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OPEB Valuation 2021 2022 Arthur J. Gallagher & Co. All rights reserved City of New Hope GASB No. 75 Alternative Measurement Method Valuation December 31, 2021 City of New Hope 2022 Arthur J. Gallagher & Co. All rights reserved. Table of Contents City of New Hope Actuarial Certification ......................................................................................................................................... 1 Executive Summary ........................................................................................................................................... 2 Governmental Accounting Standard No. 75 Background.................................................................................. 3 Exhibits ▌Liabilities and Annual Costs Schedule of Net OPEB Liability ......................................................................................................................... 4 Schedule of Changes in Net OPEB Liability ...................................................................................................... 5 Schedule of Contributions ................................................................................................................................. 6 Schedule of Investment Returns ....................................................................................................................... 7 OPEB Expense .................................................................................................................................................. 8 Investment Gain/Loss Amortization ................................................................................................................... 9 Deferred Outflows and Inflows ........................................................................................................................10 ▌Input Information Summary of Plan Participants .........................................................................................................................11 Summary of Plan Provisions ...........................................................................................................................12 Summary of Assumptions and Methods ..........................................................................................................13 ▌Governmental Accounting Standard No. 75 Terminology ........................................................................15 City of New Hope — GASB No. 75 1 Actuarial Certification In our opinion, the following report presents fairly the December 31, 2021 Alternative Measurement Method Valuation of City of New Hope (the City) postemployment benefits other than pensions (OPEB) and has been prepared in accordance with Statement No. 75 of the Governmental Accounting Standards Board (GASB) and with generally accepted actuarial principles and practices. Actuarial computations under GASB No. 75 are for plan and employer accounting and financial reporting requirements. Determinations for other purposes may be significantly different from those contained in this report; the results in this report should not be used for other purposes. This valuation has been conducted with reliance upon participant, financial and plan provision information provided to us by the City. We have reviewed the information provided to us for general reasonableness but did not audit the data. The accuracy of the information in this valuation is dependent on the quality and completeness of the information provided to us. This valuation was performed on the basis of the participant data, plan provisions, assumptions, and methods stated in this report. The assumptions and methods used in this valuation were selected by the City in consultation with Gallagher Benefit Services, Inc. In our opinion, the assumptions used (a) each, and in the aggregate, are reasonably related to the experience of the plan and to reasonable expectations, and (b) in the aggregate, represent our best estimate of anticipated experience under the plan. The discount rate was updated as of December 31, 2021 as prescribed by GASB No. 75. All other assumption changes can be found in Exhibit 10. Updates to plan provisions can be found in Exhibit 9. There were no other changes in Plan provisions, cost allocation procedures, contribution allocation procedures, or methods from the previous measurement. There were no adjustments of prior measurements or use of approximations which would materially impact the results. Future measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan 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 Plan’s funded status); and changes in Plan provisions or applicable law. Due to the limited scope of this engagement, we did not complete an analysis of the potential range of such future measurements. The results in this report should only be used for the stated purposes since determinations for other purposes may be significantly different from those contained in this report. If this report is shared with parties other than the Client, it must be shared in its entirety. To the best of our knowledge, the information contained in this report is complete, accurate and in accordance with generally accepted actuarial principles as recommended by the American Academy of Actuaries. The actuary indicated below is a fellow of the Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained in this report. Laura K. Pistotnik, FSA, MAAA Senior Client Actuarial Consultant April 2022 City of New Hope — GASB No. 75 2 Executive Summary The tables below highlight the December 31, 2020 and December 31, 2021 assets and liabilities and the fiscal year ending 2020 and 2021 annual costs for the City's Other Postemployment Benefits (OPEB) as prescribed under GASB No. 75. Assets and Liabilities December 31, 2020 December 31, 2021 Actuarial Present Value of Benefits (PVB) $ 2,463,916 $ 1,930,922 Total OPEB Liability (TOL) 1,298,682 903,533 Plan Fiduciary Net Position (FNP) - - Net OPEB Liability (NOL) 1,298,682 903,533 The Actuarial Present Value of Benefits is the present value of all expected future benefits, claims and administration costs for participants less contributions paid by participants after employment. The Total OPEB Liability is the portion of the Actuarial Present Value of Benefits attributed to an employee’s past service, based on the Entry Age Normal cost method. The Plan Fiduciary Net Position is the value of assets irrevocably dedicated to the plan for providing future benefits to participants after employment. The Net OPEB Liability is the unfunded portion of the Total OPEB Liability. Annual Costs Fiscal Year Ending December 31, 2020 Fiscal Year Ending December 31, 2021 Service Cost $ 89,655 $ 102,913 OPEB Expense 136,461 (209,986) Actuarially Determined Contribution (ADC) N/A N/A Annual Pay-As-You-Go Cost 22,038 27,550 Measurement Date 12/31/2020 12/31/2021 The OPEB Expense is the amount the employer charges as the cost of the postemployment healthcare benefits on its income statement each fiscal year. It includes the value of benefits earned during the year (Service Costs), amortization of unrecognized gains and losses, and interest on the Net OPEB Liability. There is no requirement to contribute the OPEB Expense. The Actuarially Determined Contribution (ADC) is not applicable unless the employer is funded and calculates an ADC. The Annual Expected Pay-As-You-Go Cost is the expected claims and administration costs less deductibles, coinsurance and contributions for inactive participants during the fiscal year. It includes the actual explicit subsidy costs paid by the City. City of New Hope — GASB No. 75 3 Governmental Accounting Standard No. 75 Background Background The Governmental Accounting Standards Board (GASB) approved Statement No. 75 in June 2015. GASB No. 75 replaces the requirements of Statement No. 45 and address the liabilities associated with Other Postemployment Benefits (OPEB) that are not pensions. GASB No. 75 addresses the accounting and financial reporting by employers for postemployment benefits other than pensions and is effective for employer fiscal years beginning after June 15, 2017. GASB Statement No. 75 includes many significant changes from Statement No. 45, including: new discount rate methodology, requirement to use Entry Age Normal cost method, more rapid recognition of actuarial gains and losses and changes in actuarial assumptions in OPEB Expense, immediate recognition of plan changes in OPEB expense, two year valuation requirement and additional sensitivity measurements regarding discount rate and trend rate sensitivity. Alternative Measurement Method requires experience and assumption gains and losses to be recognized immediately. Participant Data Participant census data and claims experience for the City is summarized in the Summary of Plan Participants and the Summary of Assumptions and Methods sections of this report. Plan Provisions Plan provisions describe the arrangement that an employer has undertaken to provide its employees with benefits after they retire. Provisions of the plan may be written, spoken, or implied by a well-defined practice of paying postemployment benefits. The plan provisions for the City's OPEB Plan are summarized in the Summary of Plan Provisions section of this report. Assumptions and Methods Assumptions and methods used in determining GASB No. 75 liabilities are selected in accordance with established actuarial standards. Each assumption, such as turnover, retirement, disability, mortality, dependency status, spouse age differential, participant election, per capita claims costs, healthcare cost trend rates and discount rate, is used to estimate the occurrence of future events affecting postemployment benefit costs. Assumptions and methods used in this valuation are described in the Summary of Assumptions and Methods sections of this report. City of New Hope 2022 Arthur J. Gallagher & Co. All rights reserved. Liabilities and Annual Costs City of New Hope — GASB No. 75 4 Exhibit 1 Schedule of Net OPEB Liability FYE 2020 FYE 2021 Total OPEB Liability $ 1,298,682 $ 903,533 Plan fiduciary net position - - Net OPEB liability (asset) $ 1,298,682 $ 903,533 Plan fiduciary net position as a percentage of the total OPEB liability 0.0% 0.0% Covered-employee Payroll $ 7,400,000 $ 9,400,000 Net OPEB liability (asset) as a percentage of covered-employee payroll 17.5% 9.6% Sensitivity of the Net OPEB Liability to changes in the Discount Rate 1% Increase Current Discount Rate 1% Decrease Total OPEB Liability $ 831,201 $ 903,533 $ 982,313 Plan fiduciary net position - - - Net OPEB Liability $ 831,201 $ 903,533 $ 982,313 Sensitivity of the Net OPEB Liability to changes in the Healthcare Trend Rates 1% Increase Current Trend Rates 1% Decrease Total OPEB Liability $ 1,029,868 $ 903,533 $ 796,939 Plan fiduciary net position - - - Net OPEB Liability $ 1,029,868 $ 903,533 $ 796,939 City of New Hope — GASB No. 75 5 Exhibit 2 Schedule of Changes in Net OPEB Liability FYE 2020 FYE 2021 Total OPEB Liability Service Cost $ 89,655 $ 102,913 Interest 33,026 29,422 Changes of benefit terms - - Differences between expected and actual experience 27 (479,230) Changes of assumptions 71,306 (20,704) Benefit payments (22,038) (27,550) Net change in total OPEB liability $ 171,976 $ (395,149) Total OPEB Liability--Beginning 1,126,706 1,298,682 Total OPEB Liability--Ending (a) 1,298,682 903,533 Plan fiduciary net position Contributions - Employer $ 22,038 $ 27,550 Net investment income - - Benefit payments (22,038) (27,550) Administrative expense - - Other - - Net change in plan fiduciary net position $ - $ - Plan fiduciary net position--beginning - - Plan fiduciary net position--ending (b) $ - $ - Net OPEB Liability (asset)--ending (a) - (b) $ 1,298,682 $ 903,533 Discount Rate--ending (20-year municipal bond index) 2.12% 2.06% Measurement Date 12/31/2020 12/31/2021 City of New Hope — GASB No. 75 6 Exhibit 3 Schedule of Contributions FYE 2020 FYE 2021 Actuarially determined contribution* N/A N/A Contributions in relation to the actuarially determined contribution N/A N/A Contribution deficiency (excess) N/A N/A Covered-employee Payroll $ 7,400,000 $ 9,400,000 Contributions as a percentage of covered-employee payroll N/A N/A *An Actuarially Determined Contribution (ADC) is not applicable unless the employer is funded and calculates an ADC. City of New Hope — GASB No. 75 7 Exhibit 4 Schedule of Investment Returns FYE 2020 FYE 2021 Annual money-weighted rate of return, net of investment expenses N/A N/A City of New Hope — GASB No. 75 8 Exhibit 5 OPEB Expense for Fiscal Year Ended December 31 FYE 2020 FYE 2021 Service Cost $ 89,655 $ 102,913 Interest on the total OPEB liability 33,026 29,422 Differences between expected and actual experience* 6,713 (410,756) Changes of assumptions* 7,067 68,435 Changes of benefit terms - - Projected earnings on OPEB plan investments - - - - OPEB plan administrative expenses - - Other changes in fiduciary net position -- $ 136,461 $ (209,986) Amount for Portion of Projected Projected Period Period Rate of Return Earnings Projected earnings on OPEB plan investments (a) (b) (c) (a) x (b) x (c) Beginning plan fiduciary net position $ - 100% 2.12% $ - Employer contributions 27,550 50% 2.12% 292 Benefit payments (27,550) 50% 2.12% (292) Administrative expense and other -50%2.12%- Total projected earnings $ - Interest on the Amount for Portion of Total OPEB Period Period Interest Rate Liability Interest cost on total OPEB liability (a) (b) (c) (a) x (b) x (c) Beginning total OPEB liability $ 1,298,682 100% 2.12% $ 27,532 Service cost 102,913 100% 2.12% 2,182 Benefit payments (27,550)50%2.12%(292) Total interest on the total OPEB liability $ 29,422 Differences between projected and actual earnings on plan investments *FYE 2021 expense includes remaining FYE 2020 experience and assumption deferred outflows and inflows of resources in order to recognize all liability gains/losses immediately per GASB 75 Alternative Measurement Method valuation requirements. City of New Hope — GASB No. 75 9 Exhibit 6 Investment Gain/Loss Amortization Differences Between Projected . and Actual Earnings on Recognition . OPEB Plan Period Year Investments (Years) 2018 2019 2020 2021 2022 2023 2024 2025 2017 N/A 5.0 - - - - - - - - 2018 - 5.0 - - - - - - - - 2019 - 5.0 - - - - - - - - 2020 - 5.0 - - - - - - - - 2021 - 5.0 - - - - - - - - Net Increase (decrease) in OPEB expense $ - $ - $ - $ - $ - $ - $ - $ - Deferred outflows of resources and deferred inflows of resources arising from differences between expected and actual experience Balances at December 31, 2021 Amounts Recognized in . OPEB Expense Deferred Deferred Experience Experience through Outflows of Inflows of Losses Gains December 31, 2021 Resources Resources Year (a) (b) (c) (a) - (c) (b) - (c) 2017 N/A - - - - 2018 - - - - - 2019 - - - - - 2020 - - - - - 2021 - - - - - $ - $ - City of New Hope — GASB No. 75 10 Exhibit 7 Deferred Outflows and Inflows Balances at December 31, 2021 Deferred Outflows Deferred Inflows Source of Resources of Resources Differences between expected and actual experience $ N/A $ N/A Changes of assumptions N/A N/A Net difference between projected and actual earnings on investments - - Contributions made between Measurement Date and Reporting Date N/A N/A Total - - Deferred outflows of resources and deferred inflows of resources will be recognized in OPEB expense as follows: Year Ending 2022 - 2023 - 2024 - 2025 - 2026 - Thereafter - City of New Hope 2022 Arthur J. Gallagher & Co. All rights reserved. Input Information City of New Hope — GASB No. 75 11 Exhibit 8 Summary of Plan Participants The following table summarizes participant counts by status, medical plan and coverage elections, average age, and average service of benefits eligible employees as of the December 31, 2020 valuation date. Active Employee Data Medical Plan Single Single + Sp Family Total HSA $1,500 19 6 9 34 HSA $2,800 8 1 6 15 HSA $4,000 15 3 6 24 Total electing medical coverage 42 10 21 73 Waived medical coverage 18 Total active employees included in valuation 91 Average age of active employees 46.2 Average service of active employees 11.9 Inactive Participant Data Medical Plan Single Single + Sp Family Total HSA $1,500 0 0 0 0 HSA $2,800 0 0 0 0 HSA $4,000 3 0 0 3 Total electing medical coverage 3 0 0 3 Waived medical coverage 0 Total inactive employees included in valuation 3 Average age of inactive participants 60.3 City of New Hope — GASB No. 75 12 Exhibit 9 Summary of Plan Provisions This summary of plan provisions has been prepared for valuation purposes only. It outlines the plan provisions necessary to perform the Alternative Measurement Method Valuation. Eligibility Requirements The following eligibility requirements are the minimum allowed under Minnesota Statutes 471.61 and 299A.465 for local government entities: At retirement, employees of the City receiving a retirement or disability benefit, or eligible to receive a benefit (age 55 with at least 5 years of service) from a Minnesota public pension plan (other than a volunteer Firefighter plan) may continue to participate in the City’s group health insurance plan that the employee was a participant of immediately prior to retirement. For Officers or Firefighters disabled in the line-of-duty, the Officer’s or Firefighter’s employer must continue payment of the employer’s contribution toward health coverage for the Officer or Firefighter and their spouse, if the spouse was covered at the time of disability, until age 65. Length of Coverage Retirees and spouses are eligible to remain in the City-sponsored group health insurance plan until they attain age 65, provided the applicable premiums are paid. Health Insurance Plan Premiums The monthly group premiums for the City’s group health insurance plan effective January 1, 2021 are as follows: Rates Single Single + 1 Family HSA $1,500 $ 651.20 $ 1,465.16 $ 1,699.27 HSA $2,800 $ 526.92 $ 1,185.53 $ 1,374.96 HSA $4,000 $ 580.02 $ 1,304.99 $ 1,513.50 Retiree Contributions Retirees, other than Officers or Firefighters disabled in the line-of-duty, are required to pay the entire premium (group blended) for the City-sponsored group health insurance plan of which they are a participant until age 65, unless otherwise provided for in a collective bargaining agreement or personnel policy. For Officers or Firefighters disabled in the line-of-duty, Minnesota Statute 299A.465 requires the Officer’s or Firefighter’s employer to continue payment of the employer’s contribution toward health coverage for the Officer or Firefighter and their spouse, if the spouse was covered at the time of disability, until age 65. Changes in Plan Provisions  Medical premiums and retiree contributions were updated to current levels. City of New Hope — GASB No. 75 13 Exhibit 10 Summary of Assumptions and Methods The assumptions used in this Alternative Measurement Method Valuation are as follows: Valuation Date December 31, 2020 Measurement Date December 31, 2021 Benefits Valued Pre-65 medical benefits Discount Rate 2.06% (municipal bond rate) Payroll Growth Rate N/A General Inflation Rate 2.50% Cost Methods Entry Age Normal level percent of pay. Investment gains/losses are amortized over 5 years. Liability gains/losses and Plan changes are recognized immediately, per Alternative Measurement Method requirements. FYE2020 liability gains/losses that had been amortized in prior years were fully recognized during FYE2021 in order to recognize all liability gains/losses immediately per GASB 75 Alternative Measurement Method requirements. Health Insurance Participation at Retirement 55% of all benefits eligible employees as of the valuation date and are eligible for coverage at retirement are assumed to elect coverage at retirement. 100% of all disabled in the line of duty members are assumed to elect coverage at retirement. Spouse Participation Actual spouse elections used for current and future retirees. Spouse Age Husbands assumed to be three years older than wives. Medicare Eligibility All retirees are assumed to become Medicare eligible at age 65. Withdrawal, Mortality Rates and Salary Scale Rates from the July 1, 2014 through June 30, 2018 PERA and TRA Experience Studies. Retirement Age 56 for Police & Fire. Age 63 for all others (based on PERA average rates). Disability Rates None assumed Per Capita Claims and Administrative Costs $14,031.48 for the HSA $1,500 plan, $12,805.32 for the HSA $2,800 plan, and $11,660.40 for the HSA $4,000 plan, for all ages. Single average rate for all retirees based on premiums and population ages per GASB 75 Alternative Measurement Method calculation guidelines. City of New Hope — GASB No. 75 14 Exhibit 10 Summary of Assumptions and Methods Healthcare Cost Trend Rates Trend rates are used to project health insurance claims and administration costs and retiree premiums into the future. If healthcare inflation were to continue at its current rate, eventually 100% of the Gross National Product (GNP) would be allocated for healthcare services. Since this is unrealistic, healthcare cost trend rates are assumed to decrease in future years. The following table provides the healthcare cost trend rates for future years. Fiscal Year Beginning Trend 2021 6.5% 2022 6.2% 2023 5.9% 2024 5.5% 2025 5.2% 2026-2075 Transition to ultimate rate 2076+ 3.9% Actuarial Valuation Modeling Method Liabilities shown in this report were determined using actuarial valuation software designed by Winklevoss Technologies. This software is designed for the specific purpose of modeling pension plan liabilities and costs and is the standard pension valuation software used by Gallagher Benefit Services, Inc. The results in this report are based on various inputs into the software model, including the plan provisions and assumptions shown in this report, and demographic and financial information provided by the School. While the results have been tested and reviewed for overall accuracy and consistency, we have relied upon the validity of the underlying software coding in preparing this report. Trend Model Medical trend rates were developed based on the Society of Actuaries (SOA) Getzen Model of Long-Run Medical Cost Trends. The model is reviewed by the SOA project oversight group composed of experts in the field to estimate average long run medical trends. Short-term rates were updated based on recently published trend surveys and varying by pre-Medicare and post- Medicare plans. Short-term trend updates have no impact on the mid-term or long-term rates developed by the model. We have otherwise used the model’s default inputs. While the model’s results have been reviewed for reasonableness, we have relied upon the validity of the model in developing the mid-term and long-term trend rates. Changes in Assumptions  Medical trend was updated based on recently published trend model and trend surveys to better reflect future anticipated experience.  Medical per capita claims tables were updated based on recent experience and demographics.  The discount rate was updated from 2.12% to 2.06% based on recent muni bond index rates.  Withdrawal, mortality and salary scale assumptions were updated to those included in the recently published PERA General and Police & Fire actuarial valuations. City of New Hope 2022 Arthur J. Gallagher & Co. All rights reserved. Governmental Accounting Standards No. 75 Definitions City of New Hope — GASB No. 75 15 Governmental Accounting Standard No. 75 Definitions Actuarially Determined Contribution (ADC) A target or recommended contribution to a defined benefit OPEB plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted. Actuarial Present Value of Benefits (PVB) Projected benefit payments discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Average Working Lifetime Headcount weighted average expected future service, including inactive participants (0 years). Group Premium Cost-Sharing An amount the employer pays towards the Group Premium that is charged to a Retiree to participate in the employer- sponsored plan. Implicit Rate Subsidy The benefit a retiree receives equal to the difference between the medical and prescription drug expected claims costs for retirees and the Group Premium. Net OPEB Liability (NOL) The excess of the Total OPEB Liability over the Plan Fiduciary Net Position (unfunded Total OPEB Liability). OPEB Expense The amount the employer charges as the cost of the postemployment healthcare benefits on its income statement each fiscal year. Plan Fiduciary Net Position The value of assets irrevocably dedicated to the plan for providing future benefits to participants after employment. Service Cost The portion of the Actuarial Present Value of Benefits expected to be earned during the year, and allocated to the year, pursuant to the actuarial assumptions and methods used. Total OPEB Liability (TOL) As of a particular date, the Total OPEB Liability is the portion of the Actuarial Present Value of Benefits attributed to an employee’s past service.