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2013 OPEB INVESTIGATION OF EXPERIENCE

July 1, 2013, OPEB Investigation of Experience

The following is the cover letter of the Los Angeles County Other Postemployment Benefits Program (OPEB) Investigation of Experience report. The purpose of this report is to communicate the results of LACERA’s actuary's review of the OPEB-related actuarial assumptions to be used in the completion of the valuation as of July 1, 2014.

Click here to access the entire Actuarial Valuation document.

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March 25, 2014

Mr. Gregg Rademacher
Chief Executive Officer
Los Angeles County Employees Retirement Association
300 North Lake Avenue
Pasadena, CA 91101-4199

Dear Gregg:

It is a pleasure to submit this report of our investigation of the experience of the Los Angeles County Other Postemployment Benefits (OPEB) Program for the three-year period ending June 30, 2013. The results of this investigation are the basis for recommended changes in OPEB-related actuarial assumptions for the actuarial valuation to be performed as of July 1, 2014.

The purpose of this report is to communicate the results of our review of the OPEB related actuarial assumptions to be used in the completion of the upcoming valuation. Several of our recommendations represent changes from the prior assumptions and are designed to better anticipate the emerging experience of LACERA’s OPEB Program.

We have provided financial information showing the estimated hypothetical impact of the recommended assumptions if they had been used in the July 1, 2012 actuarial valuation. We believe the recommended assumptions provide a reasonable estimate of anticipated experience affecting LACERA. Nevertheless, the emerging costs will vary from those presented in this report to the extent that actual experience differs from that projected by the actuarial assumptions.

In preparing this report, we relied without audit on information (some oral and some in writing) supplied by LACERA’s staff. This information includes, but is not limited to benefit descriptions and membership data. We used LACERA’s benefit provisions as stated in our July 1, 2012 OPEB Actuarial Valuation report. In our examination, after discussion with LACERA and making certain adjustments, we have found the data to be reasonably consistent and comparable with data used for other purposes. Since the experience study results are dependent on the integrity of the data supplied, the results can be expected to differ if the underlying data is incomplete or missing. It should be noted that if any data or other information is inaccurate or incomplete, our determinations might need to be revised.

Our July 1, 2012 valuation included the Transitional Reinsurance Fee and the Insurer Fee associated with the Affordable Care Act (ACA) in the trend assumption. Components of ACA will be reflected in the trend assumption which is not evaluated in this experience study. The trend assumption will be developed in the July 1, 2014 OPEB valuation.

This work product was prepared solely for LACERA for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product.

We certify that the assumptions developed in this report satisfy Actuarial Standards Board (ASB) Standards of Practice, in particular, No. 6 (Measuring Retiree Group Benefit Obligations). The assumptions used in this OPEB Investigation of Experience are derived from a combination of assumptions identified during the 2013 LACERA Investigation of Experience for Retirement Benefit Assumptions and collaboration among a group of stakeholder representatives. Demographic assumptions from the Retirement Benefit Investigation of Experience, conducted by Milliman and approved by LACERA’s Board of Investments, are integrated into the OPEB Investigation of Experience. Assumptions unique to OPEB are identified, evaluated, and agreed upon collaboratively by the actuaries and consultants representing the OPEB program stakeholders including: Milliman, LACERA’s actuary; Segal, LACERA’s auditing actuary; Aon Hewitt, LACERA’s Health Care Benefits Consultant; Buck Consultants, Los Angeles County’s actuary; and Rael & Letson, actuary for SEIU Local 721. Types of OPEB specific assumptions include: initial enrollment, plan and tier selection, spouse age difference, and re-enrollment assumptions. The health trend rates, discount rate and claim cost assumptions will be developed and agreed upon collaboratively with the same LACERA stakeholders during the July 1, 2014 valuation.

Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: program experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the program’s funded status); and changes in program provisions or applicable law. Due to the limited scope of the assignment, we did not perform an analysis of the potential range of future measurements.

Actuarial computations under GASB No. 43 and No. 45 are for purposes of fulfilling financial accounting requirements for LACERA and Los Angeles County (the employer) respectively. LACERA needs to report under GASB 43 since the benefit payments flow through LACERA’s financial accounts. The calculations in the enclosed exhibits have been made on a basis consistent with our understanding of GASB No. 43 and No. 45, as well as the County’s funding goals. Determinations for purposes other than meeting these financial accounting requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes.

Milliman’s work is prepared solely for the internal business use of LACERA. To the extent that Milliman’s work is not subject to disclosure under applicable public records laws, Milliman’s work may not be provided to third parties without Milliman’s prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work product. Milliman’s consent to release its work product to any third party may be conditioned on the third party signing a Release, subject to the following exception(s):

(a) LACERA may provide a copy of Milliman’s work, in its entirety, to LACERA’s professional service advisors who are subject to a duty of confidentiality and who agree to not use Milliman’s work for any purpose other than to benefit LACERA.

(b) LACERA may provide a copy of Milliman’s work, in its entirety, to other governmental entities, as required by law.

No third party recipient of Milliman’s work product should rely upon Milliman’s work product. Any third party recipient of Milliman’s work product, including Los Angeles County the South Coast Air Quality Management District, who desires professional guidance should not rely upon Milliman’s work product, but should engage qualified professionals for advice appropriate to their own specific needs.

We would like to express our appreciation to LACERA staff members, Los Angeles County, Aon Hewitt, Segal, Rael & Letson, and Buck Consultants who gave substantial assistance in supplying the data on which this report is based. We respectfully submit the following report and we look forward to discussing it with you.

The consultants who worked on this assignment are employee benefit and health actuaries. Milliman’s advice is not intended to be a substitute for qualified legal or accounting counsel.

On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices.

We are members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein.

Respectfully submitted,

Mark C. Olleman signature

Robert L. Schmidt, FSA, EA, MAAA
Consulting Actuary

Nick J. Collier signature

Janet O. Jennings, ASA, MAAA
Associate Actuary

RLS/JOJ/pap

This work product was prepared solely for LACERA for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product.

5/9/14