Public Plan Solvency & Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran & Company, LTD. 10555 N

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<ul><li> Slide 1 </li> <li> Public Plan Solvency &amp; Funding GFOA Meeting October 6, 2011 Gary S. Curran, FCA, MAAA, ASA, EA CONSULTING ACTUARY G. S. Curran &amp; Company, LTD. 10555 N. Glenstone Place Baton Rouge, LA 70810 (225) 769-4825 </li> <li> Slide 2 </li> <li> Typically Solvency Measured By Assets Liabilities </li> <li> Slide 3 </li> <li> But Which Assets and Which Liabilities? </li> <li> Slide 4 </li> <li> Various Asset Measurements Available Cost Market Actuarial </li> <li> Slide 5 </li> <li> Cost Value of Assets Generally, not currently used Used under prior accounting rules </li> <li> Slide 6 </li> <li> Market Value of Assets Fair Value of Investments Special Cases: Hedge Funds Private Equity Real Estate Timber </li> <li> Slide 7 </li> <li> Actuarial Value of Assets Market Value Smoothed Value Objective Methodologies Periods Corridors </li> <li> Slide 8 </li> <li> Assets: GASB 25 / 27 Currently Actuarial Value of Assets Proposed Market Value </li> <li> Slide 9 </li> <li> Various Liability Measurements Available Funding Method Liability Based on whatever actuarial funding method is used Rules Based Liability Based on a prescribed method. Measured at the funding interest rate or a stipulated interest rate. </li> <li> Slide 10 </li> <li> Liabilities: GASB 25 / 27 Currently Funding Liability Proposed Stipulated Method Liability </li> <li> Slide 11 </li> <li> Liability Interest Rate GASB 25 / 27 Currently Funding Interest Rate Proposed Blended rate based on current fixed income rate and funding interest rate </li> <li> Slide 12 </li> <li> Funding Basics Present Value of Future Benefits </li> <li> Slide 13 </li> <li> Funding Methods Unit Credit Projected Unit Credit Entry Age Normal Frozen Entry / Attained Age Normal Aggregate </li> <li> Slide 14 </li> <li> Normal Cost Unit Credit Present value of benefits earned during the year Projected Unit Credit Present value of benefits (with projection for salary increase) earned during the year Entry Age Normal Designed as level percent of pay over working career </li> <li> Slide 15 </li> <li> Unfunded Accrued Liability (Unit Credit / Projected Unit Credit / Entry Age Normal) UAL= Accumulated Normal Costs + Accumulated Losses (Gains) + Accumulated Changes in Assumptions + Accumulated Benefit Increases Assets </li> <li> Slide 16 </li> <li> Normal Costs Frozen Attained / Entry Age Normal Allocated Share of Present Value of Future Normal Costs Derived from the UAL Aggregate Funding Allocated Share of Present Value of Future Normal Cost Derived from a Zero UAL </li> <li> Slide 17 </li> <li> Unfunded Accrued Liability Frozen Attained / Entry Age Normal Set by reference to Unit Credit / Entry Age Normal Method Aggregate Set = 0 </li> <li> Slide 18 </li> <li> Gains &amp; Losses Sources: Assets &amp; Liabilities Allocated to: Unfunded Accrued Liability for Unit Credit, Projected Unit Credit &amp; Entry Age Normal Normal Cost for Frozen Attained / Entry Age Normal &amp; Aggregate Method </li> <li> Slide 19 </li> <li> Funding Sources Employee Contributions Direct Employer Contributions Ad Valorem Taxes Revenue Sharing Funds Insurance Premium Taxes </li> <li> Slide 20 </li> <li> Funding Volatility Different systems have different contribution volatility based on different plan provisions and different demography of the group </li> <li> Slide 21 </li> <li> Funding Leverage Leverage of employee contributions will depend on what percentage of the cost of the plan is paid for by direct employer contributions </li> <li> Slide 22 </li> <li> Back to Solvency Funded Ratio Single measurement can be misleading Trend is more important than single measurement Change in accounting rules will change ratios Even with standardized measure, comparatives between plans are not valid since assumptions will differ </li> </ul>