Milwaukee Public Schools Retiree Healthcare and
Life Insurance Programs
GASB Statement No. 45 Actuarial Valuation as of July 1, 2015 December 15, 2016
Alex Rivera, F.S.A.
(ATTACHMENT 1) REPORT AND POSSIBLE ACTION ON THE ACTUARIAL VALUATION OF THE DISTRICT'S OBLIGATION FOR OTHER POST-EMPLOYMENT BENEFITS (OPEB) AS OF
JULY 1, 2015
Agenda – GASB 45 Valuation
Background
Medicare Advantage Design Impact
Definitions
Key Valuation Results
Projections
Next Steps and Challenges
Disclosures
Background
MPS provides retiree healthcare and life insurance benefits, which requires:
Recognizing an accrual liability on the District’s balance sheet
Disclosing unfunded actuarial liabilities off the District’s balance sheet
New OPEB accounting standards require
recognizing the unfunded liability on the District’s balance sheet:
GASB Statement No. 75, plan sponsor accounting, effective for the fiscal year end June 30, 2018
GASB Statement No. 74, plan accounting, effective for the
plan year end June 30, 2017
Background
Key changes made in 2011
Changed vendor which improved network discounts
Increased member’s co‐pays, deductibles, coinsurance percentage and out‐of‐pocket limits
Increased retirement eligibility to age 60 with 20 years of service
Eliminated District paid implicit subsidy and reduced District paid explicit subsidy
• Implicit subsidy is difference between average cost of retiree only pool and active only pool
• The explicit subsidy only reduces at Medicare eligibility for members retiring on or after July 1, 2013
• The implicit subsidy was only eliminated for self pay retirees. All other retirees pay the blended rates.
The plan was closed to new hires and rehires as of July 1, 2013
Certain retirees were grandfathered
Key changes in 2014 include adoption of a Medicare
Advantage program, effective in January of 2015
Medicare Advantage Design Impact
Medicare Advantage
The district adopted Medicare Advantage (MA) programs effective in 2015
The MA programs replaced the EPO and PPO programs for Medicare eligible retirees
The MA programs are financed on a fully insured basis
Based on 2015 data, the MA average costs were about 35% lower than the EPO and PPO average costs for Medicare eligible members
GASB Statement No. 45 Estimated Savings
Based on the July 1, 2013 valuation, MA design was estimated to reduce the actuarial accrued liability by approximately 18% or $250 million
Favorable experience resulted in MA premiums increasing at a rate lower than expected in our previous valuation (about 8% gain on premium increase)
Because of the uncertainty of the MA programs, especially with respect to the federal prescription drug subsidies, our valuation assumes the MA savings will wear‐away over an 8 to 10 year period.
Unfunded Actuarial Liability
Balance Sheet Liability
Actuarial liability is the value of retiree healthcare and life
insurance benefits that the District owes to current and future retirees for benefit service earned to date.
The difference between the actuarial liability and assets, if any, is disclosed off the balance sheet.
The balance sheet liability is the cumulative difference between the actuarially
determined cost applicable to the fiscal year (Annual OPEB Cost or Expense) and the actual pay‐as‐you‐go contributions.
The Annual OPEB Cost
represents the annual amount needed to finance: the existing unfunded actuarial liability over a fixed period, such as 30 years, plus the value of benefits earned during the year.
There are two ways to evaluate the District’s TOTAL retiree benefit obligation:
Definitions
Key Valuation Results
Valuation Date July 1, 2015
Before Medicare Advantage Program
After Medicare Advantage Program
Actuarial Liability $1,403.0 $1,153.0 $997.5
Normal Cost for FY $8.1 $6.2 $4.5
GASB No. 45 FY Expense $93.5 $76.2 $62.3
(% of Payroll) 21.7% 17.7% 16.5%
FY Employer Contribution $67.3 $57.1 $53.1
(% of Payroll) 15.6% 13.2% 14.1%
Payroll $431.2 $431.2 $376.4
Number of Active Members 8,600 8,600 7,184
Number of Retirees and Surviving Spouses 7,222 7,222 6,978
Discount Rate 4.55% 4.55% 4.55%
Ultimate Trend 4.50% 4.50% 4.50%
Retiree Healthcare and Life Insurance Programs GASB 45 Valuation Results
$ in Millions
July 1, 2013
Key Valuation Results
($ in Millions)
Actuarial Liability as of July 1, 2013 $ 1,153.0 Expected Liability as of July 1, 2015 $ 1,154.0 Increase/(Decrease) Due To:
Healthcare Experience and Assumption Changesa $ (159.5) Changes in Demographic Assumptions $ -
Demographic Experience $ 3.0
Actuarial Liability as of July 1, 2015 $ 997.5
Actuarial Liability Gain/Loss
aFavorable experience including actual claims and premiums lower than projected in our previous valuation
Key Valuation Results
$ in Millions
Fiscal Year End June 30, 2014 June 30, 2015 June 30, 2016
Balance Sheet Liability (boy) $ 539.2 $ 530.6 $ 507.0 Annual OPEB Costs 93.5 75.3 62.3 Employer Contribution (98.9)(102.1) (53.1) Balance Sheet Liability (eoy) $ 530.6 $ 507.0 $ 516.2
Balance Sheet Liability
Projections
Observations
Actuarial liabilities projected to increase from $997.5 million in 2015 to
$1,324.9 million in 2024
Expense projected to increase from $62.4 million in FYE 2016 to $82.8 million in FYE 2025
Expected Employer contributions, with 20% margin, projected to increase from $60.6 million in FYE 2016 to $75.0 million in FYE 2025
Actual Employer contributions (including prefunding amount) for FYE 2016 were $53.1 million
Balance sheet liability projected to increase from $516.2 million at FYE 2016 to $566.2 million at FYE 2025
Projected liabilities and costs have decreased when compared to the last valuation at July 1, 2013
Balance sheet liability under new accounting rules will be based on the unfunded actuarial liability using a blended discount rate,
which could be lower, to determine actuarial liabilities
Projections
997.5
1071.2
1324.9
0 200 400 600 800 1000 1200 1400
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
($ in Millions)
Valuation Year
Milwaukee Public Schools
Projected GASB Statement No. 45 Actuarial Liability as of 7/1/2015 at 4.55%
Projections
62.4
67.5
82.8
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
($ in Millions)
Valuation Year
Milwaukee Public Schools
Projected GASB Statement No. 45 Annual OPEB Cost as of FYE 6/30/16
Projections
53.1
64.6
75.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
($ in Millions)
Valuation Year
Milwaukee Public Schools
Projected GASB Statement No. 45 Expected Employer Contributions as of FYE 6/30/2016
Projections
516.2 524.1
566.2
0 100 200 300 400 500 600
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
($ in Millions)
Valuation Year
Milwaukee Public Schools
Projected GASB Statement No. 45 Balance Sheet Liability as of 7/1/2015 at 4.55%
Next Steps and Challenges
Despite the plan design changes made, we recommend monitoring and evaluating the future growth in the OPEB actuarial liability and balance sheet liability
Challenges and cost drivers faced by MPS may include:
The rate of medical inflation – greater than the consumer price index
Longevity – retirees living longer
Utilization – members using more healthcare services
Growth of retiree population – the ratio of actives to retirees is approaching 1:1
Medicare – potential for increased cost shifting to the MPS retiree health plan
New accounting standards including how to support the
blended discount rate
Disclosures
Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this presentation concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax‐related penalties under the Internal Revenue Code or (ii) marketing or
recommending to another party any tax‐related matter addressed within.
Each taxpayer should seek advice based on the individual’s circumstances from an independent tax advisor.
This presentation shall not be construed to provide tax advice, legal advice or investment advice.
The actuaries submitting this presentation (Alex Rivera and Lance Weiss) are Members of the American Academy of Actuaries and meet the
Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein.
The primary purpose of the actuarial valuation is to measure the financial position of Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs.
Disclosures
The valuation results summarized in this report involve actuarial
calculations that require assumptions about future events. The major actuarial assumptions used in this analysis were provided by and are the responsibility of Milwaukee Public Schools. We are unable to judge the reasonableness of some of these assumptions without performing a
substantial amount of additional work beyond the scope of the assignment.
Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following:
plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law.
This is one of multiple documents comprising the actuarial report for the MPS actuarial valuation. Additional information regarding actuarial assumptions and methods, and important additional disclosures are provided in the full actuarial valuation report as of July 1, 2015.
If you need additional information to make an informed decision about the contents of this presentation, or if anything appears to be missing or
