7.1. SR 02-19-2008REQUEST FOR ACTION
To Item Number
Ci Council 7.1
Agenda Section Meeting Date Prepared by
Administration Februa 19, 2008 Tim Simon, Finance Director
Item Description Reviewed by
Selection of Actuarial Firm for GASB Statement No. 45 Lori ohnson, Ci Administrator
Calculation -Other Post Employment Benefits Reviewed by
Action Requested
City Council is asked to approve the selection of Van Iwaarden for actuarial services for other post
employment benefits (OPEB) calculations.
Background/Discussion
In June 2004, Governmental Accounting Standards Board (GASB) issued statement No. 45 -accounting
and financzal reporting by employer~~ forpo,rtemploymnet benefits other than pen.rion.r. These OPEB include items like
postemployment healthcare, and insurance provided separately from the retirees pension plan. The intent
of the standard was to move from a cash basis or pay-as-you go way of paying for OPEB to an accrual
basis of accounting. The City has done an excellent job of controlling the OPEB which will result in a
substantially reduced liability when compared to other municipalities.
GASB statement No. 45 wants cities to determine the additional cost of including retired employees in
the same health plan used by our active employees. This is known as the "implicit rate subsidy" which
means if retirees pay the same health insurance costs there is an implicit subsidy to the retiree. Not only
does this liability take into account the current retirees, but we will make assumptions and probabilities of
all employees at the City.
Cities with fewer than 200 employees retirees are required to have an actuarial valuation at least
triennially. We currently have around 120 full-time employees. Once the GASB statement No. 45 liability
is determined, then we will discuss Statement No.43, which is the Financial Reporting for
Postemployment Benefit Plans. The City of Elk River will have to implement the statement for the 2008
financial statements.
Based on review of the proposals, reference checks, and discussion with the actuarial firms we are
recommending Van Iwaarden to perform the OPEB liability calculation. We feel the firm will not only
calculate the liability, but also provide input in the funding discussion.
Financial Impact
This is budgeted in the Finance department budget for 2008. The proposals ranged from $4,500 to
$5,000.
S:ACouncil\Tim\Actuarial Scrviccs.doc
Attachments
• Summary of Statement No. 45
• Proposals from Van Iwaarden, Hildi Inc., and Hanf Actuarial Inc.
Action Motion by Second by Vote
Follow Up
S:ACouncilV"fim\Actuacial Serviccs.doc
Summary of Statement No. 45
fy••••~~ Gipvernmental Accauntint~ ~t~ndards Board
Summaries /Status
Summary of Statement No. 45
Accounting and Financial Reporting by Employers
for Postemployment Benefits Other Than Pensions
(Issued 6/04)
In addition to pensions, many state and local governmental
employers provide other postemployment benefits (OPEB) as part of
the total compensation offered to attract and retain the services of
qualified employees. OPEB includes postemployment healthcare, as
well as other forms of postemployment benefits (for example, life
insurance) when provided separately from a pension plan. This
Statement establishes standards for the measurement, recognition,
and display of OPEB expense/expenditures and related liabilities
(assets), note disclosures, and, if applicable, required supplementary
information (RSI) in the financial reports of state and local
governmental employers.
The approach followed in this Statement generally is consistent with
the approach adopted in Statement No. 27, Accounting for Pensions
by State and Local Governmental Employers, with modifications to
reflect differences between pension benefits and OPEB. Statement,
~,..~_..,v .._,
No. 4~, Financial-Reporting for_Postemployment Benefit Plans.Qther
khan Pension Plans, _addresses financial statement and disclosure
_ __.
requirements for reporting by administrators or trustees of ~B
plan assets or by employers or sponsors that include OPEB plan
assets as trust or agency funds in their financial reports.
How This Statement Improves Financial Reporting
Postemployment benefits (OPEB as well as pensions) are part of an
exchange of salaries and benefits for employee services rendered.
Of the total benefits offered by employers to attract and retain
qualified employees, some benefits, including salaries and active-
employee healthcare, are taken while the employees are in active
service, whereas other benefits, including postemployment
healthcare and other OPEB, are taken after the employees' services
have ended. Nevertheless, both types of benefits constitute
compensation for employee services.
~r From an accrual accounting perspective, the cost of OPEB, like the
cost of pension benefits, generally should be associated with the
periods in which the exchange occurs, rather than with the periods
(often many years later) when benefits are paid or provided.
However, in current practice, most OPEB plans are financed on a
pay-as-you-go basis, and financial statements generally do not
report the financial effects of OPEB until the promised benefits are
paid. As a result, current financial reporting generally fails to:
Page 1 of 5
http://www.gasb.org/st/summary/gstsm45.htm1 2/12/2008
Summary of Statement No. 45
. Recognize the cost of benefits in periods when the related
services are received by the employer
. Provide information about the actuarial accrued liabilities for
promised benefits associated with past services and whether
and to what extent those benefits have been funded
Provide information useful in assessing potential demands on
the employer's future cash flows.
This Statement improves the relevance and usefulness of financial
reporting by (a) requiring systematic, accrual-basis measurement
and recognition of OPEB cost (expense) over a period that
approximates employees' years of service and (b) providing
information about actuarial accrued liabilities associated with OPEB
and whether and to what extent progress is being made in funding
the plan.
Summary of Standards
Measurement (the Parameters)
Employers that participate in single-employer or agent multiple-
employerdefined benefit OPEB plans (sole and agent employers)
are required to measure and disclose an amount for annual OPEB
cost on the accrual basis of accounting. Annual OPEB cost is equal
to the employer's annual required contribution to the plan (ARC),
with certain adjustments if the employer has a net OPEB obligation
for past under- or overcontributions.
The ARC is defined as the employer's required contributions for the
year, calculated in accordance with certain parameters, and
includes (a) the normal cost for the year and (b) a component for
amortization of the total unfunded actuarial accrued liabilities (or
funding excess) of the plan over a period not to exceed thirty years.
The parameters include requirements for the frequency and timing
of actuarial valuations as well as for the actuarial methods and
assumptions that are acceptable for financial reporting. If the
methods and assumptions used in determining a plan's funding
requirements meet the parameters, the same methods and
assumptions are required for financial reporting by both a plan and
its participating employer(s). However, if a plan's method of
financing does not meet the parameters (for example, the plan is
financed on apay-as-you-go basis), the parameters nevertheless
apply for financial reporting purposes.
..~1=or financial reporting purposes, an actuarial valuation is re uired at
least biennially for OPEB plans with a o al mem ership (includin
employees in active service, terminated employees who have
accumulated benefits but are not yet receiving them, and retired
employees and beneficiaries currently receiving benefits) of 200 or
more, or at least triennial) for lans with a total membership of
fewer than 20Q. The projection of benefits should include a enefits
covered by the current substantive plan (the plan as understood by
the employer and plan members) at the time of each valuation and
should take into consideration the pattern of sharing of benefit costs
between the employer and plan members to that point, as well as
certain legal or contractual caps on benefits to be provided. The
http://www. gasb.org/st/summary/gstsm45.html
Page 2 of 5
2/12/2008
Summary of Statement No. 45
parameters require that the selection of actuarial assumptions,
including the healthcare cost trend rate for postemployment
healthcare plans, be guided by applicable actuarial standards.
Alternative Measurement Method
A sole employer in a plan with fewer than one hundred total plan
mem ers (including employees in active service, termina e
employees who have accumulated benefits but are not yet receiving
them, and retirees and beneficiaries currently receiving benefits)
has the option to apply a simplified alternative measurement method
instead of obtaining actuarial valuations. The option also is available
to an agent employer with fewer than one hundred plan members, in
circumstances in which the employer's use of the alternative
measurement method would not conflict with a requirement that the
agent multiple-employer plan obtain an actuarial valuation for plan
reporting purposes. Those circumstances are:
The plan issues a financial report prepared in conformity with
the requirements of Statement 43 but is not required to obtain
an actuarial valuation because (a) the plan has fewer than
one hundred total plan members (all employers) and is
eligible to use the alternative measurement method, or (b) the
plan is not administered as a qualifying trust, or equivalent
arrangement, for which Statement 43 requires the
presentation of actuarial information.
. The plan does not issue a financial report prepared in
conformity with the requirements of Statement 43.
This alternative method includes the same broad measurement
steps as an actuarial valuation (projecting future cash outlays for
benefits, discounting projected benefits to present value, and
allocating the present value of benefits to periods using an actuarial
cost method). However, it permits simplification of certain
assumptions to make the method potentially usable by
nonspecialists.
Net OPEB Obligation-Measurement
An employer's net OPEB obligation is defined as the cumulative
difference between annual OPEB cost and the employer's
contributions to a plan, including the OPEB liability or asset at
transition, if any. (Because retroactive application of the
measurement requirements of this Statement is not required, for
most employers the OPEB liability at the beginning of the transition
year will be zero.) An employer with a net OPEB obligation is
required to measure annual OPEB cost equal to (a) the ARC,
(b) one year's interest on the net OPEB obligation, and (c) an
adjustment to the ARC to offset the effect of actuarial amortization of
past under- or overcontributions.
Financial Statement Recognition and Disclosure
Sole and agent employers should recognize OPEB expense in an
amount equal to annual OPEB cost in government-wide financial
statements and in the financial statements of proprietary funds and
http://www. gasb.org/st/summary/gstsm45.html
Page 3 of 5
2/12/2008
Summary of Statement No. 45 Page 4 of 5
fiduciary funds from which OPEB contributions are made. OPEB
expenditures should be recognized on a modified accrual basis in
governmental fund financial statements. Net OPEB obligations, if
any, including amounts associated with under- or overcontributions
from governmental funds, should be displayed as liabilities (or
assets) in government-wide financial statements. Similarly, net
OPEB obligations associated with proprietary or fiduciary funds from
which contributions are made should be displayed as liabilities (or
assets) in the financial statements of those funds.
Employers are required to disclose descriptive information about
each defined benefit OPEB plan in which they participate, including
the funding policy followed. In addition, sole and agent employers
are required to disclose information about contributions made in
comparison to annual OPEB cost, changes in the net OPEB
obligation, the funded status of each plan as of the most recent
actuarial valuation date, and the nature of the actuarial valuation
process and significant methods and assumptions used. Sole and
agent employers also are required to present as RSI a schedule of
funding progress for the most recent valuation and the two
preceding valuations, accompanied by notes regarding factors that
significantly affect the identification of trends in the amounts
reported.
Cost-Sharing Employers
Employers participating in cost-sharing multiple-employer plans that
are administered as trusts, or equivalent arrangements, in which (a)
employer contributions to the plan are irrevocable, (b) plan assets
are dedicated to providing benefits to retirees and their beneficiaries
in accordance with the terms of the plan, and (c) plan assets are
legally protected from creditors of the employers or plan
administrator, should report as cost-sharing employers. Employers
participating in multiple-employer plans that do not meet those
criteria instead are required to apply the requirements of this
Statement that are applicable to agent employers.
Cost-sharing employers are required to recognize OPEB
expense/expenditures for their contractually required contributions
to the plan on the accrual or modified accrual basis, as applicable.
Required disclosures include identification of the way that the
contractually required contribution rate is determined (for example,
by statute or contract or on an actuarially determined basis).
Employers participating in acost-sharing plan are required to
present as RSI schedules of funding progress and employer
contributions for the plan as a whole if a plan financial report,
prepared in accordance with Statement 43, is not issued and made
publicly available and the plan is not included in the financial report
of a public employee retirement system or another entity.
Other Guidance
Employers that participate in defined contribution OPEB plans are
required to recognize OPEB expense/expenditures for their required
contributions to the plan and a liability for unpaid required
contributions on the accrual or modified accrual basis, as applicable.
This Statement also includes guidance for employers that finance
http://www.gasb.org/st/summary/gstsm45.htm1 2/12/2008
Summary of Statement No. 45
OPEB as insured benefits (as defined by this Statement) and for
special funding situations.
Effective Dates and Transition
This Statement generally provides for prospective implementation-
that is, that employers set the beginning net OPEB obligation at
zero as of the beginning of the initial year. Implementation is
required in three phases based on a government's total annual
revenues in the first fiscal year ending after June 15, 1999. The
definitions and cutoff points for that purpose are the same as those
in Statement No. 34, Basic Financial Statements-and
Management's Discussion and Analysis-for State and Local
Governments. This Statement is effective for periods beginning after
December 15, 2006, for phase 1 governments (those with total
annual revenues of $100 million or more); after December 15, 2007,,
for phase 2 governments (those with total annua revenues of 1
ion or more u ess an mi ion ; em er
p ase governmen s t ose with total annual
revenues of less than $10 million). Earlier implementation is
encouraged.
Unless otherwise specified, pronouncements of the GASB apply to
financial reports of all state and local governmental entities,
including general purpose governments; public benefit corporations
and authorities; public employee retirement systems; and public
utilities, hospitals and other healthcare providers, and colleges and
universities. Paragraphs 4 and 6 discuss the applicability of this
Statement.
http: //www. gasb. org/st/summary/gstsm45 . html
Page 5 of 5
2/12/2008
Retirement planning for employers
January 4, 2008
Mr. Tim Simon
Finance Director, City of Elk River
13065 Orono Parkway
Elk River, MN 55330
Re: Proposal for Actuarial Services -Retiree Medical Plan
Dear Tim:
Thank you for this opportunity to present our proposal to provide actuarial services to the City of
Elk River. This letter gives a brief overview of our firm, our staff, and our proposal for
performing an actuarial valuation of the City's retiree medical plan under GASB 43 and 45.
Our Firm
Van Iwaarden Associates was founded in 1991 by Jim Van Iwaarden. Since that time it has
grown to become the largest independent actuarial firm in the upper Midwest. Our core practice
is in three areas: defined benefit pension plans, defined contribution plan design, and retiree
medical plans. We provide valuations and design consulting for over 200 plans each year,
including several pension funds with assets over $100 million each. We're known for innovative
retirement plan design.
We have performed GASB 43/45 calculations for many early-acting clients including the
Metropolitan Airports Commission, the City of Duluth, and many school districts including St.
Cloud Area School District, Anoka Hennepin School District, and Osseo School District. We are
currently in the process of completing valuations for Ramsey County, the City of St. Paul, and the
St. Paul School District. A list of our other government and school district clients is attached.
We have assisted employers in the private sector for years with similar calculations required under
GAAP accounting standards (FAS 106 and FAS 132), including the Wilder Foundation and the
Wisconsin Health Fund. We also work with several Taft-Hartley plans to value their OPEB
liabilities under SOP 92-6.
Retiree medical benefits for our client, the City of Duluth, were featured in the Sunday New York
Times article "The Next Retirement Time Bomb" (Sunday Business, 12/11/05, front page).
Brenda Hardy from our office is the unnamed actuary in that article.
Over the past year we have made presentations on the GASB standards at the Minnesota
Association of School Business Officials (MASBO) Spring Conference, the Minnesota Society of
CPA's Conference, the Northeast OPEB Seminar, and the 2005 Ehlers & Associates School
4~:aK1u _ti.a~e>:Asu>~i,ti~rEs d~01_am~~r~.rzLixc~i,~ ci:C3;i~rntic 7;~~~So,,iHli?~iSifi[~>_ M1I :~arni~ous.:~IN 554r]~_IOIO
6 f 2.Sa6.5950 f h I'?. X96.5499 www.vnww ~~~.n::ti eo:~t
January 4, 2008
Page 2
Finance Seminar. Jim Van Iwaarden wrote an article (attached) for the MASBO September,
2005 newsletter entitled "What should we do now about GASB and postemployment benefits?".
We have also recently met with the Minnesota Attorney General's and State Auditor's offices to
discuss solutions for funding other post employment benefits (OPEB) liabilities through qualified
trusts.
Our Staff
Our team of consultants is highly qualified, all with multiple actuarial credentials. Among our six
actuaries, we have four Fellows and Associates of the Society of Actuaries (FSA, ASA), three
Members of the American Academy of Actuaries (MAAA's), six Enrolled Actuaries (EA's) and
two licensed attorneys (JD's).
• James A. Van Iwaarden, FSA, EA, MAAA
• Paul D. Krueger, JD, EA, MSPA
• Brenda K. Hardy, ASA, EA, MAAA
• Sandra Bruns, FSA, EA, MAAA
• Mark Meyer, JD, FSA, EA, CEBS
• Peter J. Cullen, EA
• Emily M. Knutson, actuarial analyst
• Gina N. Ganab, actuarial analyst
You can see more about our firm, including professional biographies for each our consultants, at
www.van iwaarden.co m.
We will also work with Mary Ratelle of Health Risk Strategies, LLC to develop medical claims
costs. Mary P. Ratelle, FSA, MAAA is the founder of Health Risk Strategies, LLC. Mary has 22
years experience in managing the risks of health care plans/insurers, health care providers and
self-funded employers for their medical, prescription drug, dental and vision benefits.
Fee Proposal
Based on our understanding of your retiree health plan, our fees for performing a retiree medical
actuarial valuation are shown below.
Retiree medical liabilities -GASB 43/45 $4,500
These rates are on a fixed fee basis, and include a meeting to review the results. Time for
additional projects, including meetings and presentations, will be billed at our normal hourly rates.
Our 2008 rates range from $175 per hour for analysts to $255 per hour for consultants. The
average billing rate for most projects is about $200. Travel time, if any, is billed at 50% of our
regular rates. Out of pocket printing, licensing or miscellaneous expenses will be passed onto
you without markup.
January 4, 2008
Page 3
Once we have assembled the employee and health plan information we would need, we can
complete the valuation in 3 to 4 weeks. Please call if you have any questions regarding these
issues or would like any additional information. I have attached an engagement letter for your
review if this proposal is acceptable. Thank you again for the opportunity to present this
proposal.
Sincerely,
~~ ~) ~--
Paul D. Krueger, JD, EA
Consulting Actuary
January 4, 2008
Page 4
Independent School Districts
Anoka-Hennepin
Barnum
Buffalo
Cloquet
Columbia Heights
Esko
Foley
Gilbert/Eveleth
McGregor
Mid-State Education
Minnewaska
Moose Lake
Osseo Area Schools
Rocori
Pine City
Sartell
St. Cloud
St. Louis Park
St. Paul
Willmar
Other Public Employers
City of Crystal
City of Dickinson, ND
City of Duluth
City of Fargo, ND
City of St. Paul
Metropolitan Airports Commission
Ramsey County
Police Relief Associations
Dickinson, ND
Fairmont
Fargo, ND
Minneapolis
Additional Public Clients
Fire Department Relief Associations
Apple Valley
Brooklyn Center
Chaska
Dickinson, ND
Fairmont
Fargo, ND
Glencoe
Golden Valley
Hutchinson
Lake Johanna
Minneapolis
Minnetonka
Mound
New Ulm
Pipestone
Plymouth
Robbinsdale
Spring Lake Park
January 14, 2008
SpeGraiizing fn ACtU
~ ~~
ACTUARIAL SERVICES
GASB STATEMENTS 43 AND 45
CITY OF ELK RIVER
Hildi Incorporated
11800 Singletree Lane, Suite 305
Minneapolis, MN 55344
P 952.934.5554
F 952.934.3027
E jill.urdahl@hildiinc.com
www.hildiinc.com
Primary Contact: Jill M. Urdahl, FSA
wwvv. hildNn c. com
Contents
Transmittal Letter .......................................................................... 3
About Hildi Incorporated ............................................................... 5
The Actuarial Consultants at Hildi Incorporated ............................ 6
The Actuarial Valuation Process ................................................... 9
Scope, Timeline, and Fee Information ........................................ 10
Data Request .............................................................................. 11
Fee Proposal .............................................................................. 13
Appendix .................................................................................... 15
Biographies/Resumes/Client Lists .............................................. 16
Hildi Incorporated 2
hildi Inc
Specializing in Actuarial Retirement Plan Services
January 14, 2008
Mr. Tim Simons
Finance Director
City of Elk River
13065 Orono Parkway
Elk River, MN 55330
DearTim and the City of Elk River:
Thank you for the opportunity to work with you on Actuarial Services for the City of Elk
River. We look forward to developing a valued business partnership with you on the
subject of Other Post-Employment Benefits under GASB Statement No. 45. The
enclosed booklet will cover the scope of services and highlight the strengths of the
actuarial firm, Hildi Incorporated.
Qualified Actuaries
First and foremost, we would like to stress that your business is important to Hildi
Incorporated. The history of our firm is spelled out in the "About Hildi Incorporated"
section of this proposal. The consultants at Hildi Incorporated are seasoned actuarial
consultants specializing in the health and welfare and pension fields. All actuaries who
will be working on your account are credentialed actuaries -either Fellows of the Society
of Actuaries (FSA) or Associates of the Society of Actuaries (ASA.) Becoming an FSA or
ASA entails years of studying and exam taking while competing for passing marks
against other top candidates throughout the country. Other practicing actuaries have
never completed the entire course of actuarial study, but all actuaries at Hildi Inc. have.
Please see our Biographies and Resumes included in the Appendix section.
Experienced Actuaries and Responsive Service
Second, at Hildi Incorporated, we monitor our workflow and capacity levels in order to be
the most responsive to the client projects that we take on. Hildi Incorporated has made
the commitment to specialize in actuarial work under GASB Statements 43 and 45. The
consultants at Hildi Incorporated have recently been working with cities, counties, school
districts, and other public entities all over the country on GASB Statement No. 45 and
with large corporations since the early 1990s on post~mployment health and welfare
benefits and actuarial valuations under FASB Statement No. 106.
Hildi Incorporated
hiltli Inc
Specializing in Actuarial Retirement Plan Services
Full array of actuarial services and network of related GASB No. 45 professionals
Finally, Hildi Incorporated will be able to furnish the City of Elk River with any actuarial
services that may be requested in the future. Hildi Incorporated has established a
network of professionals that are all working with the requirements under GASB
Statement 45, including legal, trust, and funding vehicle services.
Thank you again for this opportunity. Please call with any questions that you may
have. We look forward to working with you.
Sincerely,
t
~x~
Jill M. Urdahl, FSA
President/Consulting Actuary
Hildi Incorporated
About Hildi Incorporated
Thank you for taking the time to learn more about Hildi Incorporated.
At Hildi Incorporated, our goal is to be your valued, trusted consulting partner in the
world of actuarial retirement plan and Other Post-Employment benefit services.
Hildi Incorporated believes in providing the highest quality consulting along with the
most competitive fees in the marketplace. Customer service and satisfaction is our
most important goal, so we strive on a daily basis to keep all of our clients not just
happy clients, but ecstatic clients.
Hildi Incorporated was established by in October of 2004 as a Midwestern actuarial
consulting firm. The structure for Hildi Incorporated is an S-Corporation in
Minnesota. State and Federal Tax ID numbers can be provided on request. Hildi
Incorporated has no parent or subsidiary organizations.
Hildi Incorporated was established in order to meet marketplace demands for high
quality consulting at very competitive prices.
The name "Hildi" has meaning in Norse mythology and is the founder's nickname.
The Hildi Inc. logo (the item that looks somewhat like a check mark or a music note)
is the symbol from the founder's ancestral family farm in Selbu, Norway.
Hildi Incorporated consists of benefits consultants and actuaries who have many
years of real world experience and are recognized leaders in their fields. Please see
the next section on the Actuarial Consultants at Hildi Incorporated, along with our
attached biographies, resumes, and client lists in the Appendix.
Hildi Incorporated 5
The Actuarial Consultants at Hildi Incorporated
Biographies, Work Experience, and Resumes are included in the Appendix.
Jill M. Urdahl, FSA, EA, MAAA
Jill is a Fellow of the Society of Actuaries, an Enrolled Actuary, and Member of the
American Academy of Actuaries.
Jill is a member of Minnesota GFOA and MASBO.
Jill was the featured speaker on GASB 45 at the following
conferences/conventions:
• 2005 Minnesota GFOA convention in Alexandria, MN
• 2005 ASBO International conference in Boston, MA
• 2006 WASBO convention in Milwaukee, WI
• 2006 MASBO Winter Conference in Minneapolis, MN
• 2006 and 2007 MASBO Spring Conference in Breezy Point, MN
• 2006 ASBO International conference in Pittsburgh, PA
• 2006 and 2007 Conference of Consulting Actuaries in Rancho Mirage, CA,
and San Antonio, TX, and
• 2007 Summer Conference for the Minnesota Association of County Auditors,
Treasurers, and Finance Officers in Breezy Point, MN.
Jill M. Urdahl meets the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion for any GASB 45 project.
Tony L. Urdahl, FSA, EA, MAAA
Tony is a Fellow of the Society of Actuaries, an Enrolled Actuary, and Member of the
American Academy of Actuaries.
Tony has extensive actuarial expertise in helping employers with OPEB funding and
financing strategies. Tony's primary experience has been in the private sector with
large corporations. This experience will be a benefit to public sector clients of Hildi
Inc., as Tony has helped numerous employers in the private sector deal with the
transition to accrual accounting under FAS 106.
Tony was the Senior Resource Actuary at Watson Wyatt in Minneapolis before
joining Hildi Inc. As Senior Resource Actuary, Tony was responsible for technical
and strategic aspects involved in the funding and financing of both pension benefits
and OPEBs.
Tony Urdahl meets the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion for any GASB 45 project.
Hildi Incorporated
The Actuarial Consultants at Hildi Incorporated,
continued
Cathy A. Erpelding, ASA, EA, MAAA
Cathy is an Associate of the Society of Actuaries (1999), an Enrolled Actuary (2000),
and Member of the American Academy of Actuaries (2000).
Cathy's primary experience has been in the private sector with large and small
corporations with pension and OPEB benefit valuations. This experience will be a
benefit to public sector clients of Hildi Inc., as Cathy has helped numerous
employers in the private sector deal with the transition to accrual accounting under
FAS 106.
Cathy worked for the largest international consulting firm for 13 years in various
capacities, including senior associate actuary, managing supervisor, retirement
systems specialist, and recruiting specialist.
Cathy Erpelding meets the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion for any GASB 45 project.
Hildi Incorporated 7
The Subcontractor Actuarial Consultants working with
Hildi Incorporated
Biographies, Work Experience, and Resumes are included in the Appendix.
Mary Ratelle, FSA, MAAA
Mary is a Fellow of the Society of Actuaries and a Member of the American
Academy of Actuaries. Mary performs the claims and premium analysis or peer
review for GASB 45 projects at Hildi Inc.
Mary is the founder of Health Risk Strategies, LLC, a certified woman-owned
business in Minnesota. Mary has 23 years experience in managing the risks of
health care plans/insurers, health care providers, and self-funded employers for their
medical, prescription drug, dental and vision benefits.
Mary Ratelle meets the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion for any GASB 45 project.
Dave Moody, FSA, MAAA
Dave is a Fellow of the Society of Actuaries and a Member of the American
Academy of Actuaries. Dave performs the claims and premium analysis or peer
review for GASB 45 projects at Hildi Inc.
Dave was the leader of the Health and Welfare Actuarial group at Hewitt in
Minneapolis, MN, before collaborating with Hildi Incorporated in October 2004.
Dave only subcontracts his actuarial services and expertise with Hildi Inc.
Dave Moody meets the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion for any GASB 45 project.
Hildi Incorporated 8
The Actuarial Valuation Process
Actuarial Valuation
Input Items
Participant Data/ Assets/Claim Cost OPEB Provisions
Census Information Information
Annual Required
Contribution (ARC)
Actuarial Accrued
Liability and
Normal Cost
Actuarial Assumptions,
Actuarial Cost Methods,
and Actuarial Asset
Methods
Net OPEB Obligation
Results
Actuarial Assumptions
The actuary and client jointly select a proposed set of actuarial assumptions to
be used in the valuation. Hildi Inc. discusses the proposed assumptions with our
clients at an early stage in the project; not all actuaries will do this. While the
actuary must have the final say as to the reasonableness of any assumption, we
welcome the client's input in the selection process, and it's important to
remember that the earlier a client questions an assumption, the less work it is for
the actuary to make the required changes to the valuation.
Hildi Incorporated
Scope, Timeline, and Fee information for the Actuarial
Valuation under GASB Statement No. 45
City of Elk River
This timeline (and fee quote on page 13) assumes that the City of Elk River has
approximately 130 Plan Members with revenue as determined for GASB No. 34
between $10 and $100 million.
GASB Statement No. 45 says that plans with less than 200 plan members must
perform an actuarial valuation at least every three years.
Upon receipt of all data needed for the project (see the Data Request), the
preliminary actuarial valuation results can be prepared within six to eight weeks.
After the preliminary results have been discussed, the final actuarial report can be
completed within two weeks. Any additional information requested (for example,
changes in plan design, actuarial cost projections) could possibly extend this
timeline.
Hildi Incorporated 10
Actuarial Valuation under GASB 43/45
Data Request
Data format: Preferred delivery by computer CD, disk, or email.
Data in Excel spreadsheets is preferred.
General List of items needed to perform a GASB 43/45 Actuarial Valuation
• Employee/Participant Data
• Medical and Dental Claims Costs
• Medical and Dental Employee Premium/Contribution information
• Employee Group Contracts
• Plan Asset information
• Retiree Communications or any OPEB communications
Specific List of items needed for Employee/Participant Data
Active Employees -one row of data per participant, please
• Employee ID or Social Security Number
• Gender
• Date of Birth (MMDDYYYY)
• Date of Hire (MMDDYYYY)
• Pre-Calculated Service Field
• Contract Group
• Current Salary
- please include the definition of Salary that is being used in the benefits being valued
• Current Daily Rate of Pay
• Accumulated Unused Sick Leave Days
• Health Plan Code
• Health Plan Coverage Code (none, single, family)
Retired Employees -one row of data per participant. please
• Employee ID or Social Security Number
• Gender
• Date of Birth (MMDDYYYY)
Date of Retirement (MMDDYYYY)
• Contract Group
• Annual Amount of Severance Payment
• Remaining Severance Balance
• Date of Severance Start (MMDDYYYY)
• Date that Severance Ends (MMDDYYYY)
• **Separate information will be needed for Medical and Dental below, if both are provided**
• Annual City/County Paid Health Benefits, if any
• Remaining City/County Paid Health Benefits Balance
• Date City/County Paid Benefits Start (MMDDYYYY)
• Date City/County Paid Benefits End (MMDDYYYY)
• Monthly Retiree Contribution for Health Premiums
• Health Plan Code
Health Plan Coverage Code (none, single, family)
Hildi Incorporated 11
Actuarial Valuation under GASB 43/45
Data Request, continued
Claims Cost Information
Three Years of Monthly Claims Experience -split by Actives, Pre-65 Retirees, Post-65
Retirees and by Medical, Dental, and Prescription Drugs.
List of Large Claims for the last three years (over $30,000).
Three Years of Monthly Enrollment by Coverage Tier, split by Plan Option, that
corresponds to the Claims Experience.
Other Health Plan Information
Retiree Rates and Retiree Participant Contributions (Medical and Dental) for the current
and the past three years -split by active, Pre and Post-65.
Employee Group Contracts and/or Summary Plan Descriptions for all health care
benefits, split by active, Pre-65 and Post-65, if plan designs are different. Identify plan
changes over the last three years and for the current year.
Retiree Medical Plan Document- including eligibility requirements.
Underwriting Exhibits for the current and past two years for Actives, Pre~5 Retirees,
and Post-65 Retirees.
Medicare Part Ddirection/decision.
Plan Asset Information
Funding Vehicle materials to be used for the OPEBs, if any.
Hildi Incorporated 12
Fee Proposal
Basic Actuarial Valuation Fees for GASB Statement No. 45
Valuation Date Basic Fee
Date in early 2008 $5,000
The fees above are based on the summary information (approximately 130
employees/plan members and benefit description), provided to Hildi Inc. from Tim
Simons by phone in January 2008. We have reduced our bid from what was
provided in September 2007 of $5,500 to account for the update in the number of
plan members (formerly included 160) and adjusted the quote to not include an
exhibit with the liabilities split by contract group/employee descriptions. The quote
does include a meeting that can be used to present the results to the City Council in
Elk River or a finance sub-group of the City Council.
These Basic Actuarial Fees include the following:
• Teleconferencing with the actuaries on pending or anticipated issues which
may affect the actuarial valuation/report. If any work is needed based on one
of the outcomes of a teleconference, a fee will be agreed upon before any
work is initiated.
• Pre-valuation conference call to discuss and gather information on actuarial
assumptions, participant data, plan changes and any other information that
may change the upcoming actuarial report calculations.
• A meeting to discuss the preliminary results based on the assumptions,
funding methods, asset method, and any other provisions discussed and noted
at the pre-valuation conference call.
• An Actuarial Report including all information required by GASB Statements 43
and 45. Hildi Inc. will provide an electronic copy and three hard copies.
• Periodic memos and telephone calls to provide updates on developments that
may affect future actuarial reports.
The Basic Actuarial Fees are also based on:
• The receipt of clean participant data in the format requested from the
Hildi Inc. data request packet.
• Claims Cost requests and discussions with the Vendors not to exceed
two hours of Hildi Inc. consultant's time. If claims data is provided from
multiple vendors, there may need to be an additional charge.
Hildi Incorporated 13
Fee Proposal, continued
Fees for Additional Actuarial Services
Description Fee
Ten Year or Twenty Year Projection of GASB $500 and up depending on the number of
No. 45 Liabilities and Annual Required scenarios and variables (Full scope to be
Contribution Calculations agreed upon before initiation of any work.)
Auditor Requests Fee to be agreed upon after receipt of the audit
request
Attendance at City meetings and/or Staff Hourly Rates
Meetings
Contract Proposals Fee to be agreed upon after determination of
scope
Hourly Rates for Additional Services
Description Hourly Rate
Strategic Actuarial Consulting and Meeting
time $250
Actuarial Calculations $200
Data and Administrative work $100 - $200
Travel and lodging expenses are not included in the basic fee and will be invoiced separately.
Hildi Incorporated 14
Appendix
Hildi Incorporated 15
Biographies/Resumes/Client Lists
Jill M. Urdahl, FSA, EA, MAAA
Retirement and Other Post-Employment Benefits (OPEB) Consultant and
Actuary
Over the past 17 years, Jill has been a retirement actuary and consultant. She has
worked with all sized employers, both public and private, to develop their retirement
and OPEB strategies. Specific areas of focus include plan design, funding and
financing, and administration services. In addition, Jill has experience with present
value services for QDROs.
Jill worked for two international consulting firms for over 14 years in various
capacities, including principal actuary, managing supervisor, region recruiting lead,
and Society of Actuaries exam committee member.
Jill is a Fellow of the Society of Actuaries (FSA), Enrolled Actuary (EA), and a
Member of the American Academy of Actuaries (MAAA.) She attended Gustavus
Adolphus College, where she earned a B.A. degree in Mathematics with a Music
Minor and graduated Magna Cum Laude with Phi Beta Kappa status.
Tony L. Urdahl, FSA, EA, MAAA
Retirement and Other Post-Employment Benefits (OPEB) Consultant
and Actuary
Over the past 18 years, Tony has been a retirement actuary and consultant. He has
worked with all sized employers, both public and private, to develop their retirement
and OPEB strategies. Specific areas of focus include plan design, funding and
financing, and administration services.
Tony worked for three international consulting firms for over 17 years in various
capacities, including lead retirement actuary, senior resource actuary, and Society of
Actuaries exam committee member.
Tony is a Fellow of the Society of Actuaries (FSA), Enrolled Actuary (EA), and a
Member of the American Academy of Actuaries (MAAA.) He attended Concordia
College in Moorhead, MN, where he earned a B.A. degree in Mathematics and
Economics. Tony graduated Summa Cum Laude.
Hildi Incorporated 16
Cathy A. Erpelding, ASA, EA, MAAA
Retirement and Other Post-Employment Benefits (OPEB) Consultant
and Actuary
During the past 13 years, Cathy has been a retirement actuary and consultant. She
has worked with large and small employers, both public and private, to develop their
retirement and OPEB strategies. Specific areas of focus include plan design, funding
and financing, and administration services.
Cathy worked for the largest international consulting firm for 13 years in various
capacities, including senior associate actuary, managing supervisor, retirement
systems specialist, and recruiting specialist.
Cathy is an Associate of the Society of Actuaries (ASA), Enrolled Actuary (EA), and
a Member of the American Academy of Actuaries (MAAA.) She attended Drake
University, where she earned a B.S.B.A in Actuarial Science.
Hildi Incorporated 17
Jill M. Urdahl, FSA, EA, MAAA
Professional E~erience Hildi Incorporated -Minneapolis, MN
Present
Actuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ GASB 43 and GASB 45
^ VEBAs
^ Norxiiscrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Non-Qualified Plan Design/valuations
^ Present Value Services
^ Qualified Domestic Relations Orders (ODROs)
^ Plan Terminations
Mercer- Minneapolis, MN
1994 - 2003
Actuarial Principal
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Retirement Seminar Speaker
^ Non-Qualified Plan Design/valuations
^ Qualified Domestic Relations Orders (ODROs)
^ Plan Terminations
Hildi Incorporated 18
Jill M. Urdahl, FSA, EA, MAAA, continued
Professional Experience Hewitt Associates -Lincolnshire, IL
continued
1989 - 1994
Actuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
Additional professional Exam Committee Member for the Society of Actuaries
activities
MASBO, WASBO, and Minnesota GFOA speaker on GASB No. 45
ASBO International speaker on GASB No. 45
Professional credentials Fellow, Society of Actuaries (FSA)
Enrolled Actuary (EA)
Member of the American Academy of Actuaries (MAAA)
Education Gustavus Adolphus College - St. Peter, MN
1985 - 1989
Mathematics Major, Music Minor
Graduated Phi Beta Kappa and Magna Cum Laude
References Available upon request
Hildi Incorporated 19
Tony L. Urdahl, FSA, EA, MAAA
Professional E~erience Hildi Incorporated -Minneapolis, MN
Present
Actuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ GASB 43 and GASB 45
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Non-Qualified Plan Design/valuations
^ Present Value Services
^ Qualified Domestic Relations Orders (ODROs)
^ Plan Terminations
Watson Wyatt -Minneapolis, MN
1999 - 2006
SeniorActuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Retirement Seminar Speaker
^ Non-Qualified Plan Design/valuations
^ Qualified Domestic Relations Orders (QDROs)
^ Plan Terminations
Hildi Incorporated 20
Tony L. Urdahl, FSA, EA, MAAA, continued
Professional Experience Towers Perrin -Minneapolis, MN
continued
1994 - 1999
SeniorActuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Retirement Seminar Speaker
• Non-Qualified Plan Design/valuations
^ Qualified Domestic Relations Orders (QDROs)
^ Plan Terminations
Hewitt Associates -Lincolnshire, IL
1989 - 1994
Actuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
Additional professional Exam Committee Member for the Society of Actuaries
activities
Professional credentials Fellow, Society of Actuaries (FSA)
Enrolled Actuary (EA)
Member of the American Academy of Actuaries (MAAA)
Education Concordia College- Moorhead, MN
1985 - 1989
Mathematics and Economics Major- Summa Cum Laude
Hildi Incorporated 21
Cathy A. Erpelding, ASA, EA, MAAA
Professional Experience Hildi Incorporated -Minneapolis, MN
Present
Actuarial Consultant
^ Annual actuarial valuations/reporting
^ Benefit Calculations
• FASB 87 and FASB 106
^ GASB 43 and GASB 45
^ VEBAs
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Non-Qualified Plan Design/valuations
^ Present Value Services
^ Qualified Domestic Relations Orders (QDROs)
^ Plan Terminations
Mercer Human Resource Consulting -Minneapolis, MN
1997 - 2007
Actuarial SeniorAssociate
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ Non-discrimination Testing
^ Asset-Liability Modeling
^ Plan Design
^ Retirement Seminar Speaker
^ Non-Qualified Plan Design/valuations
^ Qualified Domestic Relations Orders (QDROs)
^ Plan Terminations
Hildi Incorporated 22
Cathy A. Erpelding, ASA, EA, MAAA, continued
Professional E~erience Mercer Human Resource Consulting -Chicago, IL
continued
1994 - 1997
Actuarial Analyst
^ Annual actuarial valuations/reporting
^ Benefit Calculations
^ FASB 87 and FASB 106
^ Non-discrimination Testing
^ Asset-Liability Modeling
Professional credentials Associate, Society of Actuaries (ASA)
Enrolled Actuary (EA)
Member of the American Academy of Actuaries (MAAA)
Education Drake Universtiy -Des Moines, IA
1990 - 1994
Bachelor of Science in Business Administration -Actuarial Science
References Available upon request
Hildi Incorporated 23
Hildi Incorporated Client List
Professional Experience Highlights with a sampling of Current and Past Clients
Sample includes: City of Fergus Falls, ity of Hopkins, City of Plymouth, Cass County,
Crow Wing County, Big Stone County, Stearns County, Sherburne County, Carver
County, Winona County, Wabasha County, Rochester Public Schools, Detroit Lakes
Public Schools, Fergus Falls Public Schools, Eden Prairie Public Schools, Rochester
Public Schools, South Washington County Public Schools, Rosemount-Apple Valley-
Eagan Public Schools, Shakopee Public Schools, Lakeville Public Schools, Chaska
Public Schools, Eden Prairie Public Schools, Spring Lake Park Public Schools,
Cambridge-Isanti Public Schools, Staples/Motley Public Schools, and Menahga Public
Schools. (Current Clients)
• Actuarial Valuations and Plan Design work for Other Post Employment benefits under
GASB Statements 43, 45 and 16.
Region 1 and Region IV (Current Clients)
School Districts in Northwestern and Southwestern Minnesota
Approximately 130 School Districts/Cities/Counties
• Actuarial Valuations for Other Post Employment benefits under GASB Statements 43,
45 and 16.
Bemis Company, Inc. (Current Client - 15,000+ employees)
• Total actuarial consulting relationship with projects covering everything from Actuarial
Valuations for two defined benefit plans to all the FAS No. 87, 88, and 132 accounting
requirements.
• Actuarial Valuations on all post retirement medical dental, and life plans including all
accounting work under FAS No. 106.
• Additional work performed on non-qualified retirement plans and asset/liability
modeling projections.
Sewall Gear Manufacturing (Current Client)
• Actuarial consulting, including a valuation, for a Defined Benefit Pension Plan.
Sheet Metal Workers, Fargo, ND (Current Client)
• Actuarial consulting, including a valuation, for a Defined Benefit Pension Plan.
Minnesota Power/ALLETE (Past Client for 14 years)
• Total Actuarial Consulting relationship with projects covering everything from Actuarial
Valuations for two defined benefit plans to all the FAS No. 87, 88, and 132 accounting
requirements.
• Actuarial work was completed on all post retirement medical dental, and life plans
including a VEBA funding valuation, all accounting work under FAS No. 106, and
numerous projections of the post retirement health benefits.
• Additional work performed on non{lualified retirement plans and asset/liability
modeling projections.
Other clients with descriptions that match the above include Blue Cross Blue Shield of Minnesota,
Coca-Cola Enterprises, Mayo Clinic, Dow Chemical, Northwest Airlines, Cenex, Cowles Media, Hormel
Foods, USBancorp, Red Wing Shoe, Great River Energy, and ADC Telecommunications.
Hildi Incorporated 24
David J. Moody, FSA, MAAA
Health Care Consultant and Actuary
Over the past 15 years, Dave has been a health and welfare actuary and consultant.
He has worked with large and medium sized employers to develop their active and
retiree health and welfare strategy. Specific areas of focus include design, pricing,
financing and funding, and ongoing program management and measurement. Dave
has experience working on a variety of health and welfare programs, including active
and retiree health care, disability, and life insurance.
Dave worked for an international consulting firm for over 12 years in various
capacities, including group actuary, lead strategy consultant, and local practice
manager. Before moving to consulting, he spent almost three years with a major
insurance company.
Dave is a Fellow of the Society of Actuaries (FSA) and a Member of the American
Academy of Actuaries (MAAA.) He attended Montana State University where he
earned a B.S. degree in Mathematics-Statistics.
Hildi Incorporated 25
David J. Moody, FSA, MAAA
Professional experience Hildi Incorporated -Minneapolis, MN
Present
Health & Welfare Actuarial Consultant
Hewitt Associates- Lincolnshire, IL
1992 - 2004
Market Leader/Consultant (Minneapolis, MN)
2000 - 2004
Health & Welfare Actuarial Consultant (San Francisco, CA)
FAS 106 Practice Manager
1995 - 2000
Health & WelfareActuary(Lincolnshire, IL)
1992 -1995
Travelers Insurance Company-Hartford, CT
1990 -1992
Actuarial Analyst
Professional Fellow of the Society of Actuaries (FSA)
memberships
Member of the American Academy of Actuaries (MAAA)
Member of the Conference of Consulting Actuaries (MCA)
Education Montana State University -Bozeman, MT
B.S., Mathematics-Statistics
May 1990
Hildi Incorporated 2g
Mary P. Ratelle, FSA, MAAA
Health Care Consultant and Actuary
Over the past 23 years, Mary has been a health and welfare actuary and consultant.
She has experience in managing the risks of health care plans/insurers, health care
providers and self-funded employers for their medical, prescription drug, dental and
vision benefits. Her consulting experience includes product design, experience
analysis and trend forecasting, pricing, underwriting, administration, management
reporting, risk modeling, contribution strategies, provider reimbursement strategies,
small group reform, and financial reporting.
Mary has significant experience in the senior market (Medicare). This work includes Self-
funded Employer Retiree Plans, Medicare Supplement, Medicare Select and Medicare
Advantage products. Specific work related to experience analysis, plan design,
estimates of impact of Medicare program changes, pricing strategies, and regulatory
filings. Mary has worked with both employers and health plans in evaluating the new
Medicare prescription drug plan and is qualified to provide the actuarial attestation for the
retiree drug subsidy from CMS.
Mary is involved in actuarial and health care professional associations and was
recently a member of the Health Section Council of the Society of Actuaries and
member of the steering committee of the Minnesota Risk Adjustment Users Group.
Mary is a speaker at Society of Actuaries and other healthcare industry association
meetings.
Mary is a graduate of Drake University, Des Moines, Iowa with a Bachelors of Arts
degree in mathematics. She is a Fellow of the Society of Actuaries and a Member of
the American Academy of Actuaries.
The following is a list of Government Entities and Non-profit associations
that Mary Ratelle has provided consulting services to:
Minnesota Department of Commerce
Minnesota Department of Health
Minnesota Comprehensive Health Association
(MCHA-Minnesota High Risk Pool)
Massachusetts Department of Insurance
New Jersey Department of Banking and
Insurance
District of Columbia Department of Insurance
North Carolina Department of Insurance
Vermont Department of Commerce
Dakota County United Educators
American Association of Health Plans
Maine Bureau of Insurance
National Association of Insurance
Commissioners
Hildi Incorporated 27
Mary P. Ratelle, FSA, MAAA, continued
Actuarial Credentials:
Fellow, Society of Actuaries
Member, American Academy of Actuaries
Experience:
2/00 -Current Founder, Health Risk Strategies, LLC.
Consulted with health insurers (HMOs, PPO, PHOs, and insurance companies),
self-funded employers and union groups, insurance regulators and health care
providers on pricing, product design & development, regulatory filings, and
financial analysis of health insurance products.
1/97 - 2/00 Senior Consultant, Reden & Anders
Consulted with HMOS, Blue Cross and Blue Shield, and health care providers on
various aspects of their health insurance products. Major projects included
evaluation of Medicare Risk Products (Medicare Advantage), HORBC
requirements for HMOs, provider contract negotiations for health plans and
provider groups, development of pricing strategies for fully insured health
products, and evaluation of financial risks within proposed contracts for provider
sponsored networks.
1/95 -12/96 Actuary, Milliman and Robertson, Inc. (Milliman USA)
Consulted with HMOs, Blue Cross and Blue Shield, and health care providers on
various aspects of their health insurance products. Major projects included
evaluation of risk charges for fully insured products, risk based capital
requirements for HMOs, stochastic modeling of health insurance risks,
estimation of potential cost savings for allowing 24hour coverage in the state of
Minnesota, estimation of market impact of proposed individual health insurance
market reforms, and evaluation of financial risks within proposed contracts for
provider sponsored networks.
1/88 to 10/93 Consultant, Tillinghast (Currently Towers Perrin)
Consulted with HMOs, insurance companies, Blue Cross and Blue Shield plans
and health care providers on the following aspects of their managed care
programs: product design, pricing, underwriting, administration, management
reporting, risk absorption models, small group reform compliance, financial
reporting, experience analysis and merger and acquisitions. Products included:
group (large and small), individual, Medicare, Medicaid, managed workers'
compensation, specific and aggregate stop loss, and dental plans.
11/85 to 1/88 Actuarial Assistant, Ministers Life Insurance Company
Small group product development, large group initial and renewal rating and
valuation for financial statements.
6/83 to 11/85 Actuarial Analyst, Touche Ross and Co. (Currently Deloitte &Touche)
Product design and pricing of start up HMOs, experience and claims lag analysis
for rating and determination of balance sheet reserves.
Hildi Incorporated 28
Mary P. Ratelle, FSA, MAAA continued
Professional Papers and Presentations:
"Developing a Managed Workers' Compensation Program," published in 1993 ProceedinQS by
the Group Health Association of America. (Currently American Association of Health Plans -
AAHP)
Presented "Workers' Compensation I: Managing the Costs and the Benefits" at the 1993 Group
Health Institute.
Presented "Small Group Reform: Managing Costs and Benefits" at the 1999 Society of Actuaries
Small Group Reform Seminar.
Presented "HMO Rating" at the 1999 AAHP Annual Meeting.
Professional Committees:
Society of Actuaries Health Section Council Member 1999 - 2001
American Academy of Actuaries Task Force for Manage Care Reforms 1997 - 2002
Minnesota Risk Adjuster Users Group Planning Committee 2000 - 2001
Education:
Bachelor of Arts, Mathematics Degree
Drake University
May 1983.
Hildi Incorporated 29
PROPOSAL
Foy
Actuarial Analysis, Calculations, and Report as of 1/1/2008 to
Comply with GASB 45 for
Fiscal Years Beginning 1/1/2008, 1/1/2009, and 1/1/2010
For
City of Elk River, MN
OPEB Actuarial Services
January 2007
Table of Contents
Section Title Page
I Required Services .................................................................................... 1-2
II Proposed Approach and Information Needed ...........................................3
III Professional Profiles and Experience ........................................................4
IV Proposed Services and Fees ......................................................................5
V GASB 45 Requirements ........................................................................... 6-9
VI Limitations on Liability ...........................................................10
City of Elk River, MN
Section I
Required Services and Our Experience
City of Elk River, MN provides subsidized medical benefits for retired employees who meet
certain eligibility requirements. The City has approximately 130 benefit earning active members
and 6 retirees. The City desires to engage an actuarial consulting firm to perform the following
tasks relating to these plans:
• Assist in identifying and documenting the OPEB "substantive plan"
• Assist in developing actuarial assumptions appropriate for measuring the GASB 45
liabilities.
• Develop an actuarial model and perform calculations and forecasts as of 1/1/2008
• Write actuarial report containing contribution requirements and funded condition to
comply with:
o GASB guidelines.
o Actuarial guidelines.
o Information needed for annual financial report
• Be available for teleconferencing, inquiries, and technical advice.
Our professional staff has a long history of serving organizations that offer retiree medical plans.
In particular, we have the following experience with regard to these plans:
^ GASB 45 implementation
^ Open and closed group cash flow projections for retiree medical plans
^ Consulting on design and funding for active and retiree benefits
^ Experience analysis to set actuarial assumptions
^ Costing of exploratory benefit changes
^ Annual calculations, reports and consulting for SFAS 106 single employer plan
^ Annual calculations, reports and consulting for SOP 92-6 multiple employer plans
City of Elk River, MN
Page 1
References for a few of the clients we are performing retiree medical valuations to comply with
accounting standards are given below:
City of Austin(GASB 45 and 16 study report)
Tom Dankert, CPA - Director of Administrative Services - 507 437 9959
City of Ames Iowa (GASB 45 study report)
Jon-Scott Johnson -Risk Manager - 515 239 5102
Duane Pitcher -CFO - 515 239 5113
City of Hastin~ Minnesota (GASB 45 study report)
Charlene Stark -Finance Director - 651 480 2354
Asbestos Workers and Sprinkler Fitters Health & Welfare Funds (SOP 92-6)
Gary Bohline -Plan Administrator - (952) 544-8332
Midwest Medical (FAS 106)
Niles Cole -CFO - 952 838 6767
Larson Doors (FAS 106)
Walt Syltie -Controller 605 696 6480
Lumber Dealers Health & Welfare Fund (SOP 92-6)
Kimberly Brown -Administrator 651 256 1782
State Fund Mutual (SFM) (FAS 106)
Terrence Miller -CFO 952 838 4210
In addition we have been recently selected by the City of Mankato, City of Chanhassen, City of
Stillwater, Jackson County, Nobles County, Redwood County, Waseca County and Woodbury
County, IA to perform their GASB 45 actuarial analysis.
See our website at www.HanfActuarial.com for further information.
* Reference letter received 8/27/07 from Tom Dankert
"On behalf of the City of Austin, I would like to formally thank you for the work you did for us
as it relates to GASB 45. This being a new standard out there for municipalities, Iappreciate
your level of professionalism and knowledge in understanding not only our health insurance plan,
but also the Sick Leave Program that our employees rely on as retirement approaches.
The questions you asked regarding our program shows your attention to detail, as well as your
overall knowledge of the GASB. Iappreciate all of your help in this endeavor, and we will
definitely be in contact with you in a few years for the next study, as required by the GASB.
Please do not hesitate to use me as a reference if you ever need one for future business!"
City of Elk River, MN
Page 2
Section II
Proposed Approach and Information Needed
We propose the following approach to fulfill your needs for actuarial analysis:
Gather information
You would need to supply us with the following type of information at least 40 days before the
due date of the report:
/ Active employee census information including: name (optional), birth date, spouse's birth
date, hire date, gender, medical plan, medical coverage (e.g. single, family), group code (e.g.
City, Police, Fire), Social Security number (or employee number), pay level(optional). We
need this information on an Excel worksheet.
/ Eligible current retirees and disabilities census information including: name (optional), birth
date, spouse's birth date, gender, medical plan, medical coverage (e.g. single, family), retiree
contributions, group code, and Social Security number(optional). We need this information
on an Excel worksheet.
/ Plan documents that describe the retiree medical/dental promise to active and retired
employees.
/ Medical plan experience for entire group (active & retired) for last three years. If available
and relevant, medical claims experience and exposure for pre 65 and post 65 retirees
separately for the last three fiscal years.
/ Current premiums being charged for coverage and current cost of coverage.
/ Data needed to set turnover and retirement age assumptions:
For each employee leaving during the past 5 years - SSN, name, gender, birth date, hire date,
payroll category, termination date, termination reason (separated, died, disabled (STD or
LTD), retired) on an Excel worksheet
Set actuarial assumptions
Based upon historical experience and best estimates as to future experience, we need to set the
following actuarial assumptions:
/ Discount rate (as required by GASB 45)
/ Turnover rates
/ Retirement rates
/ Mortality rates
/ Employer provided retiree medical subsidy
/ Health care cost trend rate for employer subsidy
/ Other assumptions as needed to properly model your plan
Perform calculations and write report
Present report draft for discussion
Revise report to meet City of Elk River objectives
Ciry of Elk River, MN
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Section III
Professional Profile
Richard D. Johnson
FSA, MAAA, FCA
Rick has over 35 years of experience as a consulting and insurance company actuary. He has
extensive experience in the valuation ofpost-employment benefits and other self-insured and
insured benefits.
Rick, now in private practice, was a consulting actuary with Deloitte & Touche and Ernst &
Young for 14 years. Prior to his consulting experience, Rick served as a Vice President of Group
Operations and Chief Life Actuary for an insurance company.
Rick is a Fellow of the Society of Actuaries, a Member of the American Academy of Actuaries
and a Fellow of the Conference of Consulting Actuaries
Duane F. Hanf
FSA, MAAA, EA
Duane Hanf has over 30 years of experience as a consulting actuary in the employee benefits
field.
Mr. Hanf has over 20 years of experience in retiree medical valuations for both public and
private employer plans. He has provided consulting services to his clients in design, funding,
communication and administration of pension, health and welfare benefits. He has extensive
experience in calculation of obligations and costs under SFAS 106, SOP 92-6, and more recently
GASB 45 for insured as well as self-insured retiree medical plans.
Prior to forming Hanf Actuarial Associates in 1992, Mr. Hanf was a consulting actuary and
director of actuarial services with Ernst & Young in Minneapolis and senior actuary at Foster
Higgins, Midwest Region.
Mr. Hanf is currently a Fellow of the Society of Actuaries, a Member of the American Academy
of Actuaries and an Enrolled Actuary. He was formerly a Fellow of the Conference of
Consulting Actuaries. He was a member of the national task force for Ernst & Young on retiree
medical valuation and accounting issues, and he has published several articles.
City of Elk River, MN
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Section IV
Cost Estimates and Basis for Billing
The fees for the requested services as of 1/1/2008 are as follows:
Services Fee
Actuarial calculations for its retiree medical plans including: Time and expenses
- Meeting or conference call to discuss objectives, not to exceed
plan design, and actuarial assumptions with staff, $5,000
outside auditor and other appropriate parties.
- Development of summary of substantive plan
- Development of actuarial assumptions and model
- Actuarial valuations and reports to satisfy
GASB 45 accounting regulations for a range of
potential expensing/funding methods.
Miscellaneous actuarial services not included above. Billed on a time and
expense basis.
Duane Hanf and
Richard Johnson
will charge
$225/Hour.
An invoice will be sent periodically and will reflect work performed or projects completed in
conformance with agreed upon fees. For special projects for which a set fee has not been
established in advance services will be billed on a time and expense basis.
City of Elk River, MN
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Section V
GASB 45 Requirements
GASB 45 requirements are summarized below using excerpts from GASB's Plan-Language
Summary
"...other postemployment benefits (OPEB) are postemployment benefits other Phan pensions.
OPEB generally takes the form of health insurance and dental, vision, prescription, or other
healthcare benefits provided to eligible retirees, including in some cases their beneficiaries. It
may also include some types of life insurance, legal services, and other benefits....
HOW SHOULD GOVERNMENTS PARTICIPATING IN DEFINED BENEFIT PLANS ACCOUNT
FOR OPEB?
In general, governments should account for and report the annual cost of OPEB and
the outstanding obligations and commitments related to OPEB in the same manner as they
currently do for pensions. These amounts should be produced by actuarial valuations
performed in accordance with parameters established by the GASB. The valuations should be
conducted at least every two years for plans that administer OPEB for 200 or more plan
members (both active employees and retirees) or at least every three years for plans with
fewer than 200. Actuarial valuations generally should follow accepted actuarial practices as
set forth by the Actuarial Standards Board.
How Should Governments Determine the Cost of OPEB?
The process of determining how much should be set aside now in order to provide for
future benefits in a defined benefit plan utilizes actuarial methods and assumptions. An
actuary's estimate or "valuation" is the product of many
o Assumptions, based on historical experience, regarding the factors that determine the
level of resources that will be needed in the future to finance benefits. These factors
may include, but are not limited to: How many employees a government is expected to
have that will receive benefits
o How long employees are expected to work for the government
o How long employees are expected to live after retiring (and, hence, how many years
they will receive benefits)
o How much healthcare costs are expected to increase
o How large a return a government is expected to receive on its investments.
The actuary calculates how much should be contributed now to ensure that an adequate
level of resources is available in the future. The future cash outlays for OPEB should be
projected based on economic and demographic assumptions such as those mentioned above.
These cash outflows would then be discounted to their actuarial present value-their estimated
value if paid today-using a discount rate equal to an assumed long-term rate of return on
investments. The actuarial present value generally would be spread over a period that
approximates the anticipated years of an average worker's employment with the government,
utilizing anyone of six acceptable actuarial cost methods. The portion of the actuarial present
value allocated to a particular year is called the normal cost. The portions allocated to the
remaining years of employment are future normal costs.......
The OPEB Liability. The actuarial calculations are required to take into account not
only benefits expected to be earned by employees in the future (future normal costs), but also
those benefits the employees have already earned...... The portion of the actuarial present
value allocated to prior years of employment-and thus not provided for by future normal costs-is
Ciry of Elk River, MN
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called the actuarial accrued liability (AAL).
OPEB Assets. If an OPEB plan has cash, investments, and other resources, these may
be applied to fund the actuarial accrued liability. The value of these resources is referred to as
the actuarial value of assets. The actuarial value of assets is not the same as fair value, which
is used to report a government's investments in its statements of net assets and balance sheet.
Fair values can be volatile in the short term, with gains one year and losses the next.
Postemployment benefits, however, are long-term transactions-assets are being set aside
today to pay for benefits well into the future. Although there may be sharp changes in asset
value in the short run, over the long run the change in asset value tends to be steadier. For
financial reporting purposes, gains or losses in plan assets are averaged over several years
(usually three to five), producing an actuarial value of assets that is more stable over time than
fair value.
The Unfunded Liability. The excess of the AAL over the actuarial value of assets is
the unfunded actuarial accrued liability (UAAL or unfunded liability). The unfunded liability
would be amortized (spread) over a period of up to thirty years (approximately equal to a
typical public employee's term of employment), either in level dollar amounts or as a level
percentage of projected payroll......
OPEB Contributions. The normal cost and the portion of the UAAL to be amortized in the
current period together make up the annual required contribution (ARC) of the employer for
the period. The ARC is an amount that is actuarially determined in accordance with the
requirements of Statements 43 and 45 so that, if paid on an ongoing basis, it would be
expected to provide sufficient resources to fund both the normal cost for each year and the
amortized unfunded liability. Employer contributions consist of payments directly to or on
behalf of a retiree or beneficiary, premium payments to insurers, or irrevocably transferred
assets to a trust (or equivalent arrangement) in which plan assets are dedicated to providing
benefits to retirees and beneficiaries in accordance with the terms of the plan and are legally
protected from creditors of the employer and plan administrator.
OPEB Expenses, Expenditures, and the Net Obligations. For a government in a single-
employer or agent multiple-employer plan, the annual OPEB cost equals the ARC plus or minus
certain adjustments if the employer's actual contributions in prior years differed from the ARC.
The annual OPEB cost is the OPEB expense that a government would report in its accrual-
based financial statements-the government-wide statements and the proprietary fund
statements. Generally, the cumulative sum of differences between an employer's annual OPEB
cost and the amounts actually contributed to the plan since the effective date of the standards
makes up a liability (or asset) called the net OPEB obligation......
WHAT ADDITIONAL OPEB INFORMATION SHOULD A GOVERNMENT EMPLOYER
PRESENT IN ITS FINANCIAL REPORT?
Notes to the Financial Statements
Plan Description. Disclosures describing the plan contain the following basic
information about the types of OPEB offered and how they are administered.
a. Name of the plan, identification of the public employee retirement system or other entity that
administers the plan, and identification of the plan as a singleemployer, agent multiple-
employer, or cost-sharing multiple-employer defined benefit OPEB plan.
b. Brief description of the types of benefits and the authority under which benefit provisions are
established or may be amended. For example, the disclosure might reveal that a plan
provides retirement, disability, and death benefits to plan members and their beneficiaries,
and that a specific section of state law regulates the changing of benefit provisions.
c. Whether the OPEB plan issues astand-alone financial report or is included in the report of a
City of Elk River, MN
Page 7
public employee retirement system or another entity and, if so, how to obtain the report.
Funding Policy. Governments should disclose the following funding policy information
about how contributions are made toward financing OPEB
a. Authority (for example, state statute) under which the obligations of the plan members,
employer(s), and other contributing entities (for example, state contributions to local
government plans) to contribute to the plan are established or may be amended.
b. Required contribution rate(s) of active plan members.
c. Required contribution rate(s) of the employer in accordance with the funding
policy, in dollars or as a percentage of current-year covered payroll. If the plan is a single-
employer or agent plan and the rate differs significantly from the ARC, a government should
disclose how the rate is determined. If the plan is acost-sharing plan, a government should
disclose the required contributions in dollars, the percentage of that amount contributed for
the current year and each of the two preceding years, and how the required contribution rate
is determined. Governments should also disclose any legal or contractual limitations on the
maximum amount of their contributions.
d. A brief description of the terms of any long-term contracts for contributions to the plan and
the amount still outstanding; for example, a government that is not able to make its full
contribution in a given year might agree with the plan to make up the shortfall with interest in
annual installments over athree-year period.
Members and Types of Benefits. If an employer government includes an OPEB plan in
its financial statements as a trust or agency fund and the plan does not issue its own financial
statements separate from those of the employer
government, the employer also discloses the following information about the plan as a whole:
a. The types of employees covered (such as general employees, police officers,
legislators) and, for multiple-employer plans, the participating governments
b. The number of members, sorted by (1) retirees and beneficiaries currently receiving
benefits, (2) members no longer working for the government and entitled to benefits, but
not yet receiving them, and (3) current employees
c. A brief description of (1) the types of benefits provided and (2) provisions for cost-of-
living adjustments or other future increases in benefits
d. The balances remaining as of the date of the financial report in the plan's legally
required reserves, a description of the purpose of the reserves, and whether the
reserves are fully funded.
Costs and Obligations, Methods and Assumptions. Because governments participating
in single-employer or agent multiple-employer plans are individually responsible for financing
the OPEB cost of their own employees and retirees, these governments are required to provide
additional information in their notes. The following additional disclosures are intended to help
users assess whether the governments are keeping pace with actuarially required contribution
amounts, the extent to which the resources set aside for paying OPEB are sufficient or
insufficient, and the methods and assumptions employed to conduct the actuarial calculations:
a. For the current year, annual OPEB cost and the dollar amount of contributions actually made.
If the employer has a net OPEB obligation, it should also disclose the components of annual
OPEB cost, the increase or decrease in the net OPEB obligation, and the net OPEB
obligation at the end of the year.
b. For the current year and each of the two preceding years, annual OPEB cost, percentage of
annual OPEB cost contributed that year, and net OPEB obligation at the end of each year.
c. The funded status of the plan; this is the same information governments would be required to
disclose in a schedule of funding progress (see below), but only for the most recent valuation
date.
City of Elk River, M1V
Page 8
d. Information about actuarial methods and assumptions used in the valuations that the
information reported about the ARC, annual OPEB cost, and the funded status and funding
progress of OPEB plans is based upon. (More details regarding this information can be found
in Statement 45.)
Required Supplementary Information (RSI)
Governments generally should present RSI related to defined benefit OPEB plans
covering the last three actuarial valuations. ...... Three types of RSI about defined benefit
OPEB plans might be presented in a government's financial report:
a. Schedule of funding progress
b. Schedule of employer contributions
c. Notes to the RSI schedules.........
WHEN SHOULD GOVERNMENTS IMPLEMENT THESE NEW STANDARDS?
The new standards should be implemented by employers in three phases based on a
government's total annual revenues in the first fiscal year ending after June 15, 1999:
Phase 1-governments with total annual revenues of $100 million or more
periods beginning after December 15, 2006
Phase 2-governments with total annual revenues of $10 million or more, but
less than $100 million-periods beginning after December 15, 2007
Phase 3-governments with total annual revenues of less than $10 million
periods beginning after December 15, 2008. "
City of Elk River, NIN
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Section VI
Limitations on Liability
Our professional staff does not provide the following services:
o Legal or tax services or advice.
o Investment services or advice.
o Fiduciary services as defined by ERISA
o Plan administrator
o Accounting services or advice.
Liability resulting from errors or omissions shall not include i) punitive damages, ii)
consequential damages, iii) contributions required to the plan, or iv) increased contributions due
to changes in the law or changes in interpretation of the law due to recent court decisions.
Disputes that can't be resolved shall be resolved by binding arbitration.
City of Elk River, MN
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