a consistent underlying rate of general inflation.
For that reason, we show our assumed long-term inflation rate below.
INFLATION: We assumed 3% per year.
INVESTMENT RETURN/ DISCOUNT RATE: We assumed 5% per year. This is based on assumed long-
term return on plan assets or employer assets, as appropriate. We used the "Building Block
Method" as described in ASOP 27 Paragraph 3.6.2. Our assessment of long-term returns
for employer assets is based on long-term historical returns for surplus funds invested
pursuant to California Government Code Sections 53601 et seq.
TREND: We assumed 4% per year. Our long-term trend assumption is based on the conclusion that,
while medical trend will continue to be cyclical, the average increase over time cannot
continue to outstrip general inflation by a wide margin. Trend increases in excess of
general inflation result in dramatic increases in unemployment, the number of uninsured
and the number of underinsured. These effects are nearing a tipping point which will
inevitably result in fundamental changes in health care finance and/or delivery which will
bring increases in health care costs more closely in line with general inflation. We do not
believe it is reasonable to project historical trend vs. inflation differences several decades
into the future.
PAYROLL INCREASE: We assumed 3% per year. This assumption applies only to the extent that either or
both of the normal cost and/or UAAL amortization use the level percentage of payroll
method. For purposes of applying the level percentage of payroll method, payroll increase
must not assume any increases in staff or merit increases.
ACTUARIAL ASSET VALUATION.- We used asset values provided by Yorba Linda Water District. Because
there has not been a previous valuation to comply with GASB 43 and/or 45, it was not
necessary at this time for Yorba Linda Water District to make an election with respect to
whether to use an asset smoothing formula and, if so, what smoothing method to use.
19
Total Compensation Systems, Inc.
NON-ECONOMIC ASSUMPTIONS:
Economic assumptions are set under the guidance of Actuarial Standard of Practice 35 (ASOP 35).
MORTALITY Ca1PERS mortality for Miscellaneous employees.
RETIREMENT RATES: Ca1PERS retirement rates for the 2 %(a, 55 pension formula for other employees.
VESTING RATES:
Bargaining Manageme Supervisory/
Unit nt Confidential
Vesting Percentage 100% 100% 100%
Vesting Period 5 years 5 years 5 years
COSTS FOR RETIREE COVERAGE:
There was not sufficient information available to determine whether there is an implicit subsidy for retiree health
costs. Based on ASOP 6, there can be justification for using "community-rated" premiums as the basis for the
valuation where the insurer is committed to continuing rating practices. This is especially true where sufficient
information is not available to determine the magnitude of the subsidy. However, Yorba Linda Water District should
recognize that costs and liabilities in this report could change significantly if either the current insurer changes rating
practices or if Yorba Linda Water District changes insurers.
First Year costs are as shown below. Subsequent years' costs are based on first year costs adjusted for trend and
limited by any District contribution caps.
Supervisory/
Bargaining Unit Management Confidential
Current Retirees: based on actual costs
Current Plan:
Future Retirees Pre-65 $10,972 $10,972 $10,972
Future Retirees Post-65 $9,643 $9,643 $9,643
PARTICIPATION RATES: 100%
TURNOVER: Ca1PERS turnover for Miscellaneous employees for other employees.
SPOUSE PREVALENCE: To the extent not provided and when needed to calculate benefit liabilities, 80%
of retirees assumed to be married at retirement. After retirement, the percentage married is
adjusted to reflect mortality.
SPOUSEAGES: To the extent spouse dates of birth are not provided and when needed to calculate benefit
liabilities, female spouse assumed to be three years younger than male.
20
Total Compensation Systems, Inc.
AGING FACTORS:
Medical Annual
Attained Age Increases
50-64 3.5%
65-69 3.0
70-74 2.5
75-79 1.5
80-84 0.5
85+ 0.0
21
Total Compensation Systems, Inc.
APPENDIX D: DISTRIBUTION OF ELIGIBLE PARTICIPANTS BY AGE
ELIGIBLE ACTIVE EMPLOYEES:
Supervisory/
Age Total Bargaining Unit Management Confidential
Under 25 7 7 0 0
25-29 7 6 0 1
30-34 12 9 1 2
35-39 9 7 0 2
40-44 8 6 1 1
45-49 9 7 2 0
50-54 11 7 2 2
55-59 3 2 0 1
60-64 7 2 3 2
65 and 6 3 2 1
older
Total 79 56 11 12
ELIGIBLE RETIREES:
Supervisory/
Age Total Bargaining Unit Management Confidential
Under 50 0 0 0 0
50-54 0 0 0 0
55-59 3 1 1 1
60-64 3 1 1 1
65-69 3 2 1 0
70-74 1 0 1 0
75-79 0 0 0 0
80-84 0 0 0 0
85-89 0 0 0 0
90 and 0 0 0 0
older
Total 10 4 4 2
22
Total Compensation Systems, Inc.
APPENDIX E: GLOSSARY OF RETIREE HEALTH VALUATION TERMS
Note: The following definitions are intended to help a non-actuary understand concepts related to retiree health
valuations. Therefore, the definitions may not be actuarially accurate.
Actuarial Accrued Liability: The amount of the actuarial present value of total projected benefits attributable to
employees' past service based on the actuarial cost method used.
Actuarial Cost Method: A mathematical model for allocating OPEB costs by year of service.
Actuarial Present Value of Total
Projected Benefits: The projected amount of all OPEB benefits to be paid to current and future retirees
discounted back to the valuation date.
Actuarial Value of Assets: Market-related value of assets which may include an unbiased formula for
smoothing cyclical fluctuations in asset values.
Annual OPEB Cost: This is the amount employers must recognize as an expense each year. The annual
OPEB expense is equal to the Annual Required Contribution plus interest on the
Net OPEB obligation minus an adjustment to reflect the amortization of the net
OPEB obligation.
Annual Required Contribution: The sum of the normal cost and an amount to amortize the unfunded actuarial
accrued liability. This is the basis of the annual OPEB cost and net OPEB
obligation.
Closed Amortization Period: An amortization approach where the original ending date for the amortization
period remains the same. This would be similar to a conventional, 30-year
mortgage, for example.
Discount Rate: Assumed investment return net of all investment expenses. Generally, a higher
assumed interest rate leads to lower normal costs and actuarial accrued liability.
Implicit Rate Subsides The estimated amount by which retiree rates are understated in situations where,
for rating purposes, retirees are combined with active employees.
Mortality Rate: Assumed proportion of people who die each year. Mortality rates always vary by
age and often by sex. A mortality table should always be selected that is based on
a similar "population" to the one being studied.
Net OPEB Obligation: The accumulated difference between the annual OPEB cost and amounts
contributed to an irrevocable trust exclusively providing retiree OPEB benefits and
protected from creditors.
Normal Cost: The dollar value of the "earned" portion of retiree health benefits if retiree health
benefits are to be fully accrued at retirement.
23
Total Compensation Systems, Inc.
OPEB Benefits: Other PostEmployment Benefits. Generally medical, dental, prescription drug, life,
long-term care or other postemployment benefits that are not pension benefits.
Open Amortization Period: Under an open amortization period, the remaining unamortized balance is subject
to a new amortization schedule each valuation. This would be similar, for example,
to a homeowner refinancing a mortgage with a new 30-year conventional mortgage
every two or three years.
Participation Rate: The proportion of retirees who elect to receive retiree benefits. A lower
participation rate results in lower normal cost and actuarial accrued liability. The
participation rate often is related to retiree contributions.
Retirement Rate: The proportion of active employees who retire each year. Retirement rates are
usually based on age and/or length of service. (Retirement rates can be used in
conjunction with vesting rates to reflect both age and length of service). The more
likely employees are to retire early, the higher normal costs and actuarial accrued
liability will be.
Transition Obligation: The amount of the unfunded actuarial accrued liability at the time actuarial accrual
begins in accordance with an applicable accounting standard.
Trend Rate: The rate at which the cost of retiree benefits is expected to increase over time. The
trend rate usually varies by type of benefit (e.g. medical, dental, vision, etc.) and
may vary over time. A higher trend rate results in higher normal costs and
actuarial accrued liability.
Turnover Rate: The rate at which employees cease employment due to reasons other than death,
disability or retirement. Turnover rates usually vary based on length of service and
may vary by other factors. Higher turnover rates reduce normal costs and actuarial
accrued liability.
Unfunded Actuarial
Accrued Liability: This is the excess of the actuarial accrued liability over assets irrevocably
committed to provide retiree health benefits.
Valuation Date: The date as of which the OPEB obligation is determined. Under GASB 43 and 45,
the valuation date does not have to coincide with the statement date.
Vesting Rate: The proportion of retiree benefits earned, based on length of service and,
sometimes, age. (Vesting rates are often set in conjunction with retirement rates.)
More rapid vesting increases normal costs and actuarial accrued liability.
24
Yorba Linda Water District
Presentation
September 9, 2009
GASB 43/45
and
Retiree Health Benefits
Report by
Geoffrey L. Kiscliuk, FSA, MAAA, FCA
TCS, Inc
Presentation Outline -Retiree Health
Benefits
Overview of Accounting Issue
Current Plan
Fiscal Implications
Next Steps
TCS, Inc
Overview of Accounting Change
• I listoricall rctircc health bcnctits accountcd for
on "Cash Basis"
• l: ndcr Cash Basis, h-,~pcnsc=Cash paid
• Currcnth, Pay-.ls-You-Go (i.c."cashbasis")
vahich vvas OK until the 6/30/09 audit
• GaSB 43/45 rcquires "accrual Basis"
• h-,~pcnsc boolkcd vahcn the cmp1m cc cares that
futurc bcncfit, vahich crcatcs the liability to be
paid later
TCS, Inc
1
Overview of Accounting Change
• .111 ruircc hc11ei,« he c~pc11~cd a~ (Im occur. «-hich mraa~
Thai rach rar the employ ec~ 'rara~" a Rule 111ore of the ruwrc
ruircc hc11c~]i, a11d ihcrclorc, Thai c~pc11~e 111(1 Iilhilii~ mun
recorded i❑ ihai rar hdin-c ruiremel
• I lo«- do «-c ducnni11c the amou11i w he recorded radti Periodic
actuarial rcpori~
• W-1 e~pm11 hooked helbre c1~h paid, or put ill iron for f ulL,I c,
Iilhilii~ rc~uli~
• 'lhe Iilhilii~ huild~ a~ emplo~ee~ r1111 luLLlre hc11c~]i~, a11d rcducc~
(hc ui~iriu pay Col ruircc hcllelii~.
TCS, Inc
Overview of Accounting Change
The challenge of GASR 43/45 is the transition from "Cash"
to "Accrual"
Must expense enough (more than "pay-as-you-go" ) to
catch up for the past years retiree benefits earned that haN c
not yet been accounted for (pre GASR 45 accounting)
GASR allows up to 30 year transition
i.e. the District can take the amount owed today and slowly
add it to the books over 30 years
• I orba Linda Water District must reflect a liability in its
June 30, 2009 financial statements (sec report)
TCS, Inc
Current Plan
• Mc-dical and dental, capped at current acticc
emp1m cc ratc
• Chic war pcr cash 3 scars of scrcicc
• Minimwn 5 -cars of scrcicc to ccst
TCS, Inc
2
Fiscal Implications - Current
Actuarial Accrued Liability (AAL):
$1.74 million - entire amount is unfunded,
so is an UAAL
"Pay-as-you-go" cost about $112,000
• GASB 45 expenses of $218,000
-,01 0OOO A0o vv,// C t
-,077,000 {.al, rvnnrtirritioir
GASB 45 expenses will increase with payroll
(model allowed by GASB 45 uses a level % of
payroll to calculate)
TCS, Inc
k.1tx~~r ~igurc~ a~ of ~ui~c 1,'_11119
Plan Choices and Implications
1. Pay as you go
2. Trust Fund
3. Internal Fund
• Pav as you go
- A\]]1 cause an incrcasin1-1 c-\pense and liability each
Vcar (up u, S 1.' tntllti m UU c\cntual1V)
- llucs not promote the concept of current c_\penses
paid 1 current rep enucs since it dCt-CrS the
F000,nition of the retiree bcrnctits c_\pcnsc carried 1)
emI)IM-ces in the current "Car
TCS, Inc
GASB Trust "Plan"
1 rUSt or similar arram, ji-ient (C,T. J PA)
• lrrccocablc 'l ranstcr of Asscts to Plan
asscts Frec From Creditors
• Asscts held 1'_,~clusicch to providc OPEB
• Must include administration of bcncfit plan
TCS, Inc
J
GASB Trust P1an:Mechanics
• Income:
- I:mplovcrcontributions (;SRC
• \omral Con
• t..A \L I III, )I 11111 Ill )II
- lnv csuncnt income
- I:mplovcc/Retiree Contributions
• Outgo
- Cost of Cov CMI-IC f>r current retirees
- A rust c-\pcnscs
TCS, Inc
Internal Designated Reserves
• Can sct asidc monc- intcrnalh,
• Docs not reduce liabilit- on the finauzcial
statcmctits through, since it can tcchnicalh
be used for other purposes in the futurc
TCS, Inc
Next Steps
• Report liability in 6/30/09 finauzcials
• 1'caluatc funding; options at a futurc mccfing
Or Ork shop
TCS, Inc
4
ITEM NO. 2.4
AGENDA REPORT
Meeting Date: September 9, 2009
Subject: Monthly Portfolio Reports for August 2009
ATTACHMENTS:
YLWD Overview Pagel.pdf NCM portfolio rpts Backup Material
YLWD_SummaryPageZpdf ",NCM portfolio rpt Backup Material
YLWD Cash FlowPage3.pdf NCM portfolio rpt Backup Material
YLWD Holdings Page4.pdf VCM portfolio rpt Backup Material
Account Overview
Yorba Linda Water District
Account #18611500
Funding Date: 10/25/2005
Portfolio Statistics as of: 8/31/2009
Account Characteristics:
Portfolio Yield to Maturity 0.82%
Total Unrealized Gains/(Losses) - Current: 24,662
Total Net Realized Gains/(Losses) - Since Inception: 2,243
Total Long-Term Investments: -
Total Short Duration Investments/Money Market Secs: 17,367,570
Total Market Value: 17,367,570
Total Number of Issues in the Portfolio: 24
MARKET DATA
Overnight Fed Funds Rate: 0.00%
6-Month T-Bill Yield: 0.22%
12-Month T-Note Yield: 0.41%
WELLS CAPITAL MANAGEMENT
Portfolio Summary Report
For the period : 08/01/09 to 08/31/09
Portfolio Characteristics
Market Value:
Unrealized G /L:
Yield To Maturity:
Portfolio Duration:
Avg. Days to Maturity:
Avg. Portfolio Credit Quality:
Market Data
Yields:
6 Month Treasury Bill:
2 Year Treasury Note:
5 Year Treasury Note:
Fed Funds Target:
Credit Quality*
Yorba Linda Water District
18611500
Portfolio Breakdown
17,367,569.53
Market Value
% of Account
24,662.45
0.28
Agency Discount Note
4,596,720.00
26.47%
Aa /AA
10.6%
Certs of Deposit
500,000.00
2.88%
° °
Baa /BBB
Commercial Paper
3,446,074.31
19.84%
0.37 Years
0.16
Fixed Rate
1,270,567.48
7.32%
Not Rated
0.0%
Floating Rate
1,327,090.25
7.64%
150
Money Market Fund
3,194,402.40
18.39%
Aa1
0.04
Pending_Cash
0.09
0.00%
Fitch Ratings - Tertia rY
Treasury Obligation
1,023,047.00
5.89%
US Agency Fixed Rate
2,009,668.00
11.57%
Total
17,367,569.53
100.00%
08/31/09
07/31/09
0.22%
0.25%
0.97%
1.11%
2.39%
2.51%
0-0.25%
0 - 0.25%
Effective Maturity Distribution
o/n 2 to 90 91 to 180 181 to 1 year 1 to 2 years > 2 years
The above information is an estimate of certain investment calculations and does not represent your audited statement of record.
V.3L
P1 /MIG1/VMIG1 /A -1
19.8%
0.28
Aaa /AAA
43.9%
Aa /AA
10.6%
0.24
A/A
7.3%
Baa /BBB
0.0%
0.20
Other
0.0%
0.16
Cash /Overnights
18.4%
Not Rated
0.0%
0.12
100.0%
0.08
* Moody's Ratings - Primary
0.04
S &P Ratings - Secondary
Fitch Ratings - Tertia rY
000
o/n 2 to 90 91 to 180 181 to 1 year 1 to 2 years > 2 years
The above information is an estimate of certain investment calculations and does not represent your audited statement of record.
YORBA LINDA WATER DISTRICT
Statement of Cash Flows/Earnings for August 2009
I - Beginning Period Balances As of 7/31/2(1(19
Total Original Cost 17,300,751
+ Net Amort/Accr to Date 42,399
=Adjusted Book Value: 17,343,150
+ Accrued Interest Receivable 31,904
+ Unrealized Gain/(Loss) 18,005
= Total Market Value Plus Accrued Interest 17,393,059
IL• Period Income Earned
+ Ending Accrual 43,578
- Begininning Accrual (31,904)
+ Interest Received 2,790
- Interest Paid at Purchase -
+ Interest Received at Sale -
= Interest Earned in Period 14,464
+ (Amort)/Accr This Period (141)
= Monthly Portfolio Income $ 14,324
+ Contributions -
- Withdrawals -
+ Realized Gain/(Loss) -
- Fees Paid This Period (2,892)
- Prior Period Unrealized Gain/Loss 18,005
+ End Of Period Unrealized Gain/Loss 24,662
+ Net Receipts/Deliveries in Kind 0.00
+ Adjustments 0.00
= Net Change to the Portfolio 3,624
=Total Market Value Plus Accrued
Interest 17,411,148
III: End of Period Balances As of 8/31/2(1(19
Total Original Cost 17,332,590
+ Net Amort/Accr to Date 10,317
= Adjusted Book Value 17,342,907
+ Accrued Interest Receivable 43,578
+ Unrealized Gain/(Loss) 24,662
= Total Market Value Plus Accrued
Interest 17,411,148
Reconciliation DI f fL'rence: -
Wells Capital Management
Holdings Report
Securities Held as of: 8/31/09 on a Trade Date Basis
Identifier Credit Ratings Par Value Security Description
Moody's S &P Fitch
I. Cash & Cash Equivalents (Original maturity of 90 days or less)
Cash
U.S. DOLLARS 0 PENDING CASH
Money Mkt Securities
Agency Discount Note
Commercial Paper
Yorba Linda Water District
18611500
Coupon Final Effective Days Duration Market Price Market Market Value Holdings as YTM at
Maturity Maturity to Eff Value + Accrued Percentage of Purchase
Maturity Interest Account or Reset
0 0
77619EWQ9 P -1 A -1+ NR 500,000 ROMULUS FUNDING CORP 0.000 09/24/09 09/24/09 24 0.07 99.964 499,818 499,818
Money Market Fund
0.00
2.88% 0.56
VP7000038 NR
NR
NR
3,194,402 WFADV MONEY MKT TR #645
0.221
09/01/09
1
0.00
100.000
3,194,402
3,194,916
18.39%
0.22%
Cash & Cash Equivalents Total
3,694,402
4
0.01
3,694,220
3,694,734
21.27%
0.27
II. Marketable Securities (Original
maturity greater than 90 days)
IIA: Short Term Securities (Remaining maturity of less than 365 days)
Certificates of Deposit
25213JBK3 Aal
NR
F -1+
500,000 DEXIA CREDIT LOCAL SA NY
1.060
01/04/10
01/04/10
126
0.34
100.000
500,000
500,799
2.88%
1.04%
Corporate Securities
Corporate Obligation
Fixed Rate
073928W90 Aa3
A+
AA-
325,000 BEAR STEARNS CO INC
5.850
07/19/10
07/19/10
322
0.86
102.762
333,976
336,194
1.92%
2.30
285659AE8 A2
A
A+
300,000 ELECTRONIC DATA SYSTEMS
7.125
10/15/09
10/15/09
45
0.12
100.849
302,548
310,623
1.74%
2.12%
617446DX4 A2
A
A
300,000 MORGAN STANLEY
8.000
06/15/10
06/15/10
288
0.76
104.647
313,940
319,006
1.81%
1.93
Floating Rate
402479BZ1 A2
A
A
325,000 GULF POWER -SR NT
0.704
06/28/10
06/28/10
301
0.08
100.141
325,458
325,884
1.87%
0.70%
89233P3D6 Aal
AA
NR
500,000 TOYOTA MOTOR CREDIT CORP
1.746
01/29/10
01/29/10
151
0.16
100.002
500,010
500,834
2.88%
1.75%
91159HGP9 Aa3
A+
AA-
500,000 USBANCORP
0.871
05/06/10
05/06/10
248
0.19
100.325
501,623
501,937
2.89%
0.87%
Govt Securities
Agency Discount Note
3133XU7L1 AGY
AGY
AGY
1,000,000 FHLB
0.550
07/20/10
07/20/10
323
0.88
100.063
1,000,625
1,001,251
5.76%
0.57%
313313MR6 AGY
AGY
AGY
1,000,000 FFCB
0.000
10/07/09
10/07/09
37
0.10
99.990
999,900
999,900
5.76%
2.00%
313385RK4 AGY
AGY
AGY
800,000 FHLB
0.000
01/05/10
01/05/10
127
0.35
99.940
799,520
799,520
4.60%
0.82%
313385SB3 AGY
AGY
AGY
1,000,000 FHLB
0.000
01/21/10
01/21/10
143
0.39
99.930
999,300
999,300
5.75%
0.87%
313385WR3 AGY
AGY
AGY
1,000,000 FHLB
0.000
05/11/10
05/11/10
253
0.69
99.800
998,000
998,000
5.75%
0.55%
313397LZ2 AGY
AGY
AGY
800,000 FHLMC
0.000
09/21/09
09/21/09
21
0.06
100.000
800,000
800,000
4.61%
0.71
Treasury Obligation
912828DR8 TSY
TSY
TSY
1,000,000 UNITED STATES TREASURY
4.000
04/15/10
04/15/10
227
0.61
102.305
1,023,047
1,038,238
5.89%
0.59%
Commercial Paper
06737HXM6 P -1
A -1+
NR
450,000 BARCLAYS US FUNDING LLC
0.000
10/21/09
10/21/09
51
0.14
99.963
449,831
449,831
2.59%
0.99%
The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Page: 1 of 2
Holdings Report
Securities Held as of: 8/31/09 on a Trade Date Basis
Identifier Credit Ratings
Par Value Security Description
Coupon
Final
1.84%
Yorba Linda Water District
09/10/10 375
Maturity
Moody's S &P Fitch
1,015,931
5.81%
0.78%
4497WOZU5 P -1 A -1+ NR
500,000 ING (US) FUNDING LLC
0.000
12/28/09
64105HDG4 P -1 A -1+ NR
500,000 NESTLE CAP CORP DISC P/N
0.000
04/16/10
80281KAF4 P -1 A -1+ NR
500,000 SANTANDER CNTL HISPANO CPC
0.000
01/15/10
83365RYL3 P -1 A -1 NR
500,000 SOCIETE GENERALE N AMER CP
0.000
11/20/09
90467BA69 P -1 A -1 NR
500,000 UNICREDIT DELAWARE INC
0.000
01/06/10
Short Term Securities Total:
12,300,000
Interest
116: Long -Term Securities (Remaining maturity greater than 365 days)
or Reset
12/28/09
Corporate Securities
0.33
99.889
499,443
Fixed Rate
2.88%
0.45%
04/16/10
38141GAZ7 Al A A+
300,000 GOLDMAN SACHS GROUP INC
6.875
01/15/11
Govt Securities
2.87%
0.48%
01/15/10
US Agency Fixed Rate
0.37
99.868
499,339
3128X8QT2 AGY AGY AGY
1,000,000 FHLMC
1.450
09/10/10
Long Term Securities Total:
1,300,000
99.931
499,656
Marketable Securities Total:
13,600,000
0.56
01/06/10
Portfolio Total:
17,294,402
99.862
499,312
01/15/11 502
1.31
106.701 320,103
322,739
1.84%
Yorba Linda Water District
09/10/10 375
1.01
100.904 1,009,043
1,015,931
5.81%
0.78%
406
18611500
Effective
Days
Duration
Market Price
Market
Market Value
Holdings as
YTM at
Maturity
to Eff
150
0.37
Value
+ Accrued
Percentage of
Purchase
Maturity
Interest
Account
or Reset
12/28/09
119
0.33
99.889
499,443
499,443
2.88%
0.45%
04/16/10
228
0.62
99.735
498,676
498,676
2.87%
0.48%
01/15/10
137
0.37
99.868
499,339
499,339
2.88%
0.51
11/20/09
81
0.22
99.931
499,656
499,656
2.88%
0.56
01/06/10
128
0.35
99.862
499,312
499,312
2.87%
0.76%
166
0.40
12,344,203
12,377,744
71.08%
0.95
01/15/11 502
1.31
106.701 320,103
322,739
1.84%
2.45
09/10/10 375
1.01
100.904 1,009,043
1,015,931
5.81%
0.78%
406
1.08
1,329,146
1,338,669
7.65%
1.18%
189
0.47
13,673,349
13,716,413
78.73%
0.97
150
0.37
17,367,570
17,411,148
100.00%
0.82%
The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Page: 2 of 2