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LACERA'S OPEB VALUATION - JULY 1, 2017

The following is the cover letter to the Actuarial Valuation document. Within the document you may view information about Assets, Liabilities, Contributions, Accounting Information, and more.

Click here to access the entire OPEB Actuarial Valuation document.

Milliman Letterhead

June 29, 2018

Mr. Robert R. Hill
Interim Chief Executive Officer
LACERA 300 North Lake Avenue, Suite
820 Pasadena, CA 91101

Re: July 1, 2017 Other Postemployment Benefits (OPEB) Actuarial Valuation

Dear Robert:

As requested, we have prepared an actuarial valuation of the retiree medical, dental/vision, and death benefits covering the retired Los Angeles County (County) workers who also participate in the Los Angeles County Employees Retirement Association (LACERA) retirement benefits plan. These health-related benefits are collectively referred to in this report as the Los Angeles County (County) Other Postemployment Benefits (OPEB) Program, or the “OPEB program”. The major findings of the valuation are contained in this report. This report reflects the benefit provisions in effect as of July 1, 2017, and the retiree health plan premium rates in effect as of July 1, 2017, received from Aon Hewitt (LACERA’s Health Care Benefits Consultant at the time), and July 1, 2018, received from Segal (LACERA’s Health Care Benefits Consultant at the time of this project).

In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the County, LACERA, Aon Hewitt, and Segal. This information includes, but is not limited to: benefit descriptions, membership data, and financial information. We found this information to be reasonably consistent and comparable with data used for other purposes. In some cases, where the census data was incomplete, we made assumptions as noted in Table C-12 of Appendix C. The valuation results depend on the integrity of this information. If any of this information is inaccurate or incomplete, our results may be different and our calculations may need to be revised.

In developing these recommendations, we have reflected an estimate of fees including the Patient Centered Outcomes Research Institute Fee and the Insurer Fee (including the 2019 calendar year moratorium) associated with the Affordable Care Act (ACA), which was signed into law in March 2010. The OPEB assumptions will reflect changes in future valuations as regulations are released. The Excise Tax is addressed separately in Section 3.

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.

All costs, liabilities, rates of interest, health cost trend rates, and other factors under the OPEB program have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the OPEB program and reasonable expectations); and which, in combination, offer a reasonable estimate of anticipated experience affecting the OPEB program. Further, in our opinion, the actuarial assumptions in the aggregate are reasonable and are related to the experience of the OPEB program and to reasonable expectations and represent a reasonable estimate of anticipated experience under the OPEB program.

We further 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 retirement benefit related demographic and economic assumptions used in this report are based on those developed for the June 30, 2016 valuation of the LACERA retirement benefits plan. The OPEB demographic and economic assumptions are based on the results of our 2016 OPEB Investigation of Experience, dated July 21, 2017. The assumptions used in the OPEB Investigation of Experience were derived from a combination of assumptions identified during the 2016 LACERA Investigation of Experience for Retirement Benefit Related Assumptions and collaboration among a group of stakeholder representatives. Economic and 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 were identified, evaluated, and agreed upon collaboratively by the actuaries and consultants representing the OPEB program stakeholders at the time including: Milliman, LACERA's actuary; Segal, LACERA’s auditing actuary; Aon Hewitt, LACERA's Health Care Benefits Consultant; Cheiron, 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 OPEB Investigation of Experience was reviewed in conjunction with the July 1, 2016 OPEB Valuation by LACERA's Board of Retirement.

OPEB specific assumptions that have been updated since the 2016 OPEB Investigation of Experience study include health cost trend rates updated with information from the July 1, 2018 renewals and carrier ACA Health Insurer Fee details and claim costs. The investment rate of return assumption was reviewed utilizing the Meketa Investment Group investment policy resulting in no change to this assumption from the prior July 1, 2016 OPEB valuation. These assumptions have been identified, evaluated, and agreed upon collaboratively by the actuaries and consultants currently representing the OPEB program stakeholders at the time including: Milliman, LACERA's actuary; Cavanaugh Macdonald, LACERA’s auditing actuary; Segal, LACERA's Health Care Benefits Consultant; Cheiron, Los Angeles County's actuary; and Rael & Letson, actuary for SEIU Local 721. LACERA’s Board of Retirement has the final decision regarding the appropriateness of the assumptions. The assumptions are summarized in Appendix A.

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.

Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: OPEB 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); and changes in OPEB program provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of future measurements.

This July 1, 2017 OPEB valuation is for funding purposes. The data, assumptions, OPEB program provisions as described in Appendix B of this report, and the funding goals serve as a basis for the separate GASB 74 and 75 disclosure reports. Actuarial computations under Government Accounting Standards Board (GASB) Statement Numbers 74 and 75 are for purposes of fulfilling financial accounting requirements for LACERA and Los Angeles County (the employer) respectively. The GASB 74 and 75 disclosure reports need to meet the requirements of these standards which include but are not limited to a different discount rate and actuarial cost methodology. LACERA must report under GASB 74 since the benefit payments flow through LACERA’s financial accounts. A discussion of the new GASB OPEB statements 74 and 75 applicable to OPEB reporting is in Section 2, Subsection E, Accounting and CAFR Information. 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 or the outside districts, 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.

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

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.

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 to render the actuarial opinion contained herein.

We would like to express our appreciation to LACERA staff members, Los Angeles County, SEIU Local 721, Aon Hewitt, Cavanaugh Macdonald, Segal, Rael & Letson, and Cheiron who gave substantial assistance on which this report is based.

Robert L. Schmidt, FSA, EA, MAAA signature

Robert L. Schmidt, FSA, EA, MAAA

Consulting Actuary

Janet Jennings, ASA, MAAA Signature

Janet O. Jennings, ASA, MAAA

Associate Actuary

RLS/pap

cc:  Mr. Robert Hill, LACERA

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.

8/10/18