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11-19-79 agenda CITY OF RICHFIELD, MINNESOTA Office of City Manager r The Honorable Mayor and Members of the City Council City of Richfield Council Members: 3 Council Letter No. 363 Agenda November 19, 1979 Subject: Discussion of Proposed 1980/86 Capital Improvement Program The city council received the proposed 1980/86 Capital Im- provement Program and held one meeting to review this program in early October. At that time, the city council scheduled a continu- ation of the 1980/86 CIP review for November 19, 1979. The specific purpose of the November 19 meeting is to discuss three major capital improvement concerns: storm sewer system improvements, alley im- provements, and sidewalk system extension. The purpose of this letter is to provide general background on each of these matters. Storm Sewer System Improvements There are three major areas of consideration related to the storm sewer drainage system. The first relates to capacity. System capacity is often referred to in terms of storm frequency, such as "one hundred year storms" or "two hundred year storms." That is to say, "x" amount of water could be expected to fall in one storm once every one hundred years to two hundred years, etc. In late 1977 and in 1978, however, Richfield experienced several 100 year storms and one 200 year storm. These severe storms resulted in localized flood- ing which was concentrated within several areas of the city. The city council asked that the staff analyze the storm sewer system capacity, and develop a recommendation to alleviate future flooding in three major areas: 1) The Richfield/Edina border area, 2) The Norby-Wilson Pond area, and 3) Miscellaneous areas. The firm of Orr-Schelen-Mayeron and Associates, Inc., the city's consulting engineers, undertook this study. With regard to the Richfield/Edina area, the study conducted examined storm water problems along the Edina/Richfield common border. The study was conducted jointly by OSM and Barr Engineering, with input from staff and a council representative from both cities. The common border problems were divided into three areas: Adams Hill Pond, 69th Street and Xerxes Avenue and 66th Street and Xerxes Avenue. At Adams Hill, the study recommended a permanent pumping station and the establishment of a design high water elevation. Improvement work on the pond would presumably be concurrent with park redevelop- Council Letter No'. 363 -2- November 19, 1979 ment. It is suggested that Richfield contact Edina to seek to develop a joint agreement for sharing the costs of any pond improve- ment. These improvements must be coordinated with the park improve- ment project, which is already underway in the planning stages. The second common border problem Avenue. Edina is reportedly pursuing in accordance with the study recommen( council has previously authorized the ment of storm inlets on Xerxes Avenue to a catch basin in the alley between Avenue. 40 was 69th Street and Xerxes the regrading of York Avenue 3ations. The Richfield city staff to pursue the improve- and construct modifications Xerxes Avenue and Washburn The problem at 66th Street and Xerxes Avenue has only expensive solutions. A mutual commitment to solve the problem is necessary by Edina, Richfield and Hennepin County. The Richfield City Council has passed a resulution expressing our interest in cooperating with these other jurisdictions in resolving this problem. Interim steps by Richfield could include sidewalk and alley work south of 66th Street between Washburn and Vincent Avenues. Interim steps could also include construction of a flap gate on the storm line located in Washburn Avenue at the east/west alley south of 66th Street. The second major area of concern was in the vicinity of Norby and Wilson Ponds_ Orr-Schelen-Mayeron and Associates developed a recommendation for major pond improvements which would essentially expand the capacity of the Norby-Wilson drainage system. After con- ducting a public hearing on the proposed improvement project, the council rejected the project and directed the staff to restudy the problem and develop less costly solutions. The council specifically requested that dredging of the ponds be explored as a possible means of addressing the drainage problmes and expanding capacity. OSM has not done further study, pending direction from the city, although they have determined that dredging of the ponds, by itself, will be of little benefit to storm water drainage control. in the following areas: The remaining drainage areas frequently, but not necessarily, appear in street right-of-way. An allocation of $70,000 for mis- cellaneous improvements in the street right-of-way was part of the previous pond improvement project that was submitted to the city council. Design work on these improvements was halted when the pond improvement project was rejected. Study or work was proposed a. b. C. d. e. f. g• i. j• Between Vincent of 66th Street 76th Street and 69th-70th Street 68th Street and 68th Street and 66th Street and 68th Street and 73rd Street and and Washburn Avenues, on alley south Washburn Avenue -n o-? and Penn Avenue Oliver Avenue James Avenue James-Irving Avenue Stevens Avenue First Avenue 75th-76th Street and Blaisdell Avenue-Wentworth Avenue Augsburg Park ponding area Council Letter No. 363 -3- November 19, 1979 Having identified three major areas of storm water control problems and concerns, it is necessary to receive council direction before the staff or OSM may proceed with future studies and/or cost estimates related to potential solutions. It is extremely difficult if not impossible, for us to estimate the damage to public and private property due to the severe storms of 1977 and 1978. With- out further direction from the city council regarding what sort of improvements should be undertaken, it is also difficult to estimate the cost of improvements or to develop a proposal for financing such improvement. r Sidewalks The second topic before the city council at the special meeting of November 19, 1979, is sidewalks. Attached is an inventory of existing sidewalks within the city. For purpose of discussion, the staff would suggest that arterial and collector streets be defined as 66th Street, 70th Street and 76th Street, Penn Avenue, Lyndale Avenue, Portland Avenue and 12th Avenue. The avenues are long blocks, approximately 600 feet in length. The cost of providing a sidewalk is approximately $14 a running foot in 1979 dollars. Therefore, it would cost $4,200 to provide a sidewalk on one side of a short block and $8,400 to provide a sidewalk on one side of a long block. This approximate cost includes incidentals, such as curb cuts at corners. Sidewalk is complete on both sides of 66th Street. 70th Street has sidewalk on the south side from 18th Avenue to Lyndale Avenue. To complete the sidewalk on the north side of 70th Street for this same distance would cost about $138,600. 76th Street is sporadic in the provision of sidewalk at the present time. There are 32 short blocks to provide sidewalk on both sides of 76th Street from Cedar Avenue to Portland Avenue. There are an additional 32 short blocks to complete the sidewalk from Xerxes Avenue to Portland Avenue on 76th Street. The approximately cost to provide sidewalk on all these areas of 76th Street is $268,800. On Penn Avenue, sidewalk is now provided on the east side, where there is sufficient room for a sidewalk. There is a problem with providing sidewalks in the vicinity of 66th Street to 68th Street on Penn Avenue for a sidewalk due to wide streets and the necessity to obtain right-of-way. To provide sidewalk on the west side of Penn Avenue, there would be an approximate cost of $117,600. Lyndale Avenue sidewalks are currently proposed to be provided in the 64th Street to 67th Street area in 1980, as part of improvements being undertaken in conjunction with the L/H/N project. Lyndale Avenue does presently have sidewalk on one side of the street where the city has right-of-way, although this is somewhat sporadic. The CIP provides for improvements along the entire length of Lyndale Avenue from 67th Street south to I-494, to be done in 1980. The federal and state funding sources for this project may include fund- ing for sidewalks. Nicollet Avenue has sidewalk on both sides, with the exception of approximately two long blocks adjacent to Nicollet Park. Port- land Avenue has sidewalk on both sides for its entire length through the City of Richfield. 12th Avenue has sidewalks on the west side from 66th Street to 76th Street. To complete 12th Avenue there are five long blocks on the west side and 16 long blocks on the east side, which would cost approximately $176,400. One of the problems in developing a sidewalk improvement pro- gram is the lack of a clear cut city policy with regard to side- walks. As the foregoing analysis shows, even those streets which must be categorized as collector or arterials, do not evidence a consistent sidewalk pattern. If we were to assume that all arterial and collector streets should have sidewalks along both sides of the streets, the construction cost alone in present dollars, would be $701,400. This cost does not include costs for engineering services or right-of-way acquisition which might be necessary to actually undertake the project. A second major consideration in looking at sidewalk improve- ments is related to funding. In recent years, the city has required that developers install sidewalks adjacent to their development. This has resulted in some voids in the sidewalk system being filled, at no cost to either the city or to other businesses or residents in the adjoining area which clearly benefit from the provision of the sidewalk. In cases where residents have petitioned for side- walks, 100% of the cost of the sidewalk has been specially assessed. For sidewalks completed in conjunction with the permanent street program, 50% of the cost is specially assessed. However, it appears that a project which would essentially complete the sidewalk system already begun along the arterial and collector streets would appro- priately require some specific assessment policy which would adequately reflect the benefits to the city as a whole, in terms of providing a comprehensive pedestrian transportation system, as well as the benefits which might accrue specifically to the abutting property owners from having a sidewalk adjacent to their property. Alley Improvements The final major capital improvement area of concern before the city council at this time relates to alley improvements. Earlier this summer, the city council held a public hearing on a proposed project to permanently resurface all of the city's public alley- ways. After receiving testimony from the public, the city council determined not to initiate a systemmatic, city-wide alley improve- ment program, but rather requested the staff to categorize the conditions of existing alleys and develop a report. The staff has now completed a field survey of all city alleys, and established ratings of the alley conditions. The rating system uses a scale from 1-5, as follows: 1. Fully deteriorated condition 2. Severe deterioration 3. Moderate deterioration 4. Slight deterioration 5. Good condition Council Letter No. 363 -5- November 19, 1979 At the time of the public hearings on the alley improvement project, the staff had developed a cost breakdown for three alter- native surfaces: concrete, bituminous paving, and oil stabilization. A chart showing these costs is listed below. With the oil stabilization, an approximate 7% increase is calculated for each year. The table does not take into consideration any interest that may be paid through assessment: Cost per Lineal Foot Year Concrete Bituminous Pavina Oil Stabilization 1980 $ 2.88 1984 3.77 1988 4.94 1992 6.47 1996 8.48 2000 11.11 Total 20 year cost for a 50' lot $930 $876 $941.25 It must be remembered that bituminous paving and oil stabilization are petroleum products. A 7% cost increase per year for oil stab- ilization is extremely conservative and it is likely that a much greater increase could reasonably be anticipated. The availability of petroleum based products in future years should also be a consid- eration in establishing any alley resurfacing program. During the public hearing, many of the residents offering testimony indicated support for implmentation of an oil stabilization surfacing program for alleys. Although oil stablilization would provide a semi-firm surface, the stabilization program must be redone every three to five years to retain the integrity of the surface. The process of stabilizing a road or alley provides that the entire surface be dug up, and relaid. Everytime that this is done the mat becomes deeper, thus making it more difficult to dig up and relay the subsequent time. This is the process that was form- erly used on city streets, until it became impossible to dig up the surface and create a new firm surface which had some degree of surface integrity. This same problem would occur with using an oil stabilization process to resurface alleyways. The oil stabilization, because it must be done frequently, offers the added disadvantage of recurring costs to the residents, rather than a one-time cost, such as would be incurred in resurfacing with concrete or bituminous. Finally, oil stabilization would require that construction crews be working in alleys at least every three or four years, which would appear to be quite disruptive to the adjacent neighbors. If the city wishes to implement any sort of alley improvement project, it is necessary to establish a comprehensive policy which would provide for a durable surface, minimize maintenance, as well as to find a method of paying for such a project. Because the city has not had a systemmatic alley improvement program in the past, no Council Letter No. 363 -6- November 19, 1979 payment policy for such a project exists. However, it is the recommendation of the staff that an alley improvement program would benefit only those properties using the alley, and that such im- provements should be financed by special assessment against the benefitted properties. There are at least three alternative methods for approaching an alley improvement project: 1. By petition and request of the residents; 2. By the rating system, with the city initiating improvements to those alleys that appear to be in the worst condition; 3. By a systemmatic project of resurfacing all alleys within a given area. It was the systemmatic, or "cluster" approach that the staff had recommended previously. It is still the recommendation of the staff that any comprehensive alley improvement project be done by the "cluster" approach to minimize the mess associated with a construction project, and to limit costs by concentrating the work in a small, geographic area. The 1980/86 Capital Improvement Program does not provide fund- ing for any of these three major project areas. Because the city does not have a comprehensive policy for implementing or financing storm sewers, sidewalks, or alley improvements, it was my feeling that the staff was not in a position to recommend a specific time- table and financing mechanism for initiating any of these improvement projects. The purpose of the November 19, 1979 discussion on the Capital Improvement Program is to focus on each of these areas and develop a procedure for further addressing any needs which the city council feels we have in terms o storm sewers, sidewalks, or alley improvements. Miscellaneous Items A couple of council members have indicated other items that they would like to see pursued in a discussion of the capital improvement program. Items include central fire station, street lighting on arterial and collector streets and housing for the elderly p ojects If time permits, these projects should be discussed. Respectfully submitted, Karl Nollenberger 2 `V City Manager ? KN/eja CC. Co:i,.Itiunity Services Director ----------- 45 -"? t 1 t t ? ??P - L L- = IL - , y All -- , r _ -- - ..?Y C L_L- - l - - li Lij T77-1 -_----? fir- -- z CITY OF RICHFIELD, MINNESOTA Office of City Manager n 3 The Honorable Mayor and Members of the City Council City of Richfield Council Members: Subjec-t: Recommendations Re: 0 Council Letter No. 362 Agenda November 19, 1979 CATV Franchise Application At the November 19, 1979 city council meeting, the city council requested that the staff develop a set of recommendations regarding the proposed master ordinance and invitation for applica- tions for a cable television system to serve the cities of Eden Prairie, Edina, Hopkins, Minnetonka and Richfield. These recomm- endations have been developed to reflect the concerns expressed by Richfield's Citizen CATV Committee as well as the additional comments of the city council in responding to the committee's comments. These recommendations are attached. It is suggested that the city council finalize the city's recommendations regarding the master ordinance and invitation for applications, and authorize Richfield's representatives to the Southwest Suburban Cable Commission to convey these recommenda- tions to the commission. Respectfully submitted, Karl Nollenberger City Manager KN/ e j a 0 C: E CITY OF RICHFIELD RECOMMENDATIONS REGARDING 'PROPOSED INVITATION FOR APPLICATIONS 1. That each municipality be provided a local center to pick up access equipment and receive direction in use of that equipment, and that at least one color capacity studio be provided for the service area, that is geographically cen- tralized within the area. 2. That the invitation for applications request bidders to address, as an alternate, a rate structure which would provide low, or no-cost cable installation for senior citizens or homebound individuals, and discounted monthly subscription rates for such individuals. 3. That the institutional network be developed in the best interest, and to meet the institutional needs, of Richfield. It is recommended that the invitation for application provide for specific locations to be included in the institutional network. 4. That administration of the local franchise be turned back to local officials, once the franchising process is complete, and the SWSCC should have no involvement in administration. It is the position of the City of Richfield that the SWSCC should continue in existence for the purpose of advising the respective municipalities on matters which affect all five communities uniformly. For instance, since the rate changes are required by ordinance to be done on a uniform method, the SWSCC would be empowered to hold rate hearings and make recommendations to the respective city councils concerning the appropriate rate to be charged for cable television services. 0 s? ?CITY OF RICHFIELD, MINNESOTA Office of City Manager ?2 D?. no The Honorable Mayor and Members of the City Council City of Richfield Council Members: Council Letter No. 361 Agenda November 19, 1979 Subject: Actuarial Discussion-Police and Fire Pension Programs On Monday, November 19, 1979 the city council has scheduled a meeting with Gary Findley, Consulting Actuary with the firm of Gabriel, Roder, Smith and Company. The actuarial firm serves as consultant to the police and fire relief associations in the City of Richfield. The purpose of the meeting is for the city council to gain information from the consultant on the current acturial financial conditions of the police and fire pension plans. I would encourage the city council to use the session as an in- formation gathering meeting for input into subsequent discussions by the city council of the pension problem. I have enclosed copies of the police and fire actuarial re- ports which were done in early 1979 assessing the actuarial con- dition on January 1, 1979. The thorough reading of the reports before Monday night would help in understanding some of the complex matters which the actuary will be presenting. The pension plans in the City of Richfield date back to the early 1960's when they were established by state legislation specifically for our commun- ity. The fire plan was put together in 1963 and 1964 and the police plan in 1965 and 1966. The pension plans in addition to being established by state law, are governed by the relief assoc- iation board of directors. After January 1, 1971, all by-laws or articles of incorporation amending benefits paid for by any police or fire relief association had to be ratified by the city council in order for any change to be made. The contribution to the relief associations is governed by state law in that the normal cost of the pension plans must be contributed for each employee and the amount of one year's interest at five percent on the amount of the unfunded liability from the actuarial survey must also be contributed. The normal cost is the cost necessary to fund a future pension benefit for an existing employee distributed over the period of time which the employee worked for the city. The unfunded liability is that portion of the pension plan which should have had contributions made in the past to fund existing or future benefits. Council Letter No. 361 -2- November 19, 1979 A thorough discussion of these items is included in the • actuarial reports. A table comparing actuarial reports done back near the inception of the plan and the actuarial report dated January 1, 1979 is as follows: Police Fire Combined 1-1-66 1-1-79 1-1-63 1-1-79 1-1-79 Accrued $434,791 $3,991,580 $377,725 $4,027,120 $8,018,700 Liabilities Assets 68,378 2,172,954 166,904 1,692,823 3,865,777 Unfund. Liab. 366,413 1,818,626 210,821 2,334,297 4,152,923 % Funded 16% 54% 44% 42% 48% Normal Cost as % of Payroll 17.91% 22.57% 16.39% 26.86% Interest on Unfund. Liab. 4.29% 10.90% 4.57% 30.09% Total Cost 22.20% 33.47% 20.96% 56.95% • City & State Cost 16.20% 27.96% 14.96% 51.62° You can see that contribution rates by the employer are presently 27.96% in the case of police, and 51.62% in the case of fire. There is an unfunded liability of $4,152,923 which is increased from $577,234 at the inception of the plan. Conceptually, the method of contribution to the pension plan is set up so the unfunded liability will not increase an actual dollar amount. For a number of reasons, the unfunded liability has increased by $3,575,000 over the last 15 years. It should be recognized that the city is not decreasing the actual dollar amount of the unfunded liability through its annual contributions. Rather, the city is making a contribution which pays the relief association for the normal cost and the interest income which would have been made on the money if all of the liabilities of the plan were fully funded. Subsequent to the discussion on Monday evening, I plan on sub- mitting to the council a full report concerning the entire pension situation. At the next city council meeting this matter can be fully with any action needed by the city council soon after. Respectfully submitted, Karl Nollenberger City Manager cc: Administrative Services Director Personnel Director Public Safety Director R L-l ? t IF /A S S 0 C-k p T1-,? -I Table of Contents Paizes 2 3-4 5-6 7 8 9-10 11 12-13 14-15 16-18 1.tem Sibnatuxe page Summary of plan benefits Financial principles and operational techniques Financing diagram The actuarial valuation process Retired life data Active member data Reported accrued assets and cc-nu e= acc-uec i-ab11-t-Ics CO:iT?.I?liTAON RATES : =Cc ,',IS & DOLLLFS Financial Assumptions and Funding iethcds Police Relief Association May 16, 1979 Richfield, Minnesota 0 Submitted in this report are the results of an actuarial valuation. of the Pension Plan. The date of the valuation was December 31, 1978. It is essential that the concepts contained in the financin- diagram on page 7 be understood. The covered person data and financial operations data necessary for an actuarial valuation were furnished by the Plan. The January 1, 1979 active member pay rates were used. Result pages 12-15 will probably be of particular interest. The financial assumptions and the funding methods used in the actuarial valuation are summarized on pages 16-18. The assumptions are the same as used in the December 31, 1976 actuarial valuation. The economic assumptions, investment return and rates of pay increase, are established by State Law. An ex-)erience study is required by State Law. Such a study shows, for a given period of time, how actual experiences have compared with previously established assumptions. Upon completion of the study, recommendations will be made concerning the assumptions. Generally accented actuarial principles and practices were used in mathematically combining the data, the assumptions, and the funding methods. Respe-?tiully submitted, Gary {ti, rind- ay RicY and A. Roeder ?? Richard G, Roeder 1 Richfield Police Relief Association Brief Summary (12=31-78) of Benefit Provisions Evaluated and/or Considered Age & Service Retirement Eligibility. 20 years of service and 55 years of age. Amount. For first 20 years of service, 35/75 of base pay. For each year ir. excess of 20 an additional 1/75 is added to a maximum of 42/75 of base pay for 27 or more years of service. Pay Used For Plan Purposes. For benefit determination purposes "base pay" means the salary of a first grade patrolman for the second month of the previous fiscal year. For contribution purposes it means the present base pay of a first grade patrolman. Disability Retirement Eligibility. Disabled to the extent that no longer able to perform the duties of a police officer before being eligible for age & service retirement. Amount. 36/75 of base pay. Member's Death While Active Or In Deferred Status, Or Retired Eligibility. ' Spouse. Legally married to member at least one year before separaticn from service and residing with member at time of death. Benefits terminate upon remarriage. Child. Younger than age 18. Amount. Spouse. 18/75 of base pay. Child. 6/75 of base pay per child. Children's maxi:aum is 1S/75 of base pay if spouse is receiving or 36/75 of base pay if no spouse is receiving. Vested Deferred. 20 years of service and separated before age 55. ,ta:tiaum benefit is 40/75 of base pay. Payment beginning is deferred to attainment of age 55. 0 - 3- 1 1 post Retirement'Ad'ustments ("Escalator"). Each time base pay is changed, payments to all benefit recipients are simultaneously changed by the same percent that base 0pay is changed. Member Contributions. 6% of base pay. 75% of total member contributions is refun tion Iran refundable, without interest, if no monthly benefit is payable upon separa service. FINANCIAL PRINCIPLES ANTD OPERATIONAL TECIMIQUES Promises Made, and Eventually Paid. As each year is completed, the plan in effect hanc an "IOU" to each member then acquiring a year of service credit -- the "IOU" says: Pension Plan owes you one year's worth of retirement benefits, payments in cash, com- mencing when you qualify for retirement." The related key financial questions are: Which generation of taxpayers contributes the money to cover the IOU? The present ta_xnaverg, who receive the benefit of the member's present year of service? Or the future taxpayers, who happen to be in town paying taxes at the later time when t' IOU becomes a cash demand? A traditional principle of sound retirement.plan financing is that this year's taxDaverr contribute the monev to cover the IOUs beinc handed cut this year. By foliowinc thi? principle, TF-E CONTRIBUTION RATE WILL =1N APPRO=LkTELi' LEVEL FROM GEN'ERATIO'N TO GDS ERATION -- our-children and grandchildren will contribute the same percents of active payroll we contribute now. There are systems which have a design for deferring contributions to future tax- payers, lured by a lower contribution rate now and putting aside the consequence that the contribution rate must then relentlessly grow much greater over decades of time -- consume now, and let your children face your financial pollution after you retire. The diagram on page 7 shows the relationship between the two fundamentals differen philosophies of paying for retirement benefits: The method where contributions match cash benefit payments (or barely exceed cash benefit pa7rn ents, as in the Federal Social Security program) and is thus an increasinc contribution method: and the !evel.contribu- tion method which equalizes contributions between the generations. -5 Le--':t- I An inevitable byproduct of the level-cost design is the accumulation of reserve assets, for decades, and the income produced when the assets are invested. Invested Jftssets are a byproduct and not the objective. Investment income becomes in effect the 3rd contributor for benefits to employees, and is interlocked with the contribution amounts required from employees and employers. Translated into actuarial terminology, the level-cost objective means that the con- tribution rates must total at least the following: Normal Cost (the cost of members' service being rendered this year) Plus ... Interest on Unfunded Accrued Liabilities (c:-nfunded accrued liabilities are the difference between (i) liabilities for service already rendered and (ii) the accrued assets of the plan). 1.1 c;,omDUtinQ Contributions to SuDport Plan Benefits. °•-- - From a given schedule of benefits and from the employee data and asset data furnished him, the actuary determines the contribu- Won rates to support the benefits by means of an actuarial valuation and a furdina method. In making an actuarial valuation, assumptions rrast be made regarding anticipated financial experiences for the next year and for decades in the future. Only the sue- sepuent actual experience of the plan can indicate the degree of accuracy of the ass=o- tions. Reconciling Differences Betw- Assumed a Experience and Actual v;:Derience. Once actual experience has occurred and been observed, it will not coincide exactly with assumed experience; regardless of the wisdom of the assumptions or the skill of the actuary and the millions of calculations he made. The future can be predicted with considerable but not 100% precision, except for inflation which seers to defy reliable Dred'_ctien. A well managed plan copes with these continually changing differences by havi;.g Periodic actuarial valuations. Each actuarial valuation is a complete recalculation Of Ssumled future experience, taking into account all past differences between assumed and actual experience. The result is con.tinurnc adlustm.,ents in Fin , .. _1 OS1.?i.,n , -6 Rid ?- 9 °? „ 4 Uri u %J, d. ®.® ? ? .rn..ra. c a eama.c ccu.>wa. ? rya sae r? .rya rte. i START V IE AR S Au"' F SAE t 1.?;; ,;; ? c This relentlessly increasing line is the fundamental reality of retirement plan financing. It happens each time a new benefit is added (and happens regardless of the financing method being followed). LEVEL CONTIZ113UTION LINE-. Determining the level contribution line requires detailed assump- ' tions concerning experience in future decades, including: Rate of withdrawal of active members (turnover): 1 Rates of mortality; Rates of disability; Ages at actual retirement; Rates of pay increase: Investment income: Change in active member group size. 0 i THE ACTUARIAL, VALUATION PROCESS The actuarial valuation is the mathematical process by which the contribution rate is determined, and the flow of activity constituting the valuation may be summarized as follows: Ao Covered people data, furnished by plan administrator including; Retired lives now receiviing benefits Former employees with vested benefits not yet payable Active employees B. + Asset data (cash & investments), furnished by plan administrator C. + Assumptions of various future financial'e. eriences The funding method for employer contributions (the long-term, planned pattern for employer contributions) E. + Mathematically combining the assumptions the fundinz method. and the data F. = Determination of: Plan Financial Position and/or New Employer Contribution Rate ? is III. Richfield Police Relief Association Retirants and Beneficiaries December 31, 1978 By Type of Annuity Being Paid Comauted Monthly Accrued Type of Annuity Being Paid No. Amounts Liabilities Age & service annuity: Retirant receiving 7 $4,720.00 $927,746 Spouse receiving 1 336.00 46,164 Child receiving Total 8 5,056.00 973,910 Disability annuity: Retirant receiving 5 3,360.00 829,992 Spouse receiving 1 336.00 60,396 Child receiving _ Total 6 3,696.00 890,388 Death before retirement: Spouse receiving 2 672.00 175 668 Child receiving Total _ 2 672.00 175,668 Deferred Annuity N/A N/A 127,114, Totals 16 $ 9,424.00 $2,167,080 * Liabilities take into account January 1, 1979 active me*m er pay rates. 0 i Richfield Police Relief Association Retirants and Beneficiaries December 31, 1978 By Attained Ages Attained Ages 40-44 45-49 50-54 55-59 60-64 65-69 70-74 Totals Number Death Age & Before Service Disabilit7 Retirement 2 4 1 1 8 1 1 1 1 2 6 2 2 ?0- Richfield Police Relief Association Active Members December 31, 1978 Tabulated by Attained Age Groups and Years of Accrued Service Attained Number at Indicated Age Years of Accrued Service to January 1, 1970, Total Groups 0-4 5-9 10-14 15-19 20-24 25-29 30 Plus No. 20-24 2 2 25-29 7 1 8 30-34 4 6 1 11 35-39 1 1 6 g 40-44 2 2 45-49 2 2 -2 6 50-54 1 1 1 3 55-59 2 2 Totals 14 8 14 3 3 42 • Average age: 36.8 years. Average accrued service; 9.0 years. Valuation Payroll: $814,464 ($19,392 each.) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - There is one deferred member-entitled to a deferred annuity. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The people data included in the vaiuation is shown in groups or summaries, for reading convenience. Financial calculations were made individually for each covered person. 0 { 4 The accrued assets of the Plan were reported to be as follows at December 31, 1978: i Cash $ 237.99 State Investment Accounts Other Fixed-Income Investments 1,661,541.42 Other Equity investments 511,175.00 Total $2,172,954.41 C024-U-LED ACCRUED LIABILITIES & UNFUNDED ACCRUED LIABILITIES ("UAL") One of the results of the actuarial valuation is computed accrued liabilities. Fletired Lives Active TOTAL Amounts at 12-31-10178 & Inactives ?umbers pT N Computed accrued liabilities $2,167,080 $1,824,500 $3,991,580 Reported accrued assets 1,898,263 274,691 2,172,954 . Unfunded Accrued Liabilities $ 268,817 $1,549,809 $1,818,626 5% of UAL (raid-year contribution) $ 8817=:0 Assets divided by Liabilities 88 7 15 ro 54o, " Assets Divided by Liability 7s. ' If a Plan has been follouri.ng the disciplines of level contribution financing in past years, the Retired l will almost certainly be 100%. In addition, the Active % will be more than zero. The actual Active `' can vary widely, depending upon the funding method and upon the nt=ber of years of level contributions (or absence thereof), and still be within a sound range. -12 Left- MEAi:ING OF "'U FI.MED ACCRUED LIABILITIES" Almost every pension plan (public or private) has "unfunded accrued liabilities", so whatever they are, they aren't rare. Since the term is not part of everyday conversa- tion, it needs some definition. "Accrued liabilities" are the present value S of plan premises to Pav benefits in the future based upon service already rendered - - - a liability has been established ("accrued") because the service has been rendered, but the resulting monthly cash benefit may not be payable until years in the future. Accrued liabilities S are the result of complex mathematical calculations, which are made by the plan's actuary (which is the name given to the specialist who makes such calculations). If "accrued liabilities" at any time exceed the plan's accrued assets (cash & in- vestments), the difference is "unfunded accrued liabilities". This is the common condition. If the plan's assets equalled the plan's "accrued liabilities", the plan would be termed "fully funded". This is a rare condition. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Each time a plan adds a new benefit which applies to service alreadv rendered, an "accrued liability" is created, which is also an "unfunded accrued liability" because the plan can't print instant cash to cover the accrued liability. Payment for such unfunded accrued liabilities is spread over a period of years, commonly in the 20-40 year range. Unfunded accrued liabilities can occur in another way: if actual financial exper- ience is less favorable than assumed financial experience, the difference is added to unfunded accrued liabilities. In plans where plan benefits are directly related to an employee's pay near time of retirement (a common plan provision) rather than his average pay throughout his working career, unfunded accrued liabilities have been increasing in recent years because unexpected rates of pay increase have created additional accrued liabilities which could not be matched by reasonable,invest-ment results. Some of these unexpected pay increases are the direct result of inflation. which is a very destructive force on financial stabilitv. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - The existence of unfunded accrued liabilities is not bad, then. (any more than a mortgage or. your house is "bad"), but the cnanzes from year to year in amount of unfu-..6e! accrued liabilities are important - - - "bad" or "good" or somewhere in between. Nor are unfunded accrued liabilities a bill payable immediately (your food costs are payable immediately), but it is i= ort_ant that polio,-makers prevent the amount from be- coming unreasonably high and it is til that %-cur Plan h--,.7e 7- sou ^- method ^a' pavments toward theta so that they are controlled. The existence of large amounts of unfunded accrued 1 «bili _as inc__ tes *_ a total ....- tributions in past years were less than level - - an al-most certain history if retired life liabilities are not fully funded now. -13 Ri_ _ j I. Richfield Police Relief Association C02v'TRIBUiION RATE %S TO PROVIDE BENEFITS Member portion & Employer portion Effective January 1, 1980 Contributions for Normal cost of annuities: Age & service: to member Age & service: to survivors Disability Death before retirement Total Normal. Cost Unfunded accrued liabilities (5% of liabilities) : Retired lives Active members Total Total ?znuities :member contributions less termination benefit Usable for annuities CO:-PUTED E UTLOYER RATE %: (a) If $ Paid Equally Throughout Year (b) IF $ PAID AT CALE.DAR YEAR END % of Active Payroll, If $ Paid Equally Throughout Year 16.31% 3.16 1.46 1.64 22.57 1.61 9.29 10.90 33.47 6.00 0.49 5.51 27.96 23.651. -14 Left- CONTRIBUTION $ FOR CALENDAR YEAR For any period of time, the percent-of-payroll contribution rate is converted to dollars. The amount of dollars for any calendar year depends upon the results of the last actuarial valuation, and upon the timing of contributions within the year. The later the contribution date, the more the dollar amount. The municipality's dollar contributions fora coming calendar year may be determined as follows: (1) Active member covered payroll projected for coming year (preferably the payroll budgeted for the year) $ (2) Employer contribution, rate % for year, assuming payment at year end: Rate (b) (3) Employer dollar contributions for year: (4) State contributions received during year (5) 1M7NICIPALITY CONTRIBUTIONS AT YEAR END: (1) times (2) (3) minus (4) % If Employer contribution dollars are paid equally throughout the year, Employer Rate (a) may be substituted in step (2) above. r-1 LJ Valuation Financial Assumptions & Funding Methods he rate of investment return (interest) used in making the valuation was 5.0 Percent per annum, compounded annually. The mortality table used was the United States Life Table, 1959-61, White Males and Females. Single Life Values: Present Value of $1 Monthly Level Increasing Sample For Life 3.5'/.' Yearlv Aees Men Women Men Women 45 $169.61 $186.84 $263.23 $304.86 50 154.85 174.20 229.51 270.80 55 139.29 159.62 197.24 236.11 60 122.79 142.73 166.26 200.76 65 106.31 124.22 137.82 166.16 70 89.86 104.31 111.71 132.82 75 73.39 83.92 87.66 101.94 80 57.54 64.24 66.29 74.77 Future Life Expectancy (Years) Men Women 27.33 32.52 23.22 28.08 19.45 23.81 16.01 19.69 12.97 15.88 10.29 12.38 7.92 _ 9.28 5.89 6.67 Age & service retirement was assumed to occur at age 58, or attained age if oldar. i. wl. L1 --6- I Sample Rates of Separation From Active Employment Before Retirement, Death or Disability Sample % of Active Members Ages Separating Within Next Year 20 3.00% 25 2.50 30 2.00 35, 1.50 40 1.00 45 0.50 5G+ 0.00 Sample Pay Adjustment Factors used to Project Current Pays Present Pay Sample Resulting in Ages Pay of $1,000 at Age 60 20 $ 253 25 300 30 356 35 423 40 503 45 597 50 709 55 842 60 1,000 Percent Increase in Pay Durir.?,, Nest Year 3.5% 3.5 305 3.5 3.5 3.5 3.5 3.5 3,5 Total covered payroll for active m=_mb ers is assumed to increase 3.5: annually. k An entry age-normal cost method of valuation was used in determining the normal cost R: ge & service benefits (including benefits for death after age & service retirement), and in determining accrued liabilities. The percent-of-payroll contribution rate for unfunded accrued liabilities ("UAL") i wa:3 determined by multiplying the UAL by 5%, and then dividing by the active member k . c€ vered annual payroll. K: These steps conform to State law. The contribution for UAL is equivalent to amortization by level (principal &, -t.cerest combined) percent-of-payroll contributions over a period of 25 future years, sisability & Death-before-retirement. Contributions for these casualty benefits 'Vere determined using a terminal funding method. Disability retirements were assumed to occur as indicated below (these assumptions A;LEfer from 12-31-76 assumptions): r` Sample % of Active Members Becoming R' Ades Disabled Within Next Year 20 0.08% 25 0.08 ''= 30 0.08 35 0.08. 40 0.20 f 45 0.26 50 0.49 { 55 0.89 40 ;.' QL=-L-I\--F_ ?SSoc,A,o?[ Table of Contents Pages Item 2 Signature page } 3 Summary of plan benefits 4-5 Financial principles and operational techniques 6 Financing diagram 7 The actuarial valuation process 8-9 Retired life data 10 Active member data 11-12 Reported accrued assets and computed accrued liabilities r ; 13-14 CONTRIBUTION RATES : PERCENTS & DOLLARS v 15-17 Financial Assumptions and Funding Methods r> -1- i Depart:-r--at Relief Association v ,,,:!,,field, X'-nnesota ;;,'_-.•.itted in this report are the results of an actuarial valuation of the Pension The date of the valuation was December 31, 1978. _s essential that the concepts contained in the financing diagram on page 6 be arstood. ;,overed Person data and financial a?ion were furnished by the Plan. Le January 1, 1979 active member pay rates were used in computing all liabilities. s 11-14 will vrobablY be of particular interest. inancial assumptions and the funding methods used in the actuarial valuation rized on pages 15-17. The assumptions are the same as used in the December 31, 1976 actuarial . V%cn• The economic assumptions, investment return and rates of pay increase, i ?tablished by State Law. ;'f `n__ -?_ studyy_ is required by State Law. Such a study shows, for a given of tii::e, how actual experiences have compared with previously established t`?`s• Upon completion of the study, recommendations will be made concerning »p t 1 qnS . ?1''!ented actuarial principles and practices were used in mathematically ':1- data, the assumptions, and the funding methods. rations data necessary for an actuarial Respectfully submitted, Gary W. Findlay Richard A. Roeder ?. 6. ea-a'??L' Richard G. Roeder -2- 1 Richfield Fire Department Relief Association Brief Su=ary (12-31-78) of Benefit Provisions Evaluated and/or Considered Aoe & Service Retirement Eligibility. 20 years of service and 50 years of age if hired before January 1, 1968. 20 years of service and 55 years of age if hired after December 31, 1967. Amount. 50% of base pay. Pay Used For Plan Purposes. "Base pay" means the salary of a first grade fire fighter. Disability Retirement Eligibility. Disabled to the extent that unable to perform the duties of a fire fighter before being eligible for age & service retirement. Amount. 50% of base pay. Member's Death While Active, Or In-Deferred Status, Or Retired Eligibility. Spouse. Legally married to member at least 3 years before separation from • service and residing with member at time of death. Benefits terminate upon remarriage. Child. Younger than age 18. Amount. Spouse. 40% of base pay. Child. 5% of base pay per child if mother is living. 15% of base pay per child if mother is deceased. Maximum Family Benefit. 50% of base pay. Funeral Expenses. $500 lump sum payment upon death of 3 retired or active member. Vested Deferred. 20 years of service and separated before reaching eligible retirement age. Payment beginning is deferred to attainment of age 50 or 55 depending on the date hired. i` -3- Post Retirement Adjustments ("Escalator"). Each time base pay is changed, benefit payments to all benefit recipients are simultaneously changed by the same percent that base pay is changed. Member Contributions. 6% of base pay. Total member contributions are.refundable, without interest, if no monthly benefit is payable upon separation from service. II I FINANCIAL PRINCIPLES AND OPERATIONAL TEMMQUES Promises Made, and Eventually Paid. As each year is completed, the plan in effect h* an "IOU" to each member then acquiring a year of service credit -- the "IOU" says: "The Pension Plan owes you one year's worth of retirement benefits, payments in cash, com- mencing when you qualify for retirement." The related key financial questions are: Which generation of taxpayers contributes the money to cover the IOU? The present tax payers, who receive the benefit of the member's present year of service? Or the future taxpayers, who happen to be in town paying taxes at the later time when the IOU becomes a cash demand? A traditional principle of sound retirement plan financing is that this year's taxpayers contribute the money to cover the IOUs being handed out this year. By following this rinciple, TFE CONTRIBUTION RATE WILL RZ'L4IN APPROXIMATELY LEVEL FROM GENERATION TO GENERATION -- our children and grandchildren will contribute the-same percents of active payroll we contribute now. There are systems which have a design for deferring contributions to future tax- payers, lured by a lower contribution rate now and putting aside the consequence that the contribution rate must then relentlessly grow much greater over decades of time -- consume now, and let your children face your financial pollution after you retire. The diagram on page 6 shows the relationship between the two fundamentally different. philosophies of paying for retirement benefits: The method where contributions match cash benefit payments (or,barely exceed cash benefit payments, as in the Federal Social Security program) and is thus an increasing contribution method; and the level contribu- f i tion method which equalizes contributions between the generations. -4 Left- 0C pn inevitable byproduct of the level-cost design is the accumulation of reserve • assets, for decades, and the income produced when the assets are invested. Invested assets are a bN-Droduct and not the objective. Investment income becomes in effect the rd contributor for benefits to employees, and is interlocked with the contribution lie amounts required from employees and employers. Translated into actuarial terminology, the level-cost objective means that the con- tribution rates must total at least the following: Normal Cost (the cost of members' service being rendered this year) ... plus . Interest on Unfunded Accrued Liabilities (unfunded accrued liabilities are the difference between '(i) liabilities for service already rendered and (ii) the accrued assets of the plan). Computing Contributions to Support Plan Benefits. From a given schedule of benefits and from the employee data and asset data furnished him, the actuary determines the contribu- tion rates to support the benefits by means of an actuarial valuation and a funding method. • In making an actuarial valuation, assumptions must be made regarding anticipated financial experiences for the nest year and for decades in the future. Only the sub- sequent actual experience of the plan can indicate the degree of accuracy of the assump- tions. Reconciling Differences Between Assumed Experience and Actual Experience. Once actual experience has occurred and been observed, it will not coincide exactly with assumed experience, regardless of the wisdom of the assumptions or the skill of the actuary and the millions of calculations he made. The future can be predicted with considerable but not 100% precision, except for inflation which seems to defy reliable prediction. A well managed plan copes with these continually changing differences by having periodic actuarial valuations. Each actuarial valuation is a complete recalculation of assu..ned future experience, taking into account all past differences between assumed and 1141 actual e..perience. The r::sult is ccntinuinc adjustments in ~inancial position. -5 ai ;ht- ?-' START 50+ YEA OF TIME i:l i:z, :.`.':. This relentlessly increasing line is the fundamental reality of retirement plan financing. It happens each time a new benefit is added (and happens regardless of the financing method being followed). LEVEL CONTIZ113UTION LINE. Determining the level contribution line requires detailed assump- tions concerning experience in future decades, including: Rate of withdrawal of active members (turnover): Rates of mortality; Rates of disability; Ages at actual retirement: Rates of pay increase: Investment income: • Change in active member group sire. • THE ACTUARIAL VALUATION PROCESS The actuarial valuation is the mathematical process by which the contribution rate is determined, and the flow of activity constituting the valuation may be summarized as follows: A. Covered people data, furnished by plan administrator including; Retired lives now receiving benefits Former employees with vested benefits not yet payable Active employees B. + Asset data (cash & investmentsfurnished by plan administrator C. + Assumptions of various future financial experiences D. + The funding method for employer contributions (the long-term, planned pattern for employer contributions) E. + Mathematically combining the assumptions, the funding r.ethod and the data F. = Determination of: Plan Financial Position and/or New Employer Contribution Rate • -7- i Richfield Fire Department Relief Association Retirants and Beneficiaries December 31, 1978 By Type of Annuity Being Paid Computed Monthly Accrued Type of Annuity Being Paid No. Amounts Li abilities Age & service annuity: Retirant receiving 12 $ 5,115.24 $1,059,916 Spouse receiving 1 38.33 2,676 Child receiving Total 13 5,153.57 1,062,592 Disability annuity: , Retirant receiving 9 5,941.46 1,731,014 Spouse receiving Child receiving _ Total 9 5,941.46 1,731,014 Death before retirement: Spouse receiving 1 212.50 35,520 Child receiving _ Total 1 212.50 35,520 Deferred Annuity: Totals 23 $11,307.53 $2,S29,126 • 40 9 Richfield Fire Department Relief Association Retirants and Beneficiaries December 31, 1978 By Attained Ages 3 1 7• 7 3 Attained Aaes 45-49 50-54 55-59 6 0- 64 65-69 75-79 80-84 Totals Number Death Age & Before Service Disability Retirement 2 4. 1 3 2 3 4 2 1 1 13 9 1 -o- Richfield Fire Department Relief Association Active Members December 311, 1978 Tabulated by Attained Age Groups and Years of Accrued Service f Number at Indicated Accrued Service to January 1 1979 Total Age Years o 0-4 5-9 10-14 15=19 20-24 25-29 30 Plus No. Groups ?- 1 20-24 1 1 25-29 1 3 30-34 3 2 1 4 35-39 1 3 40-44 l 2 1 4 45-49 3 3 3 50-54 1 1 55-59 .- - - - - 5 1 7 6 1 20 Totals • Average age: 41.4 years. Average accrued service: 11.9 years. Valuation Payroll: $378,580 ($18,929 each) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - There are no inactive members entitled to-a deferred annuity.- - - - - - The people data included in the valuation is shown in groups or summaries, for reading convenience. Financial calculations were made individually for each covered person. • -10- The accrued assets of the Plan were reported to be as follows at December, 31, 1978: • Cash $ 13,901.69 State Investment Accounts Other Fixed-Income Investments 1,664,221.09 Other Equity Investments 14,700.00 Total $1,692,822.78 COMPUTED ACCRUED LIABILITIES & UN7UNDED ACCRUED LIABILITIES ("UAL") One of the results of the actuarial valuation is computed accrued liabilities. Retired Lives Active TOTAL Amounts at 12-31-1978 & Inactives Members PLAN Computed accrued liabilities $2,829,126 $1,197,994 $4,027,120 Reported accrued assets 1,549,124 143,699 1,692,823 Unfunded Accrued Liabilities $1,280,002 $1,054,295 $2,334,297 5% of UAL (adjusted for equal instalments) $ 113,902 Assets divided by Liabilities 55% 12% 42% Assets Divided by Liability %s. If a plan has been following the disciplines of level contribution financing in past years, the Retired % will almost certainly be 100%. In addition, the Active % will be more than zero. The actual Active % can vary widely, depending upon the funding method and upon the number of years of level contributions (or absence thereof), and sti1J. be within a sound range. • -11 Left- uf!.. 2 M Alnc3t every pension plan (public or private) has "unfunded accrued liabilities", so v:atever-they are, they aren't rare. Since the term is not part of everyday conversa- t.cn, it needs some definition. "Accrued liabilities" are the present value $ of elan promises to pay benefits in +,-?e _uture based upon service already rendered - - - a liability has been established arcrued") because the service has been rendered, but the resulting monthly cash benefit y not be payable until years in the future. Accrued liabilities $ are the result of ep'_ex mathematical calculations, which are made by the plan's actuary (which is the name ve^ to the specialist who makes such calculations). f "accrued liabilities" at any time exceed the plan's accrued assets (cash & in- 3 t=ents), the difference is "unfunded accrued liabilities". This is the co" on edition. If the plan's assets equalled the plan's "accrued liabilities", the plan ,ld be termed "fully funded". This is a rare condition. ._: I - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - time a plan adds a new benefit which applies to service already rendered, an "accrued lity" is created, which is also an "unfunded accrued liability" because the plan can't instant cash to cover the accrued liability. Payment for such unfunded accrued lities is spread over a period of years, commonly in the 20-40 year range. Znfunded accrued liabilities can occur in another way; if actual financial exper- 'is less favorable than assumed financial experience, the difference is added to ed accrued liabilities. In plans where plan benefits are directly related town ee's pay near time of retirement (a common plan provision) rather than his average zoughout his working career, unfunded accrued liabilities have been increasing in years because unexpected rates of pay increase have created additional accrued ties which could not be matched by reasonable investment results. Some of these ted pay increases are the direct result of inflation, which is a very destructive financial stability. ?'?:ace of unfunded accrued liabili.tie.s is not bad, then (any more than a mortgage h%use is "bad"), but the changes from year to near in amount of unfunded accrued are important - - - "bad" or "good" or somewhere in between. "Ire unfunded accrued liabilities a bill payable immediately (your food costs are '-'1'-'1(-diately), but it is important that policy-makers prevent the amount from be- 4f'":asonably high and it is vital that vour plan have a sound method for maki^? Q27ard them so that they are controlled. of large amounts of unfunded accrued liabilities indicates that total con- 11.n past years were less than level - - - an almost certain history if retired ?f' > > ties are not fully funded now. -19- Right- ? Richfield Fire Department Relief Association CONTRIBUTION R_4TE -1.S TO PROVIDE BENEFITS Member portion & Employer portion Effective January 1, 1980 Contributions for Normal cost of annuities: Age & service: to member Age & service: to survivors Disability Death before retirement Total Normal Cost Unfunded accrued liabilities(UAL) (5% of UAL adjusted for equal instalments): Retired lives Active members Total Total Annuities Member contributions less termination benefit Usable for annuities COI-LPUTED EHPLOYER RATE %: (a) If Equal $ Instalments Throughout Year (b) IF $ PAID AT CALENDAR YEAR'EA7D -13 Le4Lt- % Active Payroll, If $ Paid Equally Throu--bout Year 14.38% 5.62 2.27 4.59 26.86 16.50 13.59 30.09 56.95; 6.00% 0.67 5.33% 51.62% 52.89% CONTRIBUTION $ FOR CALENDAR YEAR For any period of time, the percent-of-payroll contribution rate is converted to dollars. The amount of dollars for any calendar year depends upon the results of the last actuarial valuation, and upon the timing of contributions within the Year. The later the contribution date, the more the dollar amount. The municipality's dollar contributions for a coming calendar year may be determined (1) Active member covered payroll projected for coming year (preferably the payroll budgeted for the year) $ (2) Employer contribution rate % for year, assuming payment at year end: Rate (b) (3) Employer dollar contributions for year: (1) times (2) $ (4) State contributions received during year $ (5) MUNICIPALITY CONTRIBUTIONS AT YEAR END: (3) minus (4) $ If Employer contribution dollars are paid in equal instalments throughout the year, Pate (a) may be substituted in step (2) above. -14 Ri^ _- Valuation Financial Assumptions & Funding Methods The rate of investment return (interest) used in making the valuation was 5.0 percent per annum, compounded annually. The mortality table used was the United States Life Table, 1959-611 White Males and? Vhite Females. Single Life Values: Present Value of $1 Monthly Level Increasing Sample For Life 3.5% Yearly Ages Men Women ... Men Women 45 $169.61 $186.84 $263.23 $304.86 50 154.85 174.20 229.51 270.80 55 139.29 159.62 197.24 236.11 60 122.79 142.73 166.26 200.76 • 65 106.31 124.22 137.82 166.16 70 89.86 104.31 111.71 132.82 75 73.39 83.92 87.66 101.94 80 57.54 64.24 66.29 74.77 Future Life E%-pectancy (Years) .Men Women 27.33 32.52 23.22 28.08 19.45 23.81 16.01 19.69 12.97 15.88 10.29 12.38 7.92 9.28 5.89 6.67 & service retirement was assumed to occur at age 60, or attained age if older. 0 Sample Rates of Separation From Active Employment Before Retirement, Death or Disability Sample % of Active Mergers Ages Separating Within Ney.t Year 20 3.00% 25 2.50 30 2.00 35 1.50 40- 1.00 45 0.50 50+ 0.00 Sample Pay Adjustment Factors used to Project Current Pays Present Pay Sample Resulting in Ages Pay of $1,000 at Age 60 20 $ 253 25 300 30 356 35 423 40 503 45 '597 50 709 55 842 60 1,000 Percent Increase in Pay Durinz Neat Year 3.5% 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 I Total covered payroll for active members is assumed to increase 3.5" annually. -16- An entry age-normal cost method of valuation was used in deter2ining the normal cost 00ge & service benefits (including benefits for death after ace & service retirement), and in determining accrued liabilities. The percent-of-payroll contribution rate for unfunded accrued liabilities ("UAL") was determined by multiplying the UAL by 5%, and then dividing by the active member covered annual payroll. These steps conform to State law. The contribution for II4Z is equivalent to amortization by level (principal & interest combined), percent-bf-payroll contributions over a period of 25 future years. Disability & Death-before-retirement. Contributions for these casualty benefits were determined using a terminal funding method. Disability retirements were assumed to occur as indicated below (these assumptions ?rer from 12-31-76 assumptions): Sample % of Active Members Becoming Ages Disabled Within Next Year 20 0.08% 25 0.08 30 0.08 35 0.08 40 0.20 45 0.26 50 0.49 55 0.59 r? -1;-