Actuarial Methods and Assumptions

The required contribution was determined as part of the July 1, 2012 actuarial valuation using the frozen initial liability, also known as frozen entry age, actuarial cost method. Significant actuarial assumptions used in the valuation include (a) rate of return on investment of present and future assets of 7.50 percent a year compounded annually, (b) projected salary increases of 4.00 percent annual rate, and (c) projected inflation of 2.50 percent annually applicable to both items (a) and (b). The actuarial value of assets was determined using techniques that smooth the effect of short-term volatility in the market value of total investments over a five-year period. The Town’s initial unfunded actuarial accrued liability is being amortized over 25 years (as of July 1, 2013) as a level dollar amount on a closed basis.

Note (12) - DEFERRED COMPENSATION PLAN

The Town offers its employees a deferred compensation plan created in accordance with the Internal Revenue Code Section 457. The plan is available to all Town employees and permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. These assets are required to be placed in trust, thus eliminating the requirement that assets be reflected in the statement of net position of the Town. The Plan and related contribution requirements are established and may be amended by the Town’s Board of Mayor and Aldermen.

72 Note (13) - ACCRUED LIABILITIES

Accrued liabilities reported in the statement of net position consist of the following:

Business- Total outstanding balance of capital debt (28,770,614) Portion of debt related to unspent bond proceeds 2,366,798

Total governmental activities $ 158,108,082 Business-type activities:

Capital assets, net of accumulated depreciation $ 93,854,716 Total outstanding balance of capital debt (29,515,686)

Total business-type activities $ 64,339,030

Note (15) - COMMITMENTS AND CONTINGENCIES

The Town is a defendant in various lawsuits arising in the ordinary course of operations from those seeking awards for property damage and personal injury, contesting its taxing authority, and questioning certain personnel practices and policies. Although the outcome of these lawsuits is not presently determinable, it is the opinion of the Town’s administration that the ultimate settlement of these matters should be covered by liability insurance and should not materially affect the financial condition of the Town.

The Town is potentially liable for Environmental Protection Agency (“EPA”) clean up on land sold in a prior year to a corporation operating a manufacturing plant on such property. The corporation has been responsible for all cleanup costs and continues to maintain compliance with the EPA.

At June 30, 2013, the Town was obligated under uncompleted contracts for approximately

$133,000, $1,189,000, and $2,214,000 in the General Fund, Water and Sewer Fund, and Capital Project Funds, respectively. Included in the above uncompleted contracts for the General Fund is approximately $105,000 related to draining improvements; included in the uncompleted contracts for the Capital Projects Funds is approximately $863,000 related to contracts for software and data

various conditions on future annexations. As a condition of the agreement, the Town agreed that it will share with Memphis for a period of twenty years beginning June 26, 2000, fifty percent of wholesale beer and local sales tax revenue derived from businesses and transactions located on and within the area described as Gallina. For the year ended June 30, 2013, such amount totaled

$398,919.

Note (16) - RISK MANAGEMENT

The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Town considers it to be more economically feasible to participate in a public entity risk pool as opposed to purchasing commercial insurance for certain general liability, worker’s compensation and property and casualty insurance. As such, the Town participates in the Tennessee Municipal League Risk Management Pool (“TML”), which is a public entity risk pool consisting of member political subdivisions of the State of Tennessee. The Town pays an annual premium to the TML pool for its certain general liability, worker’s compensation and property and casualty insurance. Each political subdivision that has participated in the TML pool is subject to assessment if the funds it paid as premiums are insufficient to meet the obligations of the TML pool. The TML pool may reinsure through the Local Government Reinsurance Fund of Tennessee or a commercial insurance company.

The Town continues to carry commercial insurance for all other risks of loss, including certain general liability, and property and casualty insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past four fiscal years.

The government maintains a limited risk management program for group health insurance.

Premiums are paid into the health insurance fund by all other funds and are available to pay claims, claim reserves and administrative costs of the program. These interfund premiums are used to reduce the amount of claims expenditure reported in the health insurance fund. There have been no reductions in insurance coverage or settlements which exceeded insurance coverage for any previous year.

Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (“IBNRs”). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors.

74

Changes in the balances of claims liabilities during the past two years are as follows:

Year Ended Year Ended

Amounts reported represent health claims incurred prior to year end that are expected to be paid by the Town in the next fiscal year. As such, these claims are considered to be current liabilities.

Note (17) - POSTEMPLOYMENT BENEFITS

In addition to the pension benefits described in Notes (11) and (12), Town resolution allows the Town to make available health care benefits to certain employees and elected officials. In fiscal 2007, the Town amended the plan from a “pay-as-you-go” plan, whereby the Town would establish a trust to deposit funds necessary to cover current and future retiree benefits. Beginning with the year ended June 30, 2009, the Town accounts for these benefits using the provisions of GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

1. Plan Description

During fiscal 2007, the Town passed a resolution to establish the Town of Collierville Postemployment Benefit Plan (the “OPEB plan”) to be administered by the Town. The OPEB plan is a single-employer, defined benefit healthcare plan. Certain employees and elected officials who have at least ten years of continuous and creditable service and who have attained the age of sixty; or who have completed thirty years of continuous and creditable service are eligible to participate in the OPEB plan.

GASB No. 45 requires a biennial valuation at minimum for the Town’s plan. Actuarial liabilities were rolled forward from the June 30, 2012 actuarial valuation. As of June 30, 2012, the OPEB plan’s membership consisted of:

Basis of Accounting. The OPEB plan’s financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period that the contributions are due.

Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the OPEB plan. The OPEB plan does not issue a separate, audited financial statement.

The contribution requirements of OPEB plan members and the Town are established and may be amended by the Board of Mayor and Aldermen. The Town has adopted a contributory OPEB plan for its employees requiring employee contributions to be made in accordance with the employee’s age and employment status. The Town is required to contribute the remaining amounts to meet the minimum funding requirement, which is calculated at an actuarially determined rate; the rate for the fiscal year ending June 30, 2012, was 6.92 percent of annual covered payroll.