Translate[Archived] Question #58: Provide further detail on the proposed reductions in the contribution rate for both OPEB and LOD. Did a new actuarial study inform these reductions? Provide a new schedule of ARC’s.
Question:
Can you please provide further detail on the proposed reductions in the contribution rate for both OPEB and LOD? Did a new actuarial study inform these reductions? Can you provide a new schedule of ARC’s? (Mayor Wilson)
Response:
Actuarial studies form the basis of all of our contribution rate calculations. It is the City’s practice to fund the Actuarially Determined Contribution or ADC. This calculation was previously described as an Actuarially Recommended Contribution or ARC. Nearly all of the City’s contribution rates are showing the impact of our actions to protect the sustainability of our pension plan over the past 5 years, as well as considerable market-related returns on investment. In addition, our persistent commitment to funding the OPEB and Line of Duty plans has resulted in a higher discount rate and lower costs.
Line of Duty
Based on the Actuarial Valuation prepared by the City’s independent external actuaries, for the valuation date of June 30, 2018, the City’s required contribution for FY 2020 for Line of Duty is $4.1M, which is a $1.6M reduction compared to FY 2019. The actuarial assumptions in their report reflect that the City will continue to increase the total contribution by $0.3M annually until the total contribution in FY 2021 is $3.0 above the PAYGO amount, or the amount already budgeted to be paid for current claims. The OPEB/Line of Duty Funding Policy was formalized in August 2018, formally adopting this existing practice for OPEB and instituting a policy of the newer Line of Duty Plan. For Line of Duty, the plan actuaries are assuming the City will continue to increase the Plan’s funding over time and thus are able to assume a higher discount rate than in previous years. The most recent experience study of Fire and Police disability plan showed a lower rate of incidents of disability, which has also contributed to the rate reduction shown in FY 2020.
OPEB
The actuarial estimates for OPEB are also favorable for the City. A consistent history of gradually increasing funding at or above the ARC/ADC has helped to lower the contribution rates in FY 2020. The OPEB plan is projected to be fully funded by 2024 based on current plan benefits, assuming the City continues to make the ADC. The OPEB plan is also enjoying steady investment earnings since its inception. For OPEB, the plan actuaries are assuming the City will continue making the determined contribution and thus are able to assume a higher discount rate.
Projected Actuarially Determined Contributions
Both the Other Postemployment Benefits and the Virginia Line of Duty Act Funds are considered relatively new plans and current valuation studies do not include the projection tables that are reflected for more mature pension plans, such as the City’s Supplemental Retirement Plan. For future valuation studies, this information will be requested.