HomeMy WebLinkAbout01-17-24 F&A Committee Packet 1
OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA
BOARDROOM
WEDNESDAY January 17, 2024 12:00 P.M.
This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA
1. ROLL CALL
2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD’S JURISDICTION INCLUDING AN ITEM ON TODAY’S AGENDA
DISCUSSION ITEMS
3. PRESENTATION OF THE FISCAL YEAR 2023 ACTUARIAL VALUATION OF THE RETIREE HEALTHCARE BENEFITS PERFORMED AS OF JUNE 30, 2023 (FAK-HOURI) [5 MINUTES]
4. AWARD A CONTRACT TO E SOURCE COMPANIES, LLC TO ASSIST WITH THE PROCUREMENT OF WATER METERS AND AN AUTOMATED METERING INFRASTRUCTURE SOLUTION IN AN AMOUNT NOT-TO-EXCEED $126,240
(CAREY) [5 MINUTES] 5. ADJOURNMENT BOARD MEMBERS ATTENDING: Ryan Keyes, Chair
Jose Lopez
2
All items appearing on this agenda, whether or not expressly listed for action, may be de-
liberated and may be subject to action by the Board. The agenda, and any attachments containing written information, are available at the Dis-trict’s website at www.otaywater.gov. Written changes to any items to be considered at the
open meeting, or to any attachments, will be posted on the District’s website. Copies of the
agenda and attachments are also available by contacting the District Secretary at (619) 670-2253.
If you have any disability which would require accommodations to enable you to participate in this meeting, please call the District Secretary at 670-2253 at least 24 hours prior to the meeting.
Certification of Posting I certify that on January 11, 2024, I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the meeting of the Board of Directors (Government Code
Section §54954.2).
Executed at Spring Valley, California on January 11, 2024.
/s/ Tita Ramos-Krogman, District Secretary
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: February 7, 2024
SUBMITTED BY: Eid Fakhouri, Finance Manager PROJECT: DIV. NO. All
APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer
Joseph R. Beachem, Chief Financial Officer
Jose Martinez, General Manager
SUBJECT: Review of the FY 2023 Actuarial Study of the Retiree Healthcare
Benefits
GENERAL MANAGER’S RECOMMENDATION:
This staff report is an informational item to present the results of
the latest actuarial valuation performed as of June 30, 2023, to the
Board of Directors.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
Every two years, the District is required under the Governmental
Accounting Standards Board Statement No. 75, to hire an Actuary to
perform a study that determines the District’s liability for Other Post-
Employment Benefits (OPEB) and the annual actuarially determined
Employer Contribution Target (ECT). The District has received the 2023
Actuarial Valuation Report, prepared by Luis Murillo of Total
Compensation Systems, Inc. The District’s Contribution Target for the
fiscal periods ending June 30, 2024 and June 30, 2025, is calculated as
part of the actuarial report. This amount is then reported in the
Administrative Expenses section of the District’s financial statements
and budget reports.
ANALYSIS:
Every two years, the District hires an actuarial firm to prepare the
OPEB evaluation, which is used to determine the District’s liability
associated with the OPEB benefits and the Employer Contribution Target.
AGENDA ITEM 3
This evaluation has been completed, and the findings are presented in
this staff report.
Funding Status
The District’s practice has been to fund the OPEB trust at the annual
ECT level for the plan and budget and pay for the retiree medical
premiums, including the implied subsidy. As a result of funding the
retiree medical premiums through the budget and not from the trust, a
funding level of 100% was achieved in 2019.
After reaching the 100% funding level, the District requested and
received its first medical retiree benefit reimbursement from the OPEB
trust of $1,120,406 in FY 2020, a second reimbursement of $1,201,678
for FY 2021, and a third reimbursement from the OPEB trust for
$1,301,047 in FY 2022. As directed by the Board during the FY 2021 and
FY 2022 Budget adoption, staff made an equivalent additional
contribution to CalPERS.
Additionally, after reaching a funding level of 100%, the ECT for FY
2022 was not made to the plan. Subsequently, the equity markets
experienced a significant decrease in 2022, and the OPEB trust fund
(CERBT) realized a negative 13.59% return on investments. Then in 2023,
the CERBT fund earned a rate of return of 6.67%, though it was less
than the expected annual return of 6.75%. Anticipating a decline in the
funding level below 100% due to these lower-than-expected returns and
increases in medical costs, staff, during the FY 2023 budget process,
requested that the Board direct staff to forgo the medical benefit
reimbursement from the trust in FY 2023. The Board approved this change
which effectively redirected the ‘additional’ funding from CalPERS back
to OPEB.
Medical Costs
Historically, medical costs have experienced an inflation rate of
approximately 4.5%, with the past three years averaging 7.6%.
Occasionally, the inflation of costs exceeds this average, and in the
upcoming 2024 year, those costs are expected to increase by 15%. This
is new information, which the Actuary was asked to consider in this
OPEB evaluation. This, along with the negative returns in 2022, are the
major drivers for the reduction in the funding levels of the OPEB fund.
Employer Contribution Target (ECT)
The ECT is equal to the normal service cost plus an amortization of the
Net OPEB Liability. When comparing the FY 2024 ECT from the prior
Actuarial Valuation Report to the FY 2024 ECT in the current report,
the Contribution Target increased from $1,138,661 to $2,066,078. The
increase is due to the most recent updated employee census data, service
costs for new employees hired on or after July 1, 2021, the latest
medical premium data, return on plan assets, and interest expense.
Total OPEB Liability
The Total (Accrued) OPEB Liability as of June 30, 2023, was $42.6
million. This is a net increase of $10.1 million from June 30, 2021,
actuarial study, bringing the funding level down to 74%.
This liability increase is primarily due to additional service years
earned by eligible employees between 2021 and 2023, interest on the
Total OPEB Liability, changes related to employee census data, and
higher actual medical premiums costs than expected.
Budget Impact
The FY 2024 budget includes a total OPEB funding of $2,540,000 which is
comprised essentially of an ECT $1,270,000, plus an advanced funding of
$1,270,000.
Based on the current OPEB report, staff is recommending that the
District fund the latest actuarial ECT and implied subsidy for a total
of $2,301,049 and reduce the advance funding to $239,000, resulting in
a total FY 2024 funding level that is consistent with the budgeted
funding level of $2,540,000. As part of the upcoming FY 2025 budget,
staff will include systematically returning the advance funding level
to $1,270,000, until the plan is fully funded. Doing so will smooth out
the impact on rates due to the recent shortfalls in the CERBT investment
returns.
The current FY 2023 actuarial valuation projects the District will
achieve a 100% funding level in 2028, at which point the District may
resume reimbursements for retiree medical expenses and maintain a 100%
funding level. Staff’s recommendation to systematically return the
advance funding, presented in Attachment D, will result in the OPEB
achieving a 100% funding level in 2031.
If conditions change and the plan reaches 100% funding earlier than
2028, staff will propose to continue the Board’s plan to apply the
additional advance fundings to CalPERS, thereby reducing the District’s
unfunded pension liability.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
Funding is available in the FY 2024 budget.
STRATEGIC GOAL:
The District ensures its continued financial health through long-term
financial planning.
LEGAL IMPACT:
N/A
Attachments:
A – Committee Action
B – FY 2023 Actuarial OPEB Valuation Report
C – Total Compensation Systems, Inc. Presentation
D - Total Compensation Systems, Inc. Supplemental Handout
ATTACHMENT A
SUBJECT/PROJECT: Review of the FY 2023 Actuarial Valuation Report of the
Retiree Healthcare Benefits
COMMITTEE ACTION:
This is an informational item.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
Total Compensation Systems, Inc.
Otay Water District
Actuarial Study of
Retiree Health Liabilities
Valuation Date: June 30, 2023
Prepared by:
Total Compensation Systems, Inc.
Date: November 1, 2023
Attachment B
Total Compensation Systems, Inc.
Table of Contents
PART I: EXECUTIVE SUMMARY ............................................................................................................ 1
A.INTRODUCTION ............................................................................................................................................................................ 1
B.KEY RESULTS .............................................................................................................................................................................. 1
C.SUMMARY OF VALUATION RESULTS ........................................................................................................................................... 2
1. Actuarial Liabilities ................................................................................................................................................................ 2
2. Reconciliation of Market Value of Assets .............................................................................................................................. 2
3. Actuarial Value of Assets ........................................................................................................................................................ 2
3. CONTRIBUTIONS ............................................................................................................................................................................ 2
D.TEN-YEAR PROJECTION OF NOL AND CONTRIBUTIONS ............................................................................................................. 3
E.RECONCILIATION OF NET OPEB LIABILITY ................................................................................................................................ 3
1. Changes in Net OPEB Liability ............................................................................................................................................. 3
F.DESCRIPTION OF RETIREE BENEFITS ........................................................................................................................................... 4
E.SUMMARY OF VALUATION DATA ................................................................................................................................................ 4
F.CERTIFICATION ............................................................................................................................................................................ 5
PART II: LIABILITIES AND COSTS FOR RETIREE BENEFITS ..................................................... 7
A.INTRODUCTION. ........................................................................................................................................................................... 7
B.LIABILITY FOR RETIREE BENEFITS. ............................................................................................................................................. 7
C.ACTUARIAL ACCRUAL ................................................................................................................................................................. 8
D.ACTUARIAL ASSUMPTIONS ......................................................................................................................................................... 8
E.TOTAL OPEB LIABILITY ............................................................................................................................................................. 9
F.VALUATION RESULTS ................................................................................................................................................................ 10
1. Actuarial Present Value of Projected Benefit Payments (APVPBP) .................................................................................. 10
2. Service Cost .......................................................................................................................................................................... 10
3. Total OPEB Liability and Net OPEB Liability .................................................................................................................... 11
4. “Pay As You Go" Projection of Retiree Benefit Payments ................................................................................................... 11
G. DEVELOPMENT OF EMPLOYER CONTRIBUTION TARGET ........................................................................................................... 12
1. Reconciliation of Market Value of Assets ............................................................................................................................ 12
2.DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS ................................................................................................................... 12
3.UNFUNDED LIABILITY FOR AMORTIZATION .............................................................................................................................. 12
4.AMORTIZATION OF THE UNFUNDED LIABILITY ......................................................................................................................... 13
5.CONTRIBUTIONS ......................................................................................................................................................................... 13
G.ADDITIONAL RECONCILIATION OF NET OPEB LIABILITY ........................................................................................................ 14
PART III: ACTUARIAL ASSUMPTIONS AND METHODS .............................................................. 15
A.ACTUARIAL METHODS AND ASSUMPTIONS: .............................................................................................................. 15
B.ECONOMIC ASSUMPTIONS: ............................................................................................................................................... 16
C.NON-ECONOMIC ASSUMPTIONS: ..................................................................................................................................... 17
PART IV: APPENDICES ........................................................................................................................... 18
APPENDIX A: DEMOGRAPHIC DATA BY AGE .................................................................................................................... 18
APPENDIX B: ADDITIONAL DISCLOSURES ........................................................................................................................ 19
APPENDIX C: GLOSSARY OF RETIREE HEALTH VALUATION TERMS ........................................................................ 21
Total Compensation Systems, Inc.
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Otay Water District
Actuarial Study of Retiree Health Liabilities
PART I: EXECUTIVE SUMMARY
A. Introduction
This report was produced by Total Compensation Systems, Inc. for Otay Water District to determine the
liabilities associated with its current retiree health program as of a June 30, 2023 valuation date and to determine
employer contributions for the fiscal periods ending June 30, 2024 and June 30, 2025. Because the actuarial accrued
liability for this funding report is based on the same actuarial methods and assumptions as those used for GASB 75,
we have used the same GASB 75 terminology by referring to the Actuarial Accrued Liability as the Total OPEB
Liability, referring to the unfunded actuarial accrued liability as the Net OPEB Liability (NOL), and referring to the
Normal Cost as the Service Cost. This report may not be suitable for other purposes such as GASB 75 accounting
requirements or assessing the potential impact of changes in plan design. A separate report will be provided to Otay
Water District to assist in complying with Governmental Accounting Standards Board Accounting Statement 74 and
75.
Different users of this report will likely be interested in different sections of information contained within.
We anticipate that the following portions may be of most interest depending on the reader:
A high level comparison of key results from the current year to the prior year is shown on this page.
The employer contribution amounts for the periods ending June 30, 2024 and June 30, 2025 are
shown on pages 4.
Description and details of measured valuation liabilities can be found beginning on page 10.
B. Key Results
Otay Water District performed a full valuation as of June 30, 2023.
Key Results Current Year
June 30, 2023 Measurement Date
Prior Year
June 30, 2022 Measurement Date
Total OPEB Liability (TOL) $42,648,870 $34,537,166
Market Value of Assets (MVA) $31,437,760 $29,485,905
Net OPEB Liability (NOL) $11,211,110 $5,051,261
Funded Status 74% 85%
Service Cost (for year following) $1,310,461 $1,018,363
Estimated Pay-as-you-go Amount (for year following)$1,651,485 $1,214,348
Contribution (for year following) $2,066,078 $1,108,186
Contribution as a percent of payroll 14.91% 7.75%
Refer to results section beginning on page 10 or the glossary on page 21 for descriptions of the above items.
Key Assumptions Current Year
June 30, 2023 Valuation Date
Prior Year
June 30, 2021 Valuation Date
Valuation Interest Rate 6.75% 6.75%
Expected Rate of Return on Assets 6.75% 6.75%
Long-Term Medical Trend Rate 4.50% 4.50%
Projected Payroll Growth 2.75% 2.75%
Total Compensation Systems, Inc.
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C. Summary of Valuation Results
1. Actuarial Liabilities
Refer to results section beginning on page 10 or the glossary on page 21 for descriptions of the items below.
6/30/2023
1. Actuarial Present Value of Projected Benefit Payments $53,897,072
2. Total OPEB Liability $42,648,870
3. Annual Service Cost $1,310,461
4. Present Value of Future Service Costs (1 – 2 – 3) $9,937,741
2. Reconciliation of Market Value of Assets
FY 2022/23 FY 2021/22
Beginning Market Value of Assets $29,485,905 $35,535,079
Employer Contributions $0 $0
Fund Earnings $1,966,670 ($4,739,093)
Benefit Payments $0 ($1,301,047)
Administrative Expenses ($14,815) ($9,034)
Net Change $1,951,855 ($6,049,174)
Ending Market Value of Assets $31,437,760 $29,485,905
3. Actuarial Value of Assets
For funding purposes, the District has selected an asset smoothing method to determine the actuarial value
of assets. The smoothing method recognizes any asset gains or losses over 5 years recognizing 20% per year. Please
see page 13 for the development of the actuarial value of assets. The District has set a corridor of 20%, meaning that
the actuarial value of assets cannot be less than 80% or greater than 120% of the market value of assets.
6/30/2023
Market value of assets (MVA) $31,437,760
Actuarial value of assets (AVA) $33,518,808
AVA as a percent of MVA 107%
3. Contributions
Below is a summary of the Employer Contribution Target for the next two fiscal years. Please see page 13
for the development of the contribution.
FY 2023/24
Employer Contribution Target $2,066,078
Estimated payroll (PERSable wages) $13,859,553
Contribution as a % of payroll 14.91%
FY 2024/25
Employer Contribution Target $2,122,895
Estimated payroll (PERSable wages) $14,240,691
Contribution as a % of payroll 14.91%
Total Compensation Systems, Inc.
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D. Ten-Year Projection of NOL and Contributions
The ten-year projections are based on an open group projection that assumes the total aggregate payroll
increases in accordance with the aggregate payroll assumption, new hires are assumed to have the same service cost
percentage as the current actives and no new hires will retire during the ten-year projection period. Actual results
may vary significantly based on the District’s actual experience in future years.
Year Beginning
July 1
Employer
Contribution
Target*
Direct Pay-go
Costs
Implicit
Subsidy
Trust
Funding
Trust
Reimbursement** NOL
Funded
%
2023 $2,066,078 $1,416,514 $234,971 $2,066,078 $0 $11,211,110 74%
2024 $2,122,895 $1,544,421 $237,846 $2,122,895 $0 $9,512,017 79%
2025 $2,146,145 $1,625,008 $266,250 $2,146,145 $0 $7,545,926 84%
2026 $2,205,164 $1,752,740 $287,576 $2,205,164 $0 $5,353,419 89%
2027 $2,206,942 $1,933,251 $305,873 $2,206,942 $0 $2,842,206 95%
2028 $1,556,866 $2,096,284 $263,319 $1,556,866 ($2,359,603) $0 100%
2029 $1,601,034 $2,249,046 $300,259 $1,601,034 ($2,549,304) $0 100%
2030 $1,646,378 $2,398,528 $315,727 $1,646,378 ($2,714,254) $0 100%
2031 $1,692,960 $2,509,198 $312,197 $1,692,960 ($2,821,394) $0 100%
2032 $1,740,878 $2,770,201 $440,020 $1,740,878 ($3,210,220) $0 100%
* The projections assume the District makes a contribution to the CERBT equal to the Employer Contribution Target amount and reimburses
itself for the direct pay-go costs and implied subsidy for fiscal years in which a Trust reimbursement is shown above.
** The District’s historical practice is to not seek reimbursement from the Trust unless the Plan is fully funded. Staff will be seeking Board
direction to continue that practice; therefore, that assumption has been incorporated into this table.
E. Reconciliation of Net OPEB Liability
1. Changes in Net OPEB Liability
The following table shows the reconciliation of the June 30, 2022 Net OPEB Liability (NOL) in the prior
valuation to the June 30, 2023 NOL. A more detailed version of this table can be found on page 14. The Fiduciary
Net Position (FNP) shown below represents the net assets of a qualifying OPEB “plan” (i.e. qualifying irrevocable
trust or equivalent arrangement). For purposes of this funding report, market value of assets and Fiduciary Net
Position are used interchangeably.
TOL FNP NOL
Balance at June 30, 2022 Measurement Date $34,537,166 $29,485,905 $5,051,261
Service Cost $1,018,363 $0 $1,018,363
Interest on TOL / Return on FNP $2,324,644 $1,966,670 $357,974
Employer Contributions $0 $1,214,348 ($1,214,348)
Benefit Payments ($1,214,348) ($1,214,348) $0
Administrative Expenses $0 ($14,815) $14,815
Experience (Gains)/Losses $5,942,003 $0 $5,942,003
Changes in Assumptions $41,042 $0 $41,042
Other $0$0 $0
Net Change $8,111,704 $1,951,855 $6,159,849
Actual Balance at June 30, 2023 Measurement Date $42,648,870 $31,437,760 $11,211,110
2. Trend and Interest Rate Sensitivities
The following presents what the Net OPEB Liability would be if it were calculated using a discount rate
assumption or a healthcare trend rate assumption one percent higher or lower than the current assumption.
Net OPEB Liability at June 30, 2023 Measurement Date Discount Rate Healthcare Trend Rate
1% Decrease in Assumption $17,020,775 $5,748,033
Current Assumption $11,211,110 $11,211,110
1% Increase in Assumption $6,419,132 $17,973,141
Total Compensation Systems, Inc.
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F. Description of Retiree Benefits
Following is a description of the current retiree benefit plan:
Unrepresented
Employees
Represented
Employees
Benefit types provided Medical & Dental Medical & Dental
Duration of Benefits Lifetime Lifetime
Required Service Hired prior to 1/1/2013: 15 years
Hired 1/1/2013 and after: 20 years
20 years
Minimum Age 55 55
Dependent Coverage Yes Yes
District Contribution % 100% of retiree premium and
88% of dependent premium
100% of retiree premium and
88% of dependent premium
District Cap None None
This valuation does not reflect any cash benefits paid unless the cash benefits are limited to be used for or
reimburse the retiree’s cost of health benefits. Costs and liabilities attributable to cash benefits paid to retirees are
reportable under applicable Governmental Accounting Standards Board (GASB) Standards.
E. Summary of Valuation Data
This report is based on census data provided to us as of June, 2023. Distributions of participants by age and
service can be found on page 18. The active count below excludes employees for whom it is not possible to receive
retiree benefits.
Current Year
June 30, 2023 Valuation Date
Prior Year
July 1, 2021 Valuation Date
Active Employees eligible for future benefits
Count 137 132
Average Age 47.5 47.8
Average Years of Service 10.5 11.3
Retirees currently receiving benefits
Count 8580
Average Age 71.7 71.0
Total Compensation Systems, Inc.
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F. Certification
The actuarial information in this report is intended solely to assist Otay Water District in determining the
liabilities associated with its current retiree health program as of a June 30, 2023 and to provide the Employer
Contribution Targets for the periods ending June 30, 2024 and June 30, 2025. Nothing in this report should be
construed as an accounting opinion, accounting advice or legal advice. TCS recommends that third parties retain
their own actuary or other qualified professionals when reviewing this report. TCS’s work is prepared solely for the
use and benefit of Otay Water District. Release of this report may be subject to provisions of the Agreement between
Otay Water District and TCS. No third party recipient of this report product should rely on the report for any
purpose other than accounting compliance. Any other use of this report is unauthorized without first consulting with
TCS.
This report is for fiscal year July 1, 2023 to June 30, 2024, using a measurement date of June 30, 2023. The
calculations in this report have been made based on our understanding of plan provisions and actual practice at the
time we were provided the required information. We relied on information provided by Otay Water District. Much
or all of this information was unaudited at the time of our evaluation. We reviewed the information provided for
reasonableness, but this review should not be viewed as fulfilling any audit requirements. We relied on the following
materials to complete this study:
We used paper reports and digital files containing participant demographic data from the
District personnel records.
We used relevant sections of collective bargaining agreements provided by the District.
All costs, liabilities, and other estimates are based on actuarial assumptions and methods that comply with
all applicable Actuarial Standards of Practice (ASOPs). Each assumption is deemed to be reasonable by itself, taking
into account plan experience and reasonable future expectations and in combination represent our estimate of
anticipated experience of the Plan.
This report contains estimates of the Plan's financial condition and future results only as of a single date.
Future results can vary dramatically and the accuracy of estimates contained in this report depends on the actuarial
assumptions used. This valuation cannot predict the Plan's future condition nor guarantee its future financial
soundness. Actuarial valuations do not affect the ultimate cost of Plan benefits, only the timing of Plan contributions.
While the valuation is based on individually reasonable assumptions, other assumption sets may also be reasonable
and valuation results based on those assumptions would be different. Determining results using alternative
assumptions (except for the alternate discount and trend rates shown in this report) is outside the scope of our
engagement.
Future actuarial measurements may differ significantly from those presented in this report due to factors
such as, but not limited to, 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 measurement methodology (such as the end of an amortization period or
additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or
applicable law. We were not asked to perform analyses to estimate the potential range of such future measurements.
The signing actuary is independent of Otay Water District and any plan sponsor. TCS does not intend to
benefit from and assumes no duty or liability to other parties who receive this report. TCS is not aware of any
relationship that would impair the objectivity of the opinion.
Total Compensation Systems, Inc.
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On the basis of the foregoing, I hereby certify that, to the best of my knowledge and belief, this report is
complete and has been prepared in accordance with generally accepted actuarial principles and practices and all
applicable Actuarial Standards of Practice. I meet the Qualifications Standards of the American Academy of
Actuaries to render the actuarial opinion contained herein.
Respectfully submitted,
Luis Murillo, ASA, MAAA, FCA
Actuary
Total Compensation Systems, Inc.
(805) 496-1700
Total Compensation Systems, Inc.
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PART II: LIABILITIES AND COSTS FOR RETIREE BENEFITS
A. Introduction.
We calculated the actuarial present value of projected benefit payments (APVPBP) separately for each
participant. We determined eligibility for retiree benefits based on information supplied by Otay Water District. We
then selected assumptions that, based on plan provisions and our training and experience, represent our best
prediction of future plan experience. For each participant, we applied the appropriate assumption factors based on
the participant's age, sex, length of service, and employee classification.
The actuarial assumptions used for this study are summarized beginning on page 15.
B. Liability for Retiree Benefits.
For each participant, we projected future premium costs using an assumed trend rate (see Appendix C). To
the extent Otay Water District uses contribution caps, the influence of the trend factor is further reduced. We
multiplied each year's benefit payments by the probability that benefits will be paid; i.e. based on the probability that
the participant is living, has not terminated employment, has retired and remains eligible. The probability that benefit
will be paid is zero if the participant is not eligible. The participant is not eligible if they have not met minimum
service, minimum age or, if applicable, maximum age requirements.
The product of each year's benefit payments and the probability the benefit will be paid equals the expected
cost for that year. We multiplied the above 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. Finally, we discounted the
expected cost for each year to the measurement date June 30, 2023 at 6.75% interest.
For any 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 100%).
The value generated from the process described above is called the actuarial present value of projected
benefit payments (APVPBP). We added APVPBP for each participant to get the total APVPBP for all participants
which is the estimated present value of all future retiree health benefits for all current participants. The APVPBP is
the amount on June 30, 2023 that, if all actuarial assumptions are exactly right, would be sufficient to expense all
promised benefits until the last participant dies or reaches the maximum eligibility age. However, for most actuarial
and accounting purposes, the APVPBP is not used directly but is instead apportioned over the lifetime of each
participant as described in the following sections.
Total Compensation Systems, Inc.
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C. Actuarial Accrual
Actuarial principles and best practices provide that the cost of retiree benefits should be “accrued” over
employees' working lifetime. While this report is to be used for funding purposes and NOT to meet the requirements
of GASB 75, we have used the actuarial methods required under GASB 75 in determining the actuarial liabilities for
this report. For this reason, we have included references to GASB 75 where appropriate. The Governmental
Accounting Standards Board (GASB) was issued in June of 2015 Accounting Standards 74 and 75 for retiree health
benefits. These standards apply to all public employers that pay any part of the cost of retiree health benefits for
current or future retirees (including early retirees), whether they pay directly or indirectly (via an “implicit rate
subsidy”).
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” and uses the APVPBP to develop expense and
liability figures. Furthermore, the APVPBP should be accrued over the working lifetime of employees.
In order to accrue the APVPBP over the working lifetime of employees, actuarial cost methods apportion
the APVPBP into two parts: the portions attributable to service rendered prior to the measurement date (the past
service liability or Total OPEB Liability (TOL) under GASB 74 and 75) and to service after the measurement date
but prior to retirement (the future service liability or present value of future service costs). Of the future service
liability, the portion attributable to the single year immediately following the measurement date is known as the
normal cost or Service Cost under GASB 74 and 75.
The service cost can be thought of as the value of the benefit earned each year if benefits are accrued during
the working lifetime of employees. The actuarial cost method mandated by GASB 75 is the “entry age actuarial cost
method”. Under the entry age actuarial cost method, the actuary determines the service cost as the annual amount
needing to be expensed from hire until retirement to fully accrue the cost of retiree health benefits. Under GASB 75,
the service cost is calculated to be a level percentage of each employee’s projected pay.
D. Actuarial Assumptions
The APVPBP and service cost are 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 service cost.
The “trend” rate at which retiree health benefits are expected to increase over time. A higher trend
rate increases the service cost. A “cap” on District contributions can reduce trend to zero once the
cap is reached thereby dramatically reducing service costs.
Mortality rates varying by age and sex (and sometimes retirement or disability status). If employees
die prior to retirement, past contributions are available to fund benefits for employees who live to
retirement. After retirement, death results in benefit termination or reduction. Although higher
mortality rates reduce service 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 service costs. Employment termination can vary considerably between public agencies.
The service requirement reflects years of service required to earn full or partial retiree benefits.
While a longer service requirement reduces costs, cost reductions are not usually substantial unless
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the service period exceeds 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. Retirement rates also depend
on the amount of pension benefits available. Higher retirement rates increase service 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 funded plans. The rate
used for a funded plan is the real rate of return expected for plan assets plus the long term inflation
assumption. For an unfunded plan, the discount rate is based on an index of 20 year General
Obligation municipal bonds rated AA or higher. For partially funded plans, the discount rate is a
blend of the funded and unfunded rates.
E. Total OPEB Liability
The assumptions listed above are not exhaustive, but are the most common assumptions used in actuarial
cost calculations. If all actuarial assumptions are exactly met and an employer expensed the service cost every year
for all past and current employees and retirees, a sizeable liability would have accumulated (after adding interest and
subtracting retiree benefit costs). The liability that would have accumulated is called the Total OPEB Liability
(TOL). The excess of TOL over the value of plan assets is called the Net OPEB Liability (NOL). Under GASB 74
and 75, in order for assets to count toward offsetting the TOL, 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.
Changes in the TOL can arise in several ways - e.g., as a result of plan changes or changes in actuarial
assumptions. Change in the TOL can also arise from actuarial gains and losses. Actuarial gains and losses result
from differences between actuarial assumptions and actual plan experience.
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F. Valuation Results
This section details the measured values of the concepts described on the previous pages.
1. Actuarial Present Value of Projected Benefit Payments (APVPBP)
Actuarial Present Value of Projected Benefit Payments as of June 30, 2023 Valuation Date
Total
Unrepresented
Employees
Represented
Employees
Active: Pre-65 Benefit $11,222,224 $3,034,889 $8,187,335
Post-65 Benefit $21,917,203 $5,685,887 $16,231,316
Subtotal $33,139,427 $8,720,776 $24,418,651
Retiree: Pre-65 Benefit $2,925,906 $1,276,107 $1,649,799
Post-65 Benefit $17,831,739 $9,119,882 $8,711,857
Subtotal $20,757,645 $10,395,989 $10,361,656
Grand Total $53,897,072 $19,116,765 $34,780,307
Subtotal Pre-65 Benefit $14,148,130 $4,310,996 $9,837,134
Subtotal Post-65 Benefit $39,748,942 $14,805,769 $24,943,173
2. Service Cost
The service cost represents the value of the benefit earned during a single year of employment. It is the
APVPBP spread over the expected working lifetime of the employee and divided into annual segments. We applied
an "entry age" actuarial cost method to determine funding rates for active employees. The table below summarizes
the calculated service cost.
Service Cost Valuation Year Beginning July 1, 2023
Total
Unrepresented
Employees
Represented
Employees
# of Eligible Employees 137 32 105
First Year Service Cost
Pre-65 Benefit $378,670 $83,200 $295,470
Post-65 Benefit $931,791 $220,416 $711,375
Total $1,310,461 $303,616 $1,006,845
Accruing retiree health benefits through service costs evenly apportions the cost of retiree health benefits
over time and more fairly reflects the value of benefits "earned" each year by employees. While the service cost for
each employee is targeted to remain level as a percentage of covered payroll, the service cost as a dollar amount
would increase each year based on covered payroll. Additionally, the overall service cost may grow or shrink based
on changes in the demographic makeup of the employees from year to year.
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3. Total OPEB Liability and Net OPEB Liability
If actuarial assumptions are borne out by experience, the District will fully accrue retiree benefits by
expensing an amount each year that equals the service cost. If no accruals had taken place in the past, there would be
a shortfall of many years' accruals, accumulated interest and forfeitures for terminated or deceased employees. This
shortfall is called the Total OPEB Liability. We calculated the Total OPEB Liability (TOL) as the APVPBP minus
the present value of future service costs. To the extent that benefits are funded through a GASB 74 qualifying trust,
the trust’s Fiduciary Net Position (FNP) is subtracted to get the NOL. The FNP is the value of assets adjusted for any
applicable payables and receivables as shown in the table on page 2.
Total OPEB Liability and Net OPEB Liability as of June 30, 2023 Valuation Date
Total
Unrepresented
Employees
Represented
Employees
Active: Pre-65 Benefit 7,859,415 $2,378,336 $5,481,079
Active: Post-65 Benefit $14,031,114 $3,910,957 $10,120,157
Subtotal $21,890,529 $6,289,293 $15,601,236
Retiree: Pre-65 Benefit $2,925,990 $1,276,145 $1,649,845
Retiree: Post-65 Benefit $17,832,351 $9,120,200 $8,712,151
Subtotal $20,758,341 $10,396,345 $10,361,996
Subtotal: Pre-65 Benefit $10,785,405 $3,654,481 $7,130,924
Subtotal: Post-65 Benefit $31,863,465 $13,031,157 $18,832,308
Total OPEB Liability (TOL) $42,648,870 $16,685,638 $25,963,232
Fiduciary Net Position as of
June 30, 2023 $31,437,760
Net OPEB Liability (NOL) $11,211,110
4. “Pay As You Go" Projection of Retiree Benefit Payments
We used the actuarial assumptions shown in Part III and Appendix B to project the District’s ten year retiree
benefit outlay, including any implicit rate subsidy. Because these cost estimates reflect average assumptions applied
to a relatively small number of participants, estimates for individual years are certain to be inaccurate. However,
these estimates show the size of cash outflow.
The following table shows a projection of annual amounts needed to pay the District’s share of retiree health
costs, including any implicit rate subsidy.
Year Beginning
July 1 Total
Unrepresented
Employees
Represented
Employees
2023 $1,651,485 $770,222 $881,263
2024 $1,782,267 $836,402 $945,865
2025 $1,891,258 $891,945 $999,313
2026 $2,040,316 $957,194 $1,083,122
2027 $2,239,124 $1,031,405 $1,207,719
2028 $2,359,603 $1,030,368 $1,329,235
2029 $2,549,305 $1,089,466 $1,459,839
2030 $2,714,255 $1,173,869 $1,540,386
2031 $2,821,395 $1,201,187 $1,620,208
2032 $3,210,221 $1,266,135 $1,944,086
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G. Development of Employer Contribution Target
1. Reconciliation of Market Value of Assets
FY 2022/23 FY 2021/22
Beginning Market Value of Assets $29,485,905 $35,535,079
Employer Contributions $0 $0
Fund Earnings $1,966,670 ($4,739,093)
Benefit Payments $0 ($1,301,047)
Administrative Expenses ($14,815) ($9,034)
Net Change $1,951,855 ($6,049,174)
Ending Market Value of Assets $31,437,760 $29,485,905
2. Development of Actuarial Value of Assets
The actuarial value of assets is based on the expected earnings on assets. The actual earnings or losses, both
realized and unrealized, are phased in over five years as the expected growth is phased out. The table below presents
the development of the actuarial value of assets. The District has set a corridor of 20%, meaning that the actuarial
value of assets must be between 80% and 120% market value of assets.
6/30/2020 6/30/2021 6/30/2022 6/30/2023
Market value of assets $31,437,760
Actual rate of return 3.63% 28.33% (13.59%) 6.67%
Expected rate of return 7.00% 7.00% 6.75% 6.75%
Actual fund earnings $983,790 $7,890,090 ($4,739,093) $1,966,670 $6,101,457
Expected fund earnings $1,897,116 $1,949,546 $2,354,403 $1,989,799 $8,190,864
Gain/(Loss) ($913,326) $5,940,544 ($7,093,496) ($23,129)
Percent of gain/(loss) recognized 80% 60% 40% 20%
Recognized gain/(loss) ($730,661) $3,564,326 ($2,837,398) ($4,626) ($8,359)
Blended value of assets $33,518,808
Corridor minimum (80% of MVA) $25,150,208
Corridor maximum (120% of MVA) $37,725,312
Actuarial value of assets $33,518,808
3. Unfunded Liability for Amortization
The table below presents the development of the unfunded liability for funding purposes. In determining the
Employer Contribution Target, the unfunded liability is the excess of the Total OPEB Liability (TOL) over the
actuarial value of assets.
6/30/2023
Total OPEB liability $42,648,870
Actuarial value of assets ($33,518,808)
Unfunded liability for amortization $9,130,062
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4. Amortization of the Unfunded Liability
The amortization of the unfunded liability component of the Employer Contribution Target is being
amortized over a period of 18 years on a level-percentage of pay basis. Under the level-percentage of pay method,
the amortization payment is scheduled to increase in future years based on wage inflation.
6/30/2023
Unfunded liability for amortization $9,130,062
Amortization factor 13.26730
Amortization payment of unfunded liability $688,163
5. Contributions
The table below presents the development of the Employer Contribution Target for the fiscal year ending
June 30, 2024 and for the fiscal years ending June 30, 2025.
FY 2023/24
Service Cost $1,310,461
Amortization payment of unfunded liability $688,163
Interest assuming mid-year contributions $67,454
Contribution $2,066,078
Estimated payroll $13,859,553
Contribution as a % of payroll 14.91%
FY 2024/25
Service Cost $1,346,499
Amortization payment of unfunded liability $707,087
Interest assuming mid-year contributions $69,309
Contribution $2,122,895
Estimated payroll $14,240,691
Contribution as a % of payroll 14.91%
Total Compensation Systems, Inc.
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G. Additional Reconciliation of Net OPEB Liability
The following table shows the reconciliation of the June 30, 2022 Net OPEB Liability (NOL) in the prior
valuation to the June 30, 2023 NOL. For some plans, it will provide additional detail and transparency beyond that
shown in the table on Page 3.
TOL FNP NOL
Balance at June 30, 2022 $34,537,166 $29,485,905 $5,051,261
Service Cost $1,018,363 $0 $1,018,363
Interest on Total OPEB Liability $2,324,644 $0 $2,324,644
Expected Investment Income $0 $1,989,799 ($1,989,799)
Administrative Expenses $0 ($14,815) $14,815
Employee Contributions $0 $0 $0
Employer Contributions to Trust $0$0 $0
Employer Contributions as Benefit Payments** $0 $1,214,348 ($1,214,348)
Benefit Payments from Trust $0$0 $0
Expected Benefit Payments from Employer** ($1,214,348) ($1,214,348) $0
Expected Balance at June 30, 2023 $36,665,825 $31,460,889 $5,204,936
Experience (Gains)/Losses $5,942,003 $0 $5,942,003
Changes in Assumptions $41,042 $0 $41,042
Changes in Benefit Terms $0 $0 $0
Investment Gains/(Losses) $0 ($23,129) $23,129
Other $0$0 $0
Net Change during 2023 $8,111,704 $1,951,855 $6,159,849
Actual Balance at June 30, 2023* $42,648,870 $31,437,760 $11,211,110
* May include a slight rounding error.
** Includes $129,514 due to implied rate subsidy.
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PART III: 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 Otay Water District to understand that the appropriateness of all selected actuarial
assumptions and methods are Otay Water District’s responsibility. Unless otherwise disclosed in this report, TCS
believes that all methods and assumptions are within a reasonable range based on applicable actuarial standards of
practice, Otay Water District’s actual historical experience, and TCS’s judgment based on experience and training.
A. ACTUARIAL METHODS AND ASSUMPTIONS:
ACTUARIAL COST METHOD: The entry age actuarial cost method.
Entry age is based on the age at hire for eligible employees. The attribution period is determined as the
difference between the expected retirement age and the age at hire. The APVPBP and present value of
future service costs are determined on a participant by participant basis and then aggregated.
SUBSTANTIVE PLAN: 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 Otay
Water District regarding practices with respect to employer and employee contributions and other relevant
factors.
EMPLOYER CONTRIBUTION TARGET PARAMETERS: While Otay Water District does not have a
formal Board adopted funding policy. The Board annually evaluates the amount to contribute to the Trust
taking into consideration the Employer Contribution Target determined in the Plan’s actuarial funding
valuation report and formally adopts a contribution amount for the current fiscal year. In keeping with the
District’s past practice, the Employer Contribution Target is calculated as the Service Cost plus an
amortization of the Unfunded Liability over 18 years on a level percentage of pay basis. The 18-year period
begins with the fiscal year ending June 30, 2023.
ASSET SMOOTHING METHOD: The District has selected an asset smoothing method to determine the
actuarial value of assets. The actuarial value of assets is based on the expected earnings on assets. The actual
earnings or losses, both realized and unrealized, are phased in over five years as the expected growth is
phased out. The District has set a corridor of 20%, meaning that the actuarial value of assets cannot be less
than 80% or greater than 120% of the market value of assets.
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B. 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 2.50% per year used for pension purposes. Actuarial standards require using the
same rate for OPEB that is used for pension.
INVESTMENT RETURN / DISCOUNT RATE: We assumed 6.75% per year net of expenses. This is based
on assumed long-term return on employer assets. We used the “Building Block Method”. (See Appendix C
for more information). 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 4.50% 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 2.75% per year. Since benefits do not depend on salary (as they do for
pensions), using an aggregate payroll assumption for the purpose of calculating the service cost results in a
negligible error.
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C. NON-ECONOMIC ASSUMPTIONS:
Economic assumptions are set under the guidance of Actuarial Standard of Practice 35 (ASOP 35). See Appendix B
for more information.
MORTALITY
Participant Type Mortality Tables
Miscellaneous 2021 CalPERS Mortality for Miscellaneous and Schools Employees
RETIREMENT RATES
Employee Type Retirement Rate Tables
Unrepresented Employees Hired 2013 and after. 2021 CalPERS 2.0%@62 Rates for Miscellaneous Employees
Hired 2012 and before. 2021 CalPERS 2.7%@55 Rates for Miscellaneous Employees
Represented Employees Hired 2013 and after. 2021 CalPERS 2.0%@62 Rates for Miscellaneous Employees
Hired 2012 and before. 2021 CalPERS 2.7%@55 Rates for Miscellaneous Employees
COSTS FOR RETIREE COVERAGE
Retiree liabilities are based on actual retiree premium plus an implicit rate subsidy of 52.7% of non-Medicare medical
premium. Liabilities for active participants are based on the first year costs shown below, which include the implicit rate
subsidy. Subsequent years’ costs are based on first year costs adjusted for trend and limited by any District contribution
caps.
Participant Type Future Retirees Pre-65 Future Retirees Post-65
Unrepresented Employees Employer portion of premium: $23,143
Implied rate subsidy: $12,641
$15,662
Represented Employees Employer portion of premium: $23,143
Implied rate subsidy: $12,641
$15,662
PARTICIPATION RATES
Employee Type <65 Non-Medicare Participation % 65+ Medicare Participation %
Miscellaneous 100% 100%
TURNOVER
Employee Type Turnover Rate Tables
Miscellaneous 2021 CalPERS Turnover for Miscellaneous 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.
SPOUSE AGES
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.
AGING FACTORS
We used aging factors from "Health Care Costs - From Birth to Death" prepared by Dale Yamamoto and published in
2013 by the Society of Actuaries as part of the Health Care Cost Institute's Independent Report Series - Report 2013-1.
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PART IV: APPENDICES
APPENDIX A: DEMOGRAPHIC DATA BY AGE
ELIGIBLE ACTIVE EMPLOYEES BY AGE AND SERVICE
Total
Under 5
Years of
Service
5 – 9
Years of
Service
10 – 14
Years of
Service
15 –19
Years of
Service
20 – 24
Years of
Service
25 – 29
Years of
Service
30 – 34
Years of
Service
Over 34
Years of
Service
Under 25 1 1
25 – 29 7 7
30 – 34 9 6 3
35 – 39 14 8 3 1 2
40 – 44 17 6 5 4 2
45 – 49 28 7 6 10 4 1
50 – 54 32 3 3 5 10 10 1
55 – 59 19 5 3 7 3 1
60 – 64 7 1 1 1 3 1
65 and older 3 3
Total 137 44 24 21 31 15 0 2 0
ELIGIBLE RETIREES BY AGE AND EMPLOYEE CLASS
Age Total
Under 50 0
50 – 54 0
55 – 59 5
60 – 64 15
65 – 69 17
70 – 74 19
75 – 79 18
80 – 84 5
85 – 89 3
90 and older 3
Total 85
Total Compensation Systems, Inc.
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APPENDIX B: ADDITIONAL DISCLOSURES
Additional Information to Part III Related to Assumptions and Other Inputs
Mortality Assumptions Following are the tables the mortality assumptions are based upon.
Inasmuch as these tables are based on appropriate populations, and that these tables are
used for pension purposes, we believe these tables to be the most appropriate for the
valuation.
Mortality Table 2021 CalPERS Mortality for Miscellaneous and Schools
Employees
Disclosure The mortality assumptions are based on the 2021 CalPERS
Mortality for Miscellaneous and Schools Employees table
created by CalPERS. CalPERS periodically studies mortality
for participating agencies and establishes mortality tables that
are modified versions of commonly used tables. This table
incorporates mortality projection as deemed appropriate based
on CalPERS analysis.
Mortality Table 2021 CalPERS Retiree Mortality for All Employees
Disclosure The mortality assumptions are based on the 2021 CalPERS
Retiree Mortality for All Employees table created by CalPERS.
CalPERS periodically studies mortality for participating
agencies and establishes mortality tables that are modified
versions of commonly used tables. This table incorporates
mortality projection as deemed appropriate based on CalPERS
analysis.
Experience Studies Following are the tables the retirement and turnover assumptions are
based upon. Inasmuch as these tables are based on appropriate populations, and that these
tables are used for pension purposes, we believe these tables to be the most appropriate for
the valuation.
Retirement Tables
Retirement Table 2021 CalPERS 2.0%@62 Rates for Miscellaneous Employees
Disclosure The retirement assumptions are based on the 2021 CalPERS
2.0%@62 Rates for Miscellaneous Employees table created by
CalPERS. CalPERS periodically studies the experience for
participating agencies and establishes tables that are appropriate
for each pool.
Retirement Table 2021 CalPERS 2.7%@55 Rates for Miscellaneous Employees
Disclosure The retirement assumptions are based on the 2021 CalPERS
2.7%@55 Rates for Miscellaneous Employees table created by
CalPERS. CalPERS periodically studies the experience for
participating agencies and establishes tables that are appropriate
for each pool.
Total Compensation Systems, Inc.
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Turnover Tables
Turnover Table 2021 CalPERS Turnover for Miscellaneous Employees
Disclosure The turnover assumptions are based on the 2021 CalPERS
Turnover for Miscellaneous Employees table created by
CalPERS. CalPERS periodically studies the experience for
participating agencies and establishes tables that are appropriate
for each pool.
For other assumptions, we use actual plan provisions and plan data.
Discount Rate
A discount rate of 6.75% was used in the valuation. The interest rate used in the prior
valuation was 6.75%.
Following is the assumed asset allocation and assumed rate of return for each.
CERBT - Strategy 1
Asset Class
Percentage
of Portfolio
Assumed
Gross Return
All Equities 59.0000 7.2500
All Fixed Income 25.0000 4.2500
Real Estate Investment Trusts 8.0000 7.2500
All Commodities 3.0000 7.2500
Treasury Inflation Protected Securities (TIPS) 5.0000 3.0000
We looked at rolling periods of time for all asset classes in combination to appropriately
reflect correlation between asset classes. That means that the average returns for any asset
class don’t necessarily reflect the averages over time individually, but reflect the return for
the asset class for the portfolio average. We used geometric means.
Additional Net OPEB Liability Information
Assumed rates of retirement, termination, and mortality have been updated to align with
those currently being used by the statewide pension system.
Since the 2024 calendar year premiums are already known, the rates have been
incorporated into the assumed costs in this valuation.
There were no changes in benefit terms since the prior valuation date.
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APPENDIX C: 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 Cost Method: A mathematical model for allocating OPEB costs by year of service. The only
actuarial cost method allowed under GASB 74/75 is the entry age actuarial cost
method.
Actuarial Present Value of
Projected Benefit Payments: The projected amount of all OPEB benefits to be paid to current and future retirees
discounted back to the valuation or measurement date.
Discount Rate: Assumed investment return net of all investment expenses. Generally, a higher
assumed interest rate leads to lower service costs and total OPEB liability.
Implicit Rate Subsidy: The estimated amount by which retiree rates are understated in situations where,
for rating purposes, retirees are combined with active employees and the employer
is expected, in the long run, to pay the underlying cost of retiree benefits.
Measurement Date: The date at which assets and liabilities are determined in order to estimate TOL and
NOL.
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 Liability (NOL): The Total OPEB Liability minus the Fiduciary Net Position.
OPEB Benefits: Other Post Employment Benefits. Generally, medical, dental, prescription drug,
life, long-term care or other postemployment benefits that are not pension benefits.
Participation Rate: The proportion of retirees who elect to receive retiree benefits. A lower
participation rate results in lower service cost and a TOL. The participation rate
often is related to retiree contributions.
Pay As You Go Cost: The projected benefit payments to retirees in a given year as estimated by the
actuarial valuation. Actual benefit payments are likely to differ from these
estimated amounts. For OPEB plans that do not pre-fund through an irrevocable
trust, the Pay As You Go Cost serves as an estimated amount to budget for annual
OPEB payments.
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 the service requirement to reflect both age and length of service).
The more likely employees are to retire early, the higher service costs and actuarial
accrued liability will be.
Service Cost: The annual dollar value of the “earned” portion of retiree health benefits if retiree
health benefits are to be fully accrued at retirement.
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Service Requirement: The proportion of retiree benefits payable under the OPEB plan, based on length of
service and, sometimes, age. A shorter service requirement increases service costs
and TOL.
Total OPEB Liability (TOL): The amount of the actuarial present value of projected benefit payments
attributable to participants’ past service based on the actuarial cost method used.
Trend Rate: The rate at which the employer’s share of 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
service costs and TOL.
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 service costs and TOL.
Valuation Date: The date as of which the OPEB obligation is determined by means of an actuarial
valuation.
Retiree Health Benefits
June 30, 2023 Actuarial Valuation
December 2023
Total Compensation Systems, Inc.
Luis Murillo, ASA, MAAA, FCA
Attachment C
Presentation Outline -
Retiree Health Benefits
Purpose of Valuation
Current Benefit Structure
Current Valuation Results
Contributions
2TCS, Inc.
Purpose of Valuation
Comply with GASB 75 Accounting Requirements
Separate report will be issued
Develop Employer Contribution Target (ECT)
No requirement to prefund
District’s funding practice: Prefund to the CERBT Trust the
ECT. When the trust is less than 100% funded, the District
may forego reimbursement until 100% funded status is
reached
3TCS, Inc.
Current Benefits
Coverage for Medical & Dental
Lifetime benefits
District pays 100% of retiree premium & 88% of
spouse/dependent premium
Requires retirement on or after Age 55 with 20 years of service
(15 years of service for Unrepresented employees hired prior
to 1/1/2013)
District participates in SDRMA for medical coverage
Community-rated program
Implied subsidy applies because non-Medicare premiums based
on pool of actives and non-Medicare retirees
Current Counts
•137 Employees
•85 Retirees
4TCS, Inc.
Valuation Steps
Inputs:
Collect plan, census, & premium rate information from District
Actuarial assumptions (e.g. rates of termination, retirement,
and mortality, interest rate, etc.)
Steps:
1.Estimate expected benefit payments (pay-go costs) for all
future years
2.Calculate the present value of expected benefit payments in
today’s dollars
3.Allocate present value between past service and future
service
5TCS, Inc.
Estimated Benefit Payments
Fiscal Year
Beginning July 1st Direct Pay-Go Implicit Subsidy Total Pay-Go
2023 $1,416,514 $234,971 $1,651,485
2024 $1,544,421 $237,846 $1,782,267
2025 $1,625,008 $266,250 $1,891,258
2026 $1,752,740 $287,576 $2,040,316
2027 $1,933,251 $305,873 $2,239,124
2028 $2,096,284 $263,319 $2,359,603
2029 $2,249,046 $300,259 $2,549,305
2030 $2,398,528 $315,727 $2,714,255
2040 $4,086,214 $398,742 $4,484,956
2050 $5,544,232 $278,936 $5,823,168
2060 $5,428,624 $95,113 $5,523,737
2070 $3,662,944 $0 $3,662,944
2080 $1,726,589 $0 $1,726,589
2090 $458,429 $0 $458,429
Estimates above reflect the 137 employees and 85 retirees as of the valuation
date. The valuation does not include any future hires.
6TCS, Inc.
District Liability
1.Present value of future expected benefit payments
2.Attribute the present value of expected benefit payments to:
a.Past service (Total OPEB Liability): $42.6M
b.The following year of service (Service Cost): $1.3M
c.Future years of service (Present Value of Future Service Costs)
3.Compare Total OPEB Liability (TOL) to Fiduciary Net Position (FNP)
a.Net OPEB Liability (NOL) = $11.2M
$ in Millions
7TCS, Inc. $-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
Fiduciary Net Position
Total OPEB Liability
June 30, 2023 Valuation Results
$ in millions TOL FNP NOL
Balance at June 30, 2022 $34.5 $29.5 $5.0
Change $8.1 $1.9 $6.2
Balance at June 30, 2023 $42.6 $31.4 $11.2
•Four categories of why the Net OPEB Liability changed over last year:
•Predictable changes +$1.4M
•New benefits earned
•Interest on liability
•Expected investment income
•Unpredictable changes +$6.0M
•Experience loss (caused by changes in demographics and healthcare costs)
•Investment earnings less than expected
•District contributions -$1.2M
•Contributions to the Trust
•Assumption Changes +$0.0M
8TCS, Inc.
Projected Trust Transactions
Fiscal Year
Beginning July 1st
Estimated
Pay-go
Implicit
Subsidy
Trust
Reimbursement
Employer Contribution
Target Net $ to Trust
Funded
Status
2023 $1,416,514 $234,971 $0 $2,066,078 $2,066,078 74%
2024 $1,544,421 $237,846 $0 $2,122,895 $2,122,895 79%
2025 $1,625,008 $266,250 $0 $2,146,145 $2,146,145 84%
2026 $1,752,740 $287,576 $0 $2,205,164 $2,205,164 89%
2027 $1,933,251 $305,873 $0 $2,206,942 $2,206,942 95%
2028 $2,096,284 $263,319 ($2,359,603)$1,556,866 ($802,737)100%
2029 $2,249,046 $300,259 ($2,549,304)$1,601,034 ($948,270)100%
2030 $2,398,528 $315,727 ($2,714,254)$1,646,378 ($1,067,876)100%
2031 $2,509,198 $312,197 ($2,821,394)$1,692,960 ($1,128,434)100%
2032 $2,770,201 $440,020 ($3,210,220)$1,740,878 ($1,469,342)100%
9TCS, Inc.
Projections assume that employees terminating or retiring will be replaced with comparable employees
with aggregate payroll increasing 2.75%
Projected Trust Transactions
Alternative Scenario
Fiscal Year
Beginning July 1st
Estimated
Pay-go
Implicit
Subsidy
Trust
Reimbursement
Employer Contribution
Target Net $ to Trust
Funded
Status
2023 $1,416,514 $234,971 $0 $2,066,078 $2,066,078 74%
2024 $1,544,421 $237,846 ($1,782,267)$2,122,895 $340,628 79%
2025 $1,625,008 $266,250 ($1,891,258)$2,104,620 $213,362 80%
2026 $1,752,740 $287,576 ($2,040,316)$2,162,497 $122,181 82%
2027 $1,933,251 $305,873 ($2,239,124)$2,376,210 $137,086 83%
2028 $2,096,284 $263,319 ($2,359,603)$2,441,556 $81,953 84%
2029 $2,249,046 $300,259 ($2,549,305)$2,508,699 ($40,606)85%
2030 $2,398,528 $315,727 ($2,714,255)$2,577,688 ($136,567)87%
2031 $2,509,198 $312,197 ($2,821,395)$2,648,574 ($172,821)88%
2032 $2,770,201 $440,020 ($3,210,221)$2,721,410 ($488,811)89%
10TCS, Inc.
Projections assume that employees terminating or retiring will be replaced with comparable employees with
aggregate payroll increasing 2.75%
Thank you!
Questions?
11TCS, Inc.
Projected Trust Transactions
Alternative Scenario
Fiscal Year
Beginning July 1st
Estimated
Pay-go
Implicit
Subsidy
Trust
Reimbursement
Employer Contribution
Target Net $ to Trust
Funded
Status
2023 $1,416,514 $234,971 ($1,000,000)$2,066,078 $1,066,078 74%
2024 $1,544,421 $237,846 ($1,000,000)$2,122,895 $1,122,895 77%
2025 $1,625,008 $266,250 ($1,000,000)$2,197,904 $1,197,904 80%
2026 $1,752,740 $287,576 ($1,000,000)$2,296,438 $1,296,438 83%
2027 $1,933,251 $305,873 ($1,000,000)$2,401,452 $1,401,452 86%
2028 $2,096,284 $263,319 ($1,000,000)$2,513,477 $1,513,477 90%
2029 $2,249,046 $300,259 ($1,000,000)$2,633,088 $1,633,088 94%
2030 $2,398,528 $315,727 ($2,714,255)$2,760,908 $46,653 98%
2031 $2,509,198 $312,197 ($2,821,395)$1,692,960 ($1,128,435)100%
2032 $2,770,201 $440,020 ($3,210,221)$1,740,878 ($1,469,343)100%
1TCS, Inc.
Projections assume that employees terminating or retiring will be replaced with comparable employees with
aggregate payroll increasing 2.75%
Attachment D
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: February 7, 2024
SUBMITTED BY: Andrea Carey,
Customer Service Manager
PROJECT: DIV. NO. All
APPROVED BY: Joseph R. Beachem, Chief Financial Officer
Jose Martinez, General Manager
SUBJECT: Award a Consulting Services Agreement to E Source Companies,
LLC and Authorize the General Manager to Execute an Agreement
with E Source Companies, LLC to Assist with the Procurement of
Water Meters and an Automated Metering Infrastructure Solution
in an Amount Not-to-exceed $126,240
GENERAL MANAGER’S RECOMMENDATION:
That the Otay Water District (District) Board of Directors (Board)
award a consulting services agreement to E Source Companies, LLC and
authorize the General Manager to execute an agreement with E Source
Companies, LLC to assist with the procurement of water meters and an
automated metering infrastructure solution in an amount not-to-exceed
$126,240.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To obtain Board approval for the General Manager to enter into an
agreement with E Source Companies, LLC to assist with the procurement
of water meters and an automated metering infrastructure solution in
an amount not-to-exceed $126,240.
AGENDA ITEM 4
2
ANALYSIS:
From 2005 through 2012, the District conducted meter change-outs for
all meters sized 2 inches or smaller. As these meters approach the
end of their 20-year lifecycle, the District is preparing to issue a
Request for Proposal (RFP) for a comprehensive meter replacement
project to include Automated Metering Infrastructure (AMI) of all
meters sized 3/4 inch to 2 inches.
District staff have completed preliminary research on all major meter
manufacturers, including the District’s current meter provider,
Master Meter, to examine the latest meter offerings. Given the
variety of meter options and available AMI technology, staff believes
it is prudent to engage a neutral expert to assist with the
evaluation process.
The District publicly solicited proposals using Periscope, the
District’s online solicitation system. The scope of work requested
includes working with staff to define the District’s technical
requirements, assisting with the development of the RFP,
participating in proposal evaluations, and working with the District
on a final meter recommendation.
Two proposals were received. A five-person review panel evaluated
these proposals, scoring each firm’s experience, qualifications,
project approach, and fees (see Attachment B).
Firm Fees Total Score
E Source Companies, LLC $126,240 94.00
MeterSYS, LLC $149,337 73.60
E Source Companies, LLC received the highest score across all
categories and presented the lowest fees. They have extensive
experience performing similar services for water districts and cities
throughout the country, including many in California. Notable recent
meter projects include collaborations with the City of Palo Alto,
City of Oceanside, and the City of Long Beach. Reference checks were
completed by staff and all references rated their performance as
excellent.
FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer
The funds for this service are available in the Potable Meter Change
Out CIP (P2662).
3
STRATEGIC GOAL:
Practice ongoing infrastructure renewal and organizational
improvement through planning and increased operational efficiency.
LEGAL IMPACT:
None.
Attachments:
Attachment A – Committee Action
Attachment B – Evaluation Scores
ATTACHMENT A
SUBJECT/PROJECT:
Award a Consulting Services Agreement to E Source
Companies, LLC and Authorize the General Manager to Execute
an Agreement with E Source Companies, LLC to assist with
the Procurement of Water Meters and an Automated Metering
Infrastructure Solution in an Amount Not-to-exceed $126,240
COMMITTEE ACTION:
Firm's
experience with
similar projects
Project
approach and
understanding
Qualifications
and experience
of the personnel
assigned to this
project
Individual
Subtotal
Technical
Score Fee Score Total Score
Maximum Points 30 25 30 85 85 15 100
Andrea Carey 26 23 28 77
Jake Vaclavek 30 23 29 82
Jon Chambers 28 24 28 80
Kevin Cameron 28 23 27 78
Kevin Koeppen 27 23 28 78
Andrea Carey 25 20 23 68
Jake Vaclavek 28 22 29 79
Jon Chambers 27 20 28 75
Kevin Cameron 26 21 27 74
Kevin Koeppen 24 20 23 67
Consultant NTE Total Fee
E Source Companies, LLC $126,240
MeterSYS, LLC $149,337
15
1
94.00
73.60
Summary of Proposal Scoresheet
RFP #FY24-2300-009
Meter Changeout Consulting Services
E Source Companies, LLC
MeterSYS, LLC
79.00
72.60
Attachment B