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OPEB ACTUARIAL VALUATION

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 document.

Milliman Letterhead

 

July 1, 2020

 

Board of Retirement
Los Angeles County Employees Retirement Association 300 North Lake Avenue, Suite 820
Pasadena, CA 91101

Re: July 1, 2019 Other Postemployment Benefits (OPEB) Actuarial Valuation

Dear Members of the Board:

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, 2019, and the retiree health plan premium rates in effect as of July 1, 2019 and July 1, 2020 received from Segal (LACERA’s Health Care Benefits Consultant). This is the second OPEB funding valuation presented under an agent structure. OPEB funding valuations prior to the July 1, 2018 OPEB funding valuation were under a cost sharing structure.

In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the County, LACERA, 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-10 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 associated with the Affordable Care Act (ACA), which was signed into law in March 2010 and subsequent regulations and acts including the recent Further Consolidated Appropriations Act, 2020 (H.R. 1865). These fees include the Patient Centered Outcomes Research Institute (PCORI) Fee and the Health Insurer Fee in calendar year 2020. There was a calendar year 2019 moratorium on the Health Insurer Fee. H.R. 1865 repealed the Excise Tax and the Health Insurer Fee beginning with calendar year 2021. The OPEB assumptions will reflect changes in future valuations as regulations are released.

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 and methods 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 as a result of the 2019 Retirement Investigation of Experience study, dated January 28, 2020 and approved by LACERA’s Board of Investments. The OPEB demographic and economic assumptions are based on the results of our 2018 OPEB Investigation of Experience, dated June 25, 2019. The assumptions used in the OPEB Investigation of Experience 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; Cavanaugh Macdonald, LACERA’s reviewing actuary; Segal, 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, healthcare plan and tier selection, spouse age difference, and re-enrollment assumptions. These OPEB assumptions are combined for all of LACERA’s agents. The investment rate of return assumptions differs by agent. The investment earnings assumption for the agents that are prefunding through LACERA’s OPEB Trust is the expected return for the OPEB Trust. The investment earnings assumption for the agents that are not prefunding through LACERA’s OPEB Trust have an investment earnings assumption of the County’s general funds’ expected return. The 2018 OPEB Investigation of Experience was reviewed and approved during LACERA’s March 14, 2019 Board of Retirement Meeting.

OPEB specific assumptions that have been updated since the 2018 OPEB Investigation of Experience study include health cost trend rates updated with information from the July 1, 2020 renewals and carrier ACA Health Insurer Fee details. 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 reviewing 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 and methods are summarized in Appendix A.

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.

Given the substantial uncertainty regarding the impact of COVID-19 on plan costs, including whether the pandemic will increase or decrease costs during the term of our projections, we have chosen not to make an adjustment in the expected plan costs. It is possible that the COVID-19 pandemic could have a material impact on the projected costs.

This July 1, 2019 OPEB valuation is for funding purposes. The data, assumptions and methods, OPEB program provisions as described in Appendix B of this report, and the funding goals serve as a basis for the separate GASB 75 disclosure report. Actuarial computations under Government Accounting Standards Board (GASB) Statement Numbers 74 and 75 are for purposes of fulfilling financial accounting requirements for LACERA, Los Angeles County, Superior Court, and SCAQMD (the agents) respectively. The GASB 75 disclosure report needs to meet the requirements of these standards which include but are not limited to a different discount rate and actuarial cost methodology. A discussion of GASB OPEB statement 75 applicable to OPEB reporting is in Section 8. Determinations for purposes other than funding purposes 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):

  1. 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.
  2. 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, Superior Court 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.

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, Cavanaugh Macdonald, Segal, Rael & Letson, and Cheiron who gave substantial assistance on which this report is based.

We respectfully submit the following report and we look forward to discussing it with you. Sincerely,

Robert L. Schmidt, FSA, EA, MAAA signature

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

Janet Jennings, ASA, MAAA Signature

Janet O. Jennings, ASA, MAAA
Associate Actuary

RLS/JOJ/bh

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.

8/12/20