GASB 45 Audit Proposals_Gallagher Benefit ServicesTHE CITY OF Dubuque
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Masterpiece on the Mississippi
2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: GASB-45 Audit Proposals
DATE: June 10, 2008
Personnel Manager Randy Peck recommends City Council approval to have Gallagher
Benefit Services, Inc. perform aGASB-45 audit for the City of Dubuque.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
1 ; ~/~
Mich el C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Randy Peck, Personnel Manager
THE CITY OF Dubuque
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Masterpiece on the Mississippi.
;~
2007
TO: Michael C. Van Milligen, City Manager
FROM: Randy Peck, Personnel Manager
SUBJECT: GASB-45 Audit Proposals
DATE: June 3, 2008
The Government Accounting Standards Board (GASB) has issued standards relating to the
implementation of financial reporting requirements for state and local governments who
maintain Other Post Employment Benefits (OPEB). OPEB refers to post employment benefits
other than pensions and includes medical, prescription drugs, vision, hearing, death and long
term care benefits that are provided following active employee service. To satisfy the federal
reporting requirement, financial statements will be required to report the cost of benefits, identify
demands on future cash flows and measure actuarial liabilities for the post employment
benefits.
State Law requires that health insurance coverage be extended to eligible early retirees at the
same cost as active employees. Under GASB-45, this creates an "implicit" subsidy that must be
reported on financial statements. In order to determine our liability, aGASB-45 actuarial
evaluation is required even though our health plan does not provide any direct (explicit)
subsidies for early retirees.
I contacted five firms for the purpose of obtaining quotes to perForm the actuarial evaluation.
The following firms were contacted:
Silver Stone Group -Omaha, Nebraska
AON Consulting -Chicago, Illinois
Ernst and Young, Minneapolis, Minnesota
Insurance Strategies Consulting -West Des Moines, Iowa
Gallagher Benefit Services, Inc. -Greenwood Village, Colorado
Regions Morgan Keegan Trust -Waterloo, Iowa
I received quotes from AON Consulting and Gallagher Benefit Services, Inc. AON Consulting
provided a quote of $14,200 and Gallagher Benefit Services provided a quote of $8,500.
$11,500 has been budgeted in Fiscal Year 2008 for this purpose. Gallagher Benefit Services
has been our benefit and actuarial consultant for many years. In addition, they have been
retained by the following Iowa Public Employers to do their GASB-45 evaluation:
City of Council Bluffs
City of Waterloo
Cedar Falls Utilities
Linn County
Polk County
South East Polk Schools
Iowa City Schools
West Des Moines Schools
Sioux City Schools
Johnson County Schools
Urbandale Schools
Gallagher Benefit Services is familiar with our medical plan and has provided us with a high
quality service. The Health Care Committee recommends that Gallagher Benefit Services, Inc.
be selected to perform the GASB-45 audit.
The requested action is for the City Council to approve a motion authorizing you to sign the
attached Proposal Letter prepared by Gallagher Benefit Services, Inc. to perform a GAS6-45
audit for the City of Dubuque. City Attorney Barry Lindahl has reviewed the Proposal Letter and
finds the terms acceptable.
RP:tlb
cc: Health Care Committee
Jenny Larson, Budget Director
Ken TeKippe, Finance Director
Page 1 of 1
Randy Peck -GASB 45
From: <Bill_Robinson@ajg.com>
'i'o: <citypers@cityofdubuque.org>
Date: 9/19/2007 10:49 AM
Subject: GASB 45
CC: <Barb_Batt@ajg.com>
Randy,
To confirm our telephone conversation, GBS would be pleased to submit our proposal to conduct the City's GASB
45 actuarial valuation. For our Iowa clients that only have an "implicit" subsidy (no direct City subsidy), our fee is
$8500 for the standard valuation. This is the same fee that fee just quoted for the City of Cedar Falls and it is
guaranteed for two years. We'd be pleased to submit a formal proposal upon request.
To date, we have been retained by the following Iowa public employers to do their GASB 45 valuation:
• City of Council Bluffs
• City of Waterloo
• Cedar Falls Utilities
• Linn County
• Polk County
• SE Polk Schools
• Iowa City Schools
• West Des Moines Schools
• Sioux City Schools
• Johnston Schools
• Urbandale Schools
Please let me know if I can provide any additional information on this subject or if you would like us to submit a
formal proposal.
Regards,
Bill
William F. Robinson,Jr. RHU, FLMI
Area Vice President
Public Entity and Scholastic Practice
Gallagher Benefit Services, Inc.
6399 South Fiddler's Green Circle
Suite 200
Greenwood Village, CO 801 1 1-4949
Phone: 303-889-2724, Toll Free: 800-628-5691, Fax: 303-220-7010
MailTo:bill_robinson@ajg.com http://www.gallagherbenefits.com/denver
This e-mail and any files transmitted with it are intended only for the person or entity to which it is addressed and
may contain confidential and/or privileged that is protected by law. Any retransmission or use of the information
may be a violation of that law. If you received this is error, please contact the sender and delete the material from
any computer.
file://C:\Documents and Settings\tblus\Local Settings\Temp\XPgrpwise\46FOFEDIDB~... 9/19/2007
~~ Gallagher Benefit Services, Inc.
A Subsidiary of Arthur J. Gallagher s~: Co.
May 8, 2008
Mr. Randy Peck
Personnel Manager
City of Dubuque
50 West 13th Street
Dubuque, Iowa 52001-4864
Re: GASB 45 Actuarial Services
Dear Randy:
Gallagher Benefit Services, Inc. (GBS) is pleased to present the following proposal for
GASB 45 OPEB actuarial services for the City of Dubuque.
Background
This proposal is to provide actuarial services to the City of Dubuque ("City") in order to
comply with the Governmental Accounting Standards Board ("GASB") Statement No. 45
that establishes standards for the measurement, display and recognition of Other Post
Employment Benefit ("OPEB") expenses and liabilities.
Scope of Services
The City is seeking actuarial services to assist in complying with GASB 45. At a
minimum, the actuarial valuation report should include the following:
• Cost of benefits.
• Recognize OPEB expense on the accrual basis of accounting for implicit and
explicit (as applicable) retiree subsidies.
• Project future benefit payments.
• Determine the present value of projected benefit payments.
• Provide the actuarial accrued liability for OPEB associated with past service
costs.
• Use an acceptable actuarial cost allocation method to assign costs to specific
accounting periods.
6399 South Fiddler's Green Circle
Suite 200
Greenwood Village, Colorado 80111-49x9
303.220.7575
fax 303.220.7010
Mr. Randy Peck
May 8, 2008
Page 2
~;--~.
• Provide information useful in assessing potential demands on the City's cash
flow.
Work Plan
The City would like a valuation of their non-pension post-employment benefits
performed to comply with GASB 45. Below, we have documented the steps that we feel
are necessary to complete this task:
Initial fact finding & objective setting discussion with the City -The intent of this
step is to fully understand the City's retiree benefits program.
2. Data gathering by the City -Based on the results of Step 1, we will provide a
customized data request to the City that accounts for all data that is necessary
for completion of the GASB 45 valuation.
3. Analysis of data and finalization of assumptions -Based on the information
provided we will develop all assumptions for the valuation. The assumptions will
be those that are both recommended and consistent with those used for GASB 45
by both the Governmental Accounting Standards Board and the American
Academy of Actuaries. As much as is possible, the assumptions will reflect the
actual City's experience. The assumptions will be supplemented with those
developed from our database.
4. Completion of actuarial projections -GBS will then use the City's data and
assumptions to develop age specific initial per capita costs on an actuarial basis
for medical (early and Medicare retirees, as applicable) prescription (early and
Medicare retirees, as applicable) and other benefit types necessary for projecting
long-term costs. We will then develop long-term benefit projections, liabilities and
costs in accordance with GASB requirements. The calculations will be developed
using a proprietary software model. The calculations will be compiled and
summarized in a format that provides all of the disclosures required by GASB 45.
5. Development of actuarial report draft - A draft report will be developed that
documents all of the GASB 45 disclosures and the assumptions that were used
to develop these values. The report will provide projections for all desired
employee classifications.
6. Presentation of draft report to the City -GBS will review the results of the
actuarial study with the City by conference. call. As an optional service, we can
present the report personally to the City.
S:Wcus-a-I\Dubuque -City of\2008\Other\DBQ GASB 5.08.doc
Mr. Randy Peck
May 8, 2008
Page 3
Ly~1
V
7. Finalization of report, based on the City's feedback.
8. Follow-up consulting services- Provide additional actuarial and benefit consulting
services as needed.
Proposed Timetable for GASB 45 Actuarial Services
In the table below, we have provided an expected timeline assuming the contract is
awarded June 2, 2008, with a target draft report delivery date of October 1, 2008. We
show each step, the party responsible and the target date.
Ste
Descri tion Responsible
Part
Tar et Date
1 Contract Awarded Ci 6/2/08
2 Initial fact finding 8~ objective setting
discussion with the Ci
Joint
6/13/08
3 Data gathering by the City and its
Vendors
Ci
7/25/08
4 Analysis of data and finalization of
assum tions
GBS
8/25/08
5 Com letion of initial actuarial ro'ections GBS 9/30/08
6 Presentation of initial summary draft
actuarial re ort
GBS
10/1/08
7 Presentation of final re ort GBS TBD*
8 Anal sis of alternatives Joint TBD*
*To be determined
Proposed Fees
The fee for the initial valuation will not exceed $8,500. This fee includes performing a
standard GASB 45 valuation, a conference call meeting with the City before the work
begins and a conference call meeting to review the draft report. Should the City prefer
an onsite meeting to present the final report, our fee would increase by $1,500 plus
travel expenses. However, if Bill Robinson, project manager, can coordinate the report
presentation with our normal October semiannual meeting, there would be no charge.
Should the City wish to explore additional assumption scenarios (changes in enrollment,
retirement provisions, benefit designs, trends, etc.), we can model additional scenarios
for $750 per scenario. GASB only requires that the City conduct an actuarial valuation
S:Wcus-a-llDubuque -City of~2008\Other\DBGI GASB 5.08.doc
Mr. Randy Peck
May 8, 2008
Page 4
every two years. However, should the City's auditor require an off-year update of
actuarial assumptions, our fee is $3,500.
The above fees are guaranteed not to increase for the first two years of our contract
with the City.
Other Considerations
After the completion of the GASB 45 project, GBS is available to assist the City to assist
with consulting strategies to Power its OPEB liabilities.
If you have any questions or need any further information, please let us know.
Sincerely,
William F. Robinson, Jr.
Area Vice President
Proposal accented on behalf of The City of Dubuque:
Michael C. Van Milligen
Date 6/22/08
City Manager
March 4, 2008
Randy Peck
The City of Dubuque
50 W. 13Th Street
Dubuque, IA 52001
Re: Proposal for Actuarial Valuation Services: Other Post Employment Benefits
Dear Randy:
On behalf of Aon Consulting, I am pleased to submit to the City of Dubuque this proposal to
provide actuarial services related to the valuation of Other Post Employment Benefits (OPEB) in
accordance with Government Accounting Standard Board Statement Number 45 (GASB 4S).
Aon Consulting is well qualified to be the City of Dubuque's (City) actuaries and consultants for
OPEB valuations and any other Health & Benefit services. Consulting for government entities is
one of Aon's areas of expertise. We are known for our expertise as actuaries, the quality of our
consulting, and the high level of service we provide. We offer an experienced team of actuaries and
benefit consultants to work with the City. Our team has been involved in analysis of GASB 45
since before the Statement was issued in 2004, and our team is on top of the latest breaking
developments in this area.
The Aon team assigned to the City has extensive regional public sector consulting experience,
particularly with municipalities and other local agencies and institutions. While Aon is a large
national firm, we also assure each client personal attention. We take the knowledge and experience
that we have gained from our nationwide client base and provide it to you, so that the City will
benefit from that experience as well.
Aon's regional actuarial practice in Chicago has several certified actuaries who provide actuarial
consulting services to a wide range of employers. Avery significant portion of our consulting is to
public sector clients like the City. Due to the nature of retiree medical projects, Aon includes
retirement actuaries, health and benefit actuaries, and health and benefits consultants on each
engagement in order to address specific benefit issues as they arise.
Thank you for your consideration of our proposal. I look forward to being able to present more
information to you. Please contact me with any questions.
Sincerely,
t
Gary J. Dusil, LiJTCF, CFC, PHAM
Assistant Vice President
Ion Consulting
Table of Contents
General Requirements
Technical Requirements
Cost Proposal
Conclusion- Final Thoughts
Appendix
Aon Consulting's 2007 GASB OPEB Survey
Sample GASB OPEB Data Request
Sample GASB OPEB Valuation Report
4
10
16
18
Aon Consulting
1. General Requirements
1.1 Introduction
Name, address of the office which would provide the services requested, telephone
number, fax, a-mail address, and website, if applicable.
Aon Corporation is headquartered in Chicago, Illinois.
Aon Corporation
200 E. Randolph Street
Chicago, IL 60601
(312) 381- 4947
michael_berman@aon.com
General description of the firm's business, including size, number of employees,
number of credentialed actuaries, other business or services offered.
Aon's financial statements can be viewed at the following link:
http://media.corporate-ir.net/media_fi les/irol/ 10/ 105697/proxy_041107.pdf
Aon is committed to hiring, investing, and retaining the nation's most talented health and
benefits experts.
Aon Consulting's national actuarial staff includes actuaries credentialed as Fellows and
Associates in the Society of Actuaries (FSA and ASA), Fellows and Associates in the
Casualty Actuarial Society (FCAS and ACAS), members of the American Academy of
Actuaries (MAAA), and Fellows in the Conference of Consulting Actuaries (FCA).
We can call upon 4,100 US employees of Aon Consulting. We have approximately 325
credentialed actuaries of which 25 specialize in health care actuarial services. Regionally
we have regional actuarial units in Chicago and Denver that have ten credentialed health
actuaries.
Aon Consulting
asst ned to the engagement and any other
Identification of tee sep onnel who will have key roles in the work.
actuaries and oth p
usil LUTCF, CFC, PHAM will serve as the client relationship manager
Gary D ~ for this
1 Berman, FSA, MAAA will be the primary consultant and lead actuary
1Vhchae
assignment.
Min Ah Kim will Provide analytical /technical suppon•
governme _
an of the other large, international actuarial ubliclsecgor~ mployers with ly
Unlike m Y to ers. Aon supports P
committed to public sector emp Y endix l is a copy of recent national survey
dedicated research and survey practices. App
conducted on public sector employee benefits trends.
ve lop standing relationships with, and are theC t of Fargo (ND), Dallas Area
We ha g The y
actuarial consult dtgoulder County (CO) (CO),
Rapid Transit, an
'anal] , Aon is also performing regular health actuarial services for the following
Nati Y
public sector clients:
~ .2 Firm Experience
ri tion of experience in providing actuarial and consulting services to
IJesc p
ntal entities.
State of Hawaii
State of Maryland
Commonwealth of Massachusetts
State of Nevada
Stale of New Jersey
State of North Carolina
Slate of Oklahoma
State of Oregon
Commonwealth of Virginia
State of Tennessee
State of West Virginia
State of Nebraska
Central Contra Costa County Sanitary District
County of Eugene, Oregon
County of Fort Worth, Texas
County of Houston, Texas
County of Huntington Beach, California
County of Irvine, California
County of Riverside
County of Snohomish
County of Ventura
Apple Valley Unified School District
Lucia Mar Unified School District
Downey Unified School District
Fullerton School District
Hayward Unified School District
Irvine Unified School District
La Canada Unified School District
Dixie State College
Rio School District
North Orange County Community College
Salt Lake Community College
San Diego County Regional Airport
Penn State University
Philadelphia Gas Works, Pennsylvania
Santa Barbara School District
5
Aon Consulting
1
County of Nashville, Tennessee
County of Portland, Oregon
County of Scottsdale, Arizona
County of Seattle, Washington
County of Temecula, California
County of West Hollywood, California
Clark County Public Utility District, Oregon
College of Eastern Utah
Snow College
Southern Utah University
University of Utah
Utah State University
Utah Valley State University
Ventura County Schools
Weber State University
County of los Angeles
Aon Consulting is on top of the latest developments in public sector activity. Our recent
report and survey on how public entities are dealing with GASB OPEB standards is
attached as Appendix 1.
References
Following are three governmentlcommercial entities to which the Chicago Aon office has
provided GASB 45 OPEB or health consulting actuarial services similar to those
requested by the City. .
6
Aon Consulting
1.3 Staff Qualifications
Brief resumes for the key professional staff who will be assigned to this engagement
to include the professional qualifications and experience of the supervising and
support actuaries and other personnel who would perform the requested work.
Gary Dusil, LUTCF, CFC, PHAM
Relationship Manager
Assistant Vice President
(319) 365-0201
Gar_y~1_Dusil@aon.com
Professional Background
Gary Dusil is an Assistant Vice President in Aon's Health &Welfaze and is located in
Cedar Rapids, Iowa. His primary function includes Account Manager with a specialty of
Health &Welfaze.
1 Mr. Dusil has over 21 years of experience in assisting clients in the azea of employee
benefits. Since joining Aon in 2000 from another professional services firm, he has
' worked with several lazge Midwest employers such as manufacturing, insurance
companies, health care organizations, trucking industry and non-profits. His most recent
assignments include assisting clients with plan design modeling including short and long
' term strategies to achieve cost savings. In addition, he has experience working with
integrated disability, benchmazking surveys, voluntary employee benefits and employee
wellness communications projects.
' Gary and Aon Consulting are associate members of the Dubuque Area Labor
Management Council. Gary is currently president of the local chapter of the National
' Association of Health Underwriters, is past president of the local National Association of
Insurance and Financial Advisors, served as past chair for the Cedar Rapids Chamber
Leadership Health Care Committee, served on the Cedaz Rapids Chamber Leadership
' Business and Economy committee, and is an active member of the Cedar Rapids
Chamber of Commerce. Gary has served on Aon's Central Regional State and Local
Government Council.
' G holds a resident life, accident and health insurance license for the
~'
State of Iowa. He also holds non-resident life and health insurance licenses in Illinois,
' Wisconsin, Nebraska, Kansas, North Dakota, South Dakota, Missouri and Minnesota.
Gary serves as Account Manager for clients ranging in employee size from 3 -5,000
' employees. Gary's main function as Account Manger is to lead strategic planning
Aon Consulting
process, monitor market conditions, coordinate Aon resources, and prepare and deliver
stewardship reports annually.
Educational and Professional Affiliations
Mr. Dusil attended Kirkwood Community College and Indian Hills Community College.
He also has earned: LUTCF -Life Underwriters Training Council Fellow; CHC -Certified
Health Consultant; PAHM -Professional Academy for Healthcare Management
designations.
Michael J. Berman, FSA, MAAA
Health Valuation Actuary
Assistant Vice President
(312) 381-4947
Michael Berman@aon.co
Professional Background
Michael joined Aon Consulting's Health and Benefits practice in March 2006. Michael
consults primarily with large employer groups in both the private and public sector. He
has 12 years of broad experience as an actuary practicing within the health and disability
benefits field. Prior to joining Aon Consulting, Michael was employed by CIGNA
Corporation, Coventry Healthcare, and Hewitt Associates. His specific areas of expertise
include active and retiree group medical consulting, pharmacy modeling, and long-term
disability reserving.
Recent GASB Experience: Michael is currently working on the GASB valuations for the
City of Fargo. He also has GASB 45 experience with Dallas Area Rapid Transit.
Educational and Professional Affiliations
Michael is a Fellow of the Society of Actuaries and a Member of the American Academy
of Actuaries. In addition, he holds a Bachelors degree in accounting from the University
of Massachusetts and a Masters degree in actuarial science from Georgia State
University.
Aon Consulting
i
Min Ah Kim
Actuarial Analyst
(312) 381-4941
Minah Kim@aon
Professional Background
Min Ah Kim is an Actuarial Analyst in the health and benefits practice at Aon
Consulting. Min Ah joined the firm in 2007 after graduation from the University of
` Waterloo. In her time at Aon, she has gained experience in employee benefits consulting
through consulting with large employer groups in the public and private sector. Min Ah
has experience in various areas including healthcare cost projection, IBNR reserve
analysis and postretirement medical obligation valuations including GASB 45 and FASB
158.
Educational and Professional Affiliations
f Min Ah attended the University of Waterloo where she completed a double major with
honors in actuarial science and statistics as part of her Bachelor s Degree in Mathematics.
Min Ah has successfully completed four Society of Actuaries exams and attended
' training courses on a wide variety of health consulting topics.
9
Aon Consulting
2. Technical Requirements
2.1 Overall approach of the valuation, including objectives, scope of work to be
performed, and methodologies to be used.
Aon would use the following phased approach and timeline to meet the City's
requirements:
Phase I -Planning (Week 1)
At the beginning of the project, Aon and the City will have a meeting to:
• Discuss the high-level project plan for the entire project (as contained in this
document)
• Introduce key team members
• Clarify plan provisions, including eligibility requirements, benefit options and
retiree contribution levels
• Discuss and select the actuarial assumptions and methods, including actuarial
cost methods, which will be used to calculate the OPEB obligations and annual
required contribution amounts
• Discuss the transference of employee and claims data; clarification of the format
and content of data to be transferred
• Clarify expectations regarding project scope, deliverables, project timing, and
any special needs
This initial meeting is an excellent opportunity to gain a mutual understanding of the key
steps in the valuation process, and the way Aon, the City, its advisors and carriers will
work together to achieve the City's objectives and meet the City's project schedule. This
meeting would include Michael Berman from Aon, and whomever the City sees fit to
include. Please see Appendix 2 for an example of the type of OPEB data request we
typically use with public sector employers.
Phase 2 -Employee Data Collection, Review, and Analysis (Weeks 2-3)
The accuracy of employee data is very important because valuation results are only as
reliable as the underlying data. Aon will load the employee data provided by the City, or
its administrator, into our proprietary OPEB valuation system, reviewing the data for
reasonableness and comparing it with expectations regarding numbers of employees and
key demographic characteristics. This includes employee data on all current retirees,
beneficiaries, and active employees who may eventually become eligible for OPEB
benefits. We will ask questions, as appropriate, regarding data that appears to be missing,
inconsistent, unexpected, or questionable. The City will provide corrections,
confirmations, or clarifications, as appropriate.
At the same time we will request from the City any additional plan documentation
including communications to participants. This data collection process would be
completed by Michael Berman and Min Ah Kim.
10
Aon Consulting
Phase 3 -Claims Data Collection, Review, and Analysis (Weeks 2-3)
Aon will use either fully insured premiums or actual plan paid claims as the basis for
developing expected future claim costs for the City's retiree groups. Aon's personnel
will work with the City and its carriers to receive the data in a format that is readily
adaptable to the valuation process.
After reviewing the data and making any necessary adjustments for anomalies, Aon will
trend the experience data forward to the projection period based on the trend rates from
Aon's national trend survey and the historical trends of the plans.
As a result of the claim cost development process, Aon will obtain age benefit plan claim
costs. We will review these costs for internal consistency and against external
benchmarks for reasonableness. Separate claim cost assumptions will not be made for
different City populations.
This work would be completed by Michael Berman and Min Ah Kim.
Phase 4 -Valuation Processing (Weeks 4-5)
Aon will determine the City's actuarial present value of total benefits, the actuarial
accrued liability (AAL), and the normal cost by projecting the expected claim costs that
will be incurred in future years for current retirees, beneficiaries, and active employees
who are expected to eventually become eligible for OPEB benefits. This determination
will be completed on our proprietary actuarial valuation system, AonVa]®. It will reflect
the City's specific plan provisions, employee data, claims experience, and the actuarial
assumptions that are agreed to during Phase l of the project.
After the OPEB obligations are determined as of the current valuation date, Aon will
determine annual required contribution amounts for each plan and other amounts required
in accordance with GASB 45. Alternative actuarial cost methods and amortization
methods will be examined, as decided upon in the initial meeting with the City.
Finally, a review of the funding position (if any) and investment growth will be performed
to determine the actuarial value of plan assets, and a corresponding reduction will be made
to the AAL which represents the unfunded AAL
This work would be completed by Michael Berman and Min Ah Kim.
Phase 5 -Report Preparation and Discussion (Week 5-6)
We will prepare one report to the City as of the initial valuation date that will meet
GASB 45 standards. The draft report will include:
The actuarial present value of total projected benefits
Annual Required Contribution amounts (ARC)
11
Aon Con.rultin~
• Narrative description of issues that should be considered in any pre-funding
decision
• Key observations from the valuations
• All data necessary for the City to comply with reporting and disclosure
requirements of GASB 45
• An actuarial certification as to the accuracy of the results
• Summary of current plan provisions including groups covered and benefits
valued
• Summary of the actuarial assumptions and methods used to develop plan
obligation and annual required contribution amounts
• Actuarial funding method
• Determination of the City's implicit rate subsidy
• UAAL amortization policy
• A description of the data used in the valuation, including age/service tables
• Sensitivity analysis in relation to discount and trend rate assumed (including
impact of a fully or partially funded trust)
• Certain other information required by GASB 45
We will review the draft report with you in detail. This will ensure that all required
elements are present- in the report, that the City understands the results and their
presentation, and confirms the methodology and assumptions that were used.
This work would be completed by all team members, with Michael Berman reviewing the
draft report with the City.
Phase 6 -Final Report and Presentation of Results (Weeks 6-7)
Following the meeting regarding the draft report, Aon will make any agreed upon
changes to the report, and prepare a final report for presentation to the City. Michael
Berman will present the final report in person. We are including as Appendix 3 a sample
of the actuarial OPEB valuation reports provided under GASB 45 to our public sector
clients.
2.2 In addition to the requested information, below we describe our process for
performing the GASB 45 valuation.
Aon will provide the City with the information required to make informed decisions
about. actuarial assumptions and methods. We will ensure that our recommendations aze
in line with Actuarial Standazds of Practice, and aze reasonable individually and in
aggregate. However, we are aware that the valuation and the underlying assumptions
belong to the City, not to the consultants, and we will ensure a team approach is used to
arrive at assumptions and methods that aze satisfactory to the City.
12
Aon Conrultin~
2.3 Actuarial assumptions associated with the method.
Many assumptions are shared with pension valuations -mortality, disability, termination,
etc., and these aze easily determined from the pension actuary's analysis of the group.
However, the most important retiree medical assumptions aze those which are not
produced via a pension valuation. These include current medical expenses, expected
increases (trend) of medical costs, and eligibility for retiree medical benefits. Aon will
work closely with the City to utilize the proper blend of national averages and City-
specific experience. We can provide our recommendations only after analysis of the
City's experience and discussions with the City staff, to ensure a team approach to the
valuation.
2.4 Analysis of allowed actuarial methods and amortization methods with the pros
and cons of each method and recommendation for the most appropriate or
commonly used one or two methods for this type of study.
A) Actuarial Cost Methods
1. Aggregate -uniformly allocates liability over future service or pay to determine
Normal Cost (NC)
1.1. Pros -lower current costs for funded plans
1.2. Cons - NC variability; non-intuitive calculation
2. Attained Age -uses Unit Credit to determine Actuarial Accrued Liability (AAL),
uniformly allocates liability over future service or pay to determine NC
a. Pros - NC stability vs. Unit Credit
b. Cons -Complicated Gain/Loss analysis
3. Entry Age /Entry Age Normal -uniformly allocates Actuarial Present Value
(APV) over all service or pay to determine AAL and NC
a. Pros -1 of 2 most common methods; NC stable as % of payroll; well
suited for pay- or service-based benefits
b. Cons -non-intuitive calculation; past service accrual can be less than APV
4. Frozen Entry Age -uses Entry Age to determine Frozen AAL, uniformly allocates
liability over future service or pay to determine NC
a. Pros - NC more stable than Aggregate
b. Cons -Accrual only vaguely related to APV for past service
5. Frozen Attained Age -uses Unit Credit to determine Frozen AAL, uniformly
allocates liability over future service or pay to determine NC
a. Pros - NC more stable than Aggregate
b. Cons -Accrual only vaguely related to APV for past service
6. Unit Credit -relates APV for each year of service based on age that year to
determine AAL and NC
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Aon Consulting
a. Pros - 1 of 2 most common methods; logical to apply service and age
related accruals
b. Cons - NC increases with population's age; poorly suited for pay-related
benefits
A. Amortization Methods
1. Level Dollar -equal annual installments of principal and interest over the
specified amortization period
a. Pros -well suited for non pay-related benefits
b. Cons -poorly suited for benefits that grow with healthcare trend or aze
indexed to payroll
2. Level Percent of Pay -annual installments of principal and interest represent a
constant percentage of payroll over the specified amortization period
a. Pros -well suited for pay-related benefits; smaller contribution required in
early years
b. Cons -not as justifiable for fixed benefits
3. Closed Basis -unfunded balance fully amortized at end of specified amortization
period
a. Pros -completes funding over a specified period
b. Cons -larger amortization component in subsequent years
4. Open Basis -amortization amount re-determined for each valuation
t a. Pros -smaller amortization component in subsequent yeazs
b. Cons -typically does not complete funding over a specified period
5. Identification of the major tasks in the valuation engagement and the suggested
timeline for completion. The process must be completed approximately 6 to 8
weeks prior to the deadline for the delivery of the actuarial report.
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Aon Consulting
Other
2.1. Aon Consulting is independent of the City and it is unaware of any potential
conflicts of interest if it were selected to perform the GASB 45 valuation.
2.2. Insurance Indemnification
Aon's professional liability protection is provided through the following
coverages/amounts. Proof of coverage is available upon request.
• Commercial General Liability
• Continental Casualty Company
• General Aggregate - $2,000,000 per occurrence
• Products-COMP/OP AGG - $ ] ,000,000 per occurrence
• Personal & Adv Injury - $1,000,000 per occurrence
• Fire Damage - $1,000,000 per occurrence
• Errors and Omissions:
• American International Specialty Lines Insurance Company, $1,000,000
per claim.
2.3. This proposal contains confidential information and should be shared only
with City of Dubuque personnel.
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Aon Consulting
4. Cost Proposal
Our cost proposal is outlined below:
Base Costs
Retiree medical (GASB 45) valuation in 2008 including report preparation-- $14,200.
The base cost can be approximately allocated to various project phases as follows:
Phase Total Cost
Phase I $1,500
Phase 2 $1,500
Phase 3 $1,500
Phase 4 $4,000
Phase 5 $3,000
Phase 6 2 ~~
Total $14,200
The total base cost for the 2008 engagement is $]4,200 on a "not to exceed" basis. This
cost assumes that no changes are made to the City's retiree medical plan that would
materially alter the scope of this engagement. If our incurred costs are less than $14,200,
the City will be invoiced our actual incurred costs.
Oational Costs
Liability allocation by City departments (police, fire, etc) -- $4,500
I Design, Contribution, and Eligibility Alternatives.-- $1,500 per option.
Funding Alternatives & Other Consulting -Time and materials basis
' The base cost assumes an actuarial valuation based on the City's current benefit plan and
retiree contribution scheme. If the City requests additional design or contribution
scenarios as part of a liability management process, the cost for each additional scenario
is $1,500.
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i.
Alternative Cost Proposal
In consideration of the fact that there is extensive set-up time in the first year of this type
of engagement and the GASB 45 requirements in terms of the frequency the City must
have a full valuation performed, Aon Consulting proposes a 4 year contract that is more
cost effective on a long term basis for the City. For a fee of $29,000 Aon proposes the
following:
2008 -GASB 45 valuation and report as described in this proposal.
2009 -GASB 45 roll-forward of 2008 valuation with report.
2010 -GASB 45 valuation and report as described in this proposal.
2011 -GASB 45 roll-forward of 2010 valuation with report.
For 2008 and 2010, the optional costs described above would still be applicable if the
City requested that Aon Consulting model different plan design and/or retiree
contribution scenarios.
Additional travel expenses will be invoiced to the City at actual costs; however, we don't
anticipate these will be material.
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Conclusion -Final Thoughts
We are pleased to have this opportunity to show you our capabilities in the area of health
and welfare benefit actuarial services. Aon Consulting is well positioned to be the firm
of choice based on the following-qualifications:
• As a large, national actuarial consulting firm, Aon Consulting has performed the
research, developed the tools, trained its resources, shared best practices, and
thereby delivers best in class OPEB consulting services at a local, client-centric
level.
• Aon's Chicago office is experienced with a variety of practitioners, and is
knowledgeable in the technical matters of retiree medical valuations and the
subtleties and nuances of the local, Dubuque area marketplace.
• Nationally and locally Aon Consulting serves the public sector. We apply what
we know from work in the private sector and the public sector, and deliver it to
public sector clients with the delivery and coordination needed for the unique
structure and issues of local governments.
• We have competitive fees. Aon Consulting works hard to establish the most
cost effective tools and approaches to conduct actuarial valuation assignments.
We staff assignments using the most capable personnel. We have a reputation
of honoring not-to-exceed quotes as long as we, and the client, have agreed that
there has been no change in scope.
Our actuaries and health and welfare consultants are experienced in a wide-
range of employee benefit and total compensation assignments. We've worked
with insured and self-insured plans. Locally we've worked with most every
insurance carrier and third party administrator. We have formal tools and
informed knowledge to be able to benchmark performance and compensation
practices. For assignments as specific as actuarial OPEB valuations, we will
still provide general observations and considerations regarding the structure and
performance of the health and welfare programs and contracts.
Thank you for your consideration.
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Aon Consulting