HomeMy WebLinkAboutActuarial Valuation
ACTUARIAL VALUATION
of
Firefighters' Pension Fund
City of Renton
January 1, 2017
Prepared by
Daniel R. Wade, FSA, EA, MAAA
Fellow, Society of Actuaries
Member, American Academy of Actuaries
and
Robert F. Busey, FSA, EA, MAAA
Fellow, Society of Actuaries
Member, American Academy of Actuaries
Offices in Principal Cities Worldwide
This work product was prepared solely for the City of Renton 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.
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1301 Fifth Avenue
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milliman.com
March 31, 2017
Firefighters' Pension Board
City of Renton
1055 S. Grady Way
Renton, WA 98055
Re: 2017 Actuarial Valuation
As requested, we performed an Actuarial Valuation of the City of Renton Firefighters' Pension
Fund as of January 1, 2017. The major findings of the valuation are contained in this report.
This report reflects the benefit provisions in effect as of the valuation date.
In preparing this report, we relied, without audit, on information (some oral and some in writing)
supplied by the City. This information includes, but is not limited to, statutory provisions,
employee data and financial information. We found this information to be reasonably consistent
and comparable with information used for other purposes. 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.
All costs, liabilities, rates of interest, and other factors for the Fund have been determined on the
basis of actuarial assumptions and methods which are individually reasonable (taking into
account the experience of the Fund and reasonable expectations); and which, in combination,
offer our best estimate of anticipated experience affecting the Fund. 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.
This valuation report is only an estimate of the Fund’s financial condition as of a single date.
It can neither predict the Fund’s future condition nor guarantee future financial soundness.
Actuarial valuations do not affect the ultimate cost of Fund benefits, only the timing of Fund
contributions. While the valuation is based on an array of individually reasonable assumptions,
other assumption sets may also be reasonable and valuation results based on those
assumptions would be different. No one set of assumptions is uniquely correct. Determining
results using alternative assumptions is outside the scope of our engagement.
Future actuarial 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 our assignment, we did not
City of Renton
March 31, 2017
Page 2
This work product was prepared solely for the City of Renton 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.
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perform an analysis of the potential range of future measurements. The Board has the final
decision regarding the appropriateness of the assumptions.
Actuarial computations presented in this report are for purposes of determining the
recommended funding amounts for the Fund. Actuarial computations presented in this report
under GASB Statements No. 67 and 68 are for purposes of fulfilling financial accounting
requirements. The computations prepared for these two purposes may differ as disclosed in our
report. The calculations in the enclosed report have been made on a basis consistent with our
understanding of the Fund’s funding requirements and goals and of GASB Statements No. 67
and 68. Determinations for purposes other than meeting these 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 the City of Renton (“City”). 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 exceptions:
(a) The City may provide a copy of Milliman’s work, in its entirety, to the Fund'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 the Fund.
(b) The City 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.
Such recipients should engage qualified professionals for advice appropriate to their own
specific needs.
The consultants who worked on this assignment are pension actuaries. Milliman’s advice is not
intended to be a substitute for qualified legal or accounting counsel.
The signing actuaries are independent of the plan sponsor. We are not aware of any
relationship that would impair the objectivity of our work.
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 staff members of the City of Renton, who gave
substantial assistance in supplying the data on which this report is based.
City of Renton
March 31, 2017
Page 3
This work product was prepared solely for the City of Renton 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.
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We respectfully submit the following report and look forward to discussing it with you.
Sincerely,
Daniel R. Wade, FSA, EA, MAAA Robert F. Busey, FSA, EA, MAAA
Consulting Actuary Actuary
Enrolled Actuary Number 14-06417 Enrolled Actuary Number 14-07875
DRW/RFB/nlo
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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Table of Contents
Page
SUMMARY: Scope of the Report ....................................................................................... 1
SECTION 1 Conclusions and Recommendations ............................................................. 7
SECTION 2 Valuation of Pension Benefits ........................................................................ 9
TABLE 1 Actuarial Present Value of All Future Pension Benefits
Not Provided by LEOFF System ..................................................................... 13
TABLE 2 Derivation of Contributions Required for Pension Benefits .............................. 14
SECTION 3 Actuarial Information for Accounting Purposes ......................................... 15
TABLE 3 GASB Statement No. 67 Schedule of Employer Contributions ........................ 17
TABLE 4 GASB Statement No. 67 Money-Weighted Rate of Return .............................. 18
TABLE 5 GASB Statement No. 67 Long-Term Expected Rate of Return ....................... 19
TABLE 6 GASB Statement No. 67 Calculation of the Discount Rate .............................. 20
TABLE 7 GASB Statement No. 67 Net Pension Liability ................................................ 21
TABLE 8 GASB Statement No. 67 Changes in Net Pension Liability.............................. 22
TABLE 9 GASB Statement No. 67 Schedule of Changes in Net Pension Liability
and Related Ratios ......................................................................................... 23
TABLE 10 GASB Statement No. 68 Pension Expense ..................................................... 24
TABLE 11 GASB Statement No. 68 Schedule of Deferred Inflows
and Outflows of Resources ............................................................................. 25
SECTION 4 Supplemental Information ............................................................................ 27
TABLE 12 Projection of Future Excess Pension Benefits ................................................. 28
APPENDIX A Actuarial Procedures and Assumptions ..................................................... 29
TABLE A-1 Summary of Valuation Assumptions ................................................................ 31
APPENDIX B Provisions of Governing Law ....................................................................... 33
APPENDIX C Valuation Data ............................................................................................... 39
TABLE C-1 Firefighters Retired for Service ........................................................................ 40
TABLE C-2 Firefighters Disabled in Line of Duty ................................................................ 40
TABLE C-3 Survivors of Firefighters .................................................................................. 40
APPENDIX D Glossary ........................................................................................................ 41
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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SUMMARY
Scope of the Report
This report presents the results of an actuarial valuation of the City's Firefighters' Pension Fund
(FPF). When valuing the pension fund liabilities, particular attention is given to the cost of
providing the “excess benefit,” a benefit under FPF available to active members as of March 1,
1970. On that date, the Washington Law Enforcement Officers' and Firefighters' System
(LEOFF) was established. Under the terms of governing law, active members of the City's FPF
on that date are entitled to payment from the FPF of the excess of benefits calculated under the
FPF law over those calculated under the LEOFF law. The City's FPF also pays the entire
pensions of those members retired prior to March 1, 1970 and their survivors. The employer
costs given in the report are those that are the responsibility of the City. They exclude pension
costs payable under the LEOFF system.
In addition to the summary information presented in this section, you will find the next section of
the report gives the conclusions and recommendations resulting from the valuation. Section 2
gives a brief description of the implications of the method employed in carrying out the
valuation. It also contains a presentation of the computations discussed in Section 1. Section 3
gives the disclosure required by the Governmental Accounting Standards Board (GASB).
Section 4 shows the projected cash payments the City will be required to pay under the pension
obligations of the FPF.
There are four appendices attached to the report. The actuarial assumptions used in the
valuation are summarized in Appendix A. Appendix B gives a summary of the benefit provisions
of both FPF and LEOFF, as interpreted for the purposes of this study. Appendix C contains
tables showing the distribution of the retirees with their monthly pension benefits by age.
Appendix D contains a glossary of terms.
Changes in Accounting Standards
The Governmental Accounting Standards Board (GASB) released new accounting standards for
public pension plans and participating employers in 2012. These standards, GASB Statements
No. 67 and 68, have substantially revised the accounting requirements previously mandated
under GASB Statements No. 25 and 27. The most notable change is the distinct separation of
funding from financial reporting. The Annual Required Contribution (ARC) has been eliminated
under GASB 67 and 68 and is no longer relevant for financial reporting purposes. As a result,
Plan Sponsors have been encouraged to establish a formal funding policy that is separate from
financial reporting calculations.
This work product was prepared solely for the City of Renton 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.
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GASB 67 applies to financial reporting for public pension plans and is required to be
implemented for plan fiscal years beginning after June 15, 2013. For the City’s FPF plan,
reporting was first done for GASB 67 as of December 31, 2014. Note that a plan's fiscal year
might not be the same as the employer's fiscal year. Even if the Plan does not issue standalone
financial statements, but rather is considered a pension trust fund of a government, it is our
understanding that it is subject to GASB 67. Under GASB 67, enhancements to the financial
statement disclosures are required, along with certain required supplementary information.
Please note that we are actuaries and that Milliman’s advice is not intended to be a substitute
for qualified accounting counsel.
GASB 68 governs the specifics of accounting for public pension plan obligations for participating
employers and is required to be implemented for employer fiscal years beginning after June 15,
2014. For the City’s FPF plan, reporting was first done for GASB 68 as of December 31, 2015.
GASB 68 requires a liability for pension obligations, known as the Net Pension Liability, to be
recognized on the balance sheets of participating employers. Changes in the Net Pension
Liability will be immediately recognized as Pension Expense on the income statement or
reported as deferred inflows/outflows of resources depending on the nature of the change.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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Findings
The following table presents an analysis of the actuarial present value of future pension benefits
to be paid by the City's FPF. The entire pension benefit of members retiring before the
establishment of the LEOFF System is paid by the City. The City's actuarial accrued liability for
members retiring after establishment of LEOFF is only for excess pension benefits, which can
be substantial.
Active Members Hired Prior to March 1, 1970:0$
Retirees and survivors:
Retirements prior to March 1, 1970 334,141$
Retirements since March 1, 1970 2,534,201 2,868,342$
Total Present Value of Future Benefits 2,868,342$
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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Projection of Future Excess Pension
The following table illustrates the projected excess annual pension payments for retired
members eligible for retirement benefits under FPF. The table is based on the actuarial
assumptions stated in Appendix A. The graph on the following page illustrates the projected
cash flow payments.
Year Ending
December 31
Total
Estimated
Payouts
2017 238,000$
2018 235,000
2019 236,000
2020 235,000
2021 234,000
2022 231,000
2023 226,000
2024 219,000
2025 211,000
2026 202,000
2027 192,000
2028 181,000
2029 168,000
2030 155,000
2031 142,000
2032 128,000
2033 115,000
2034 102,000
2035 90,000
2036 78,000
2037 68,000
2038 58,000
2039 48,000
2040 40,000
2041 33,000
2042 27,000
2043 21,000
2044 17,000
2045 13,000
2046 10,000
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
2017 2027 2037 2047
Expected Future Benefit Payments
Pension
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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Summary of Changes in Plan Net Assets for the
Years Ended December 31, 2015 and December 31, 2016
Below is a summary of changes in assets for the past two years.
2015 2016
RECEIPTS
Tax revenue from fire insurance premium $146,358 $148,034
Total receipts $146,358 $148,034
INVESTMENT EARNINGS
Investment income $336,787 $334,923
Net increase/(decrease) in the fair value of investments (202,796) (198,852)
Total investment earnings $133,991 $136,071
DISBURSEMENTS
Pension benefit payments $205,147 $208,231
Administrative expenses 11,775 426
Total disbursements $216,922 $208,657
CHANGE IN NET ASSETS $63,427 $75,448
Market Value of Net Assets BOY $9,467,775 $9,531,202
Market Value of Net Assets EOY $9,531,202 $9,606,650
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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SECTION 1
Conclusions and Recommendations
The City's obligations under the FPF are limited to the benefits provided to firefighters who
retired prior to March 1, 1970, plus payments of excess retirement benefits to active members
as of that date. To meet these obligations, the City may contribute annually to the Fund the
amount raised by levying all or part of a tax of up to $0.45 (only $0.225 of which can be in
excess of the property tax limit pursuant to Revised Code of Washington (RCW) 84.52.043) per
$1,000 of true and fair market value, the maximum provided by law for maintaining the Fund.
Contributions also include donations and income from the state fire insurance premium
collection.
On the basis of the actuarial assumptions used in this valuation, we estimate that the current
assets of the Fund, along with investment earnings, will be sufficient to pay all future FPF
pension benefits. Accordingly, we recommend that the City make no contributions to the Fund
until the next actuarial valuation is performed.
As of January 1, 2017, the actuarial present value of future excess pension benefits to be
provided by the City is $2,868,342.
As of January 1, 2015 (the date of our last valuation), the present value of excess pension
benefits was determined to be $3.221 million. The expected value as of January 1, 2017 based
upon our 2015 valuation was $2.989 million. The actual present value of $2.868 million was 4%
lower than expected for reasons summarized in the following chart:
The fund experienced a liability decrease since our last valuation. The decrease is mainly
attributable to the changes in the economic assumptions.
For this valuation we are assuming a 2.50% increase for FPF benefits tied to salary increases in
2018. By comparison, in the prior valuation there was a 3.25% salary increase assumption for
2016 onward. This assumption change resulted in lower overall projected FPF benefits, and as
a result, lower projected city paid excess benefits. The assumptions were changed in order to
better reflect current expectations.
In addition, the discount rate was raised from 3.50% to 3.75%. A higher discount rate results in
a lower present value of measured liabilities.
Reason
Liability Increase (Decrease)
as a Percentage
Changes in demographics (1%)
Changes in benefit amounts compared to expectations 1%
Changes in the economic assumptions (4%)
Total (4%)
This work product was prepared solely for the City of Renton 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.
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The Plan’s demographic experience resulted in a small decrease in liabilities.
Partially offsetting these decreases, was the fact that excess benefits increased more than
anticipated over the past two years.
The Plan remains sensitive to demographic experience that deviates from expectations due to
the small size of the Plan membership. The Plan also remains sensitive to deviations in the
excess benefit amounts from expectations.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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SECTION 2
Valuation of Pension Benefits
Income from the FPF comes from the following sources, as described in RCW.41.16.050:
1. Bequests, fees, gifts, emoluments or donations.
2. Forty-five percent of all monies received by the State from taxes on fire insurance premiums,
prior to January 1, 2000. Twenty-five percent after January 1, 2000.
3. Taxes paid pursuant to the provisions of R.C.W.41.16.060 (see below).
4. Interest on the investments of the Fund.
5. Contributions by firefighters as provided herein.
The provisions referred to in item (3) require that each municipality levy up to $0.45 (only $0.225
of which can be in excess of the property tax limit pursuant to RCW 84.52.043) per $1,000 of
assessed valuation, based on reports by a qualified actuary, to maintain the Fund.
At the time that the LEOFF System was installed, the state assumed the major portion of the
obligation to provide future retirement benefits for members still in active service at the date of
the inception of LEOFF, March 1, 1970. Each of the cities maintaining an FPF retained the
responsibility for all benefits payable to members (or to their survivors) who retired prior to that
date. In addition, each city retained the responsibility for a portion of the benefits payable to
members who were active on that date. These members are entitled to benefits under either the
FPF formula or the LEOFF formula, whichever is greater. If the FPF benefit is greater, the City's
FPF must meet the cost of the excess of the FPF benefit over the LEOFF benefit.
Upon the establishment of LEOFF, the total pension liability of each FPF was expected to
decrease rapidly from year to year because of the closed, diminishing nature of the group of
retirees and survivors. However, the excess pension benefits paid by each city's FPF have
generally been much larger than anticipated. This is largely due to the way postretirement
adjustments to benefits are calculated.
For those retired after 1970, the City must pay the excess of the FPF benefit over the LEOFF
benefit. The LEOFF benefits increase with the Consumer Price Index (CPI) for Seattle, while
most of the FPF benefits increase with wages of the current active firefighters in the rank the
members held at retirement. For this reason, the benefits are highly sensitive to the spread
between wage increases and CPI increases. Wages have typically grown at a faster rate than
CPI and are expected to continue to do so in the future.
This work product was prepared solely for the City of Renton 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.
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Small changes in the assumptions for wage increases or CPI have a magnified impact on the
liabilities calculated. To see why this magnification occurs, consider the following example.
Suppose that a person has an FPF benefit of $4,000 per month and a LEOFF benefit of $3,500
per month. The city-paid benefit is $500 per month. If wages increase at 3.25%, while CPI
increases at 2.25%, the benefit increases will look like the following:
Current Year Increase Following Year
FPF $ 4,000.00 3.25% $ 4,130.00
LEOFF 3,500.00 2.25% 3,578.75
City-Paid Benefit $ 500.00 10.25% $ 551.25
As you can see, the city-paid benefit increased 10.25% despite the fact that the total benefit
paid to the member increased by only 3.25%.
Consider the same example, but with a 3.50% increase to wages.
Current Year Increase Following Year
FPF $ 4,000.00 3.50% $ 4,140.00
LEOFF 3,500.00 2.25% 3,578.75
City-Paid Benefit $ 500.00 12.25% $ 561.25
In the second example, the wages and total benefit increased by 0.25% more (3.50% - 3.25%)
than in the first example. However, the city-paid portion of the benefit increased by 2.00% more
(12.25% - 10.25%) than in the first example.
This work product was prepared solely for the City of Renton 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.
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Under LEOFF, the benefit is adjusted after retirement in proportion to the change in the CPI.
Under FPF, most adjustments are based on the change in salary for the active firefighters in the
rank the members held at retirement. Wages have nearly always increased more rapidly than
prices. The pattern is illustrated by the following table:
The wage information is based on statistics from the Social Security System back to 1951 and
the Total Private Nonagricultural Wages prior to 1951. The CPI figures are based on the
national Consumer Price Index, U.S. City Average and All Urban Consumers. Over all years
considered, wages have increased 1.3% faster than CPI. For the past 20 years, wages have
grown at a rate of 1.0% higher than CPI.
Period Ending 10 years 20 years 50 years 90 years
2016 1.9%2.2%4.1%3.0%
2006 2.4%3.1%4.1%
1996 3.7%5.1%4.1%
1986 6.6%6.2%4.2%
1976 5.9%3.8%
1966 1.8%2.2%
1956 2.5%3.5%
Period Ending 10 years 20 years 50 years 90 years
2016 2.4%3.2%4.7%4.3%
2006 4.1%4.1%4.9%
1996 4.1%5.3%5.3%
1986 6.5%6.5%6.0%
1976 6.4%4.9%4.4%
1966 3.4%4.8%
1956 6.2%6.7%
Period Ending 10 years 20 years 50 years 90 years
2016 0.5%1.0%0.6%1.3%
2006 1.7%1.0%0.8%
1996 0.4%0.2%1.2%
1986 -0.1%0.3%1.8%
1976 0.5%1.1%
1966 1.6%2.6%
1956 3.7%3.2%
Geometric Average Increase in National Average CPI
for Previous Period of Years
Geometric Average Increase in National Average Wages
for Previous Period of Years
Geometric Average Increase in National Average Wages Minus Geometric
Average Increase in National Average CPI
for Previous Period of Years
This work product was prepared solely for the City of Renton 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.
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In addition to historical data, we reviewed current economic forecasts to find an economic
forecast with a time frame suited to our purposes. We looked at the expected increase in the
CPI used by the Office of the Chief Actuary for the Social Security Administration. In the 2016
Trustees Report, the ultimate projected annual increase in the CPI under the intermediate cost
assumptions was 2.6%. The range was stated as 2.0% to 3.2%. The ultimate projected annual
growth rate in U.S. earnings was 3.8% for the intermediate assumptions, with a range of 2.6%
to 5.0%.
Since the U.S. Treasury started issuing inflation indexed bonds (TIPS), it is possible to
determine the approximate rate of inflation anticipated by the financial markets over the next
30 years by comparing the yields on inflation-indexed bonds with traditional fixed government
bonds. This analysis implies expectations of inflation rates of about 2.0% as of January 2017.
Capital market assumptions by investment advisors tend to range somewhere between the
implied inflation rate and the inflation rate used by the Office of the Chief Actuary for the Social
Security Administration.
For this valuation, we assume that in the long-term wages increase at 3.25% per year and CPI
increases at 2.25%, reflecting both historical data and economic forecasts. The actuarial
assumptions are monitored for reasonableness and periodic changes are made when
appropriate.
Table 1 presents an analysis of the actuarial present value of future pension benefits to be paid
by the FPF. The entire pension benefit of members retiring before the establishment of the
LEOFF System is paid by the City. The City's actuarial accrued liability for members retiring
after establishment of LEOFF is only for excess pension benefits, which can be substantial.
Table 2 develops the Fund's actuarial deficiency for pension benefits, which is zero.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 1
Actuarial Present Value of All Future Pension Benefits
Not Provided by LEOFF System
Active Members Hired Prior to March 1, 1970:0$
Retirees and survivors:
Retirements prior to March 1, 1970 334,141$
Retirements since March 1, 1970 2,534,201 2,868,342$
Total Present Value of Future Benefits 2,868,342$
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 2
Derivation of Contributions Required for Pension Benefits
A.Actuarial present value of all future pension benefits not
provided by the LEOFF System (Table 1):
For active members 0$
For retirees and survivors 2,868,342
2,868,342$
B.Assets of the Fund:Market Value
Cash 2,240,566$
Investments 7,366,510
Other Assets 0
9,607,076$
Less liabilities (426)
9,606,650$
C.Actuarial deficiency: Actuarial present value of amount to be
funded from City appropriations, beginning in 2017 [A-B, not
less than zero]:0$
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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SECTION 3
Actuarial Information for Accounting Purposes
Overview of GASB Statements No. 67 and 68
The Governmental Accounting Standards Board (GASB) released new accounting standards for
public pension plans and participating employers in 2012. These standards, GASB Statements
No. 67 and 68, have substantially revised the accounting requirements previously mandated
under GASB Statements No. 25 and 27. The most notable change is the distinct separation of
funding from financial reporting. The Annual Required Contribution (ARC) has been eliminated
under GASB 67 and 68 and is no longer relevant for financial reporting purposes. As a result,
plan sponsors have been encouraged to establish a formal funding policy that is separate from
financial reporting calculations.
GASB 67 applies to financial reporting for public pension plans and is required to be
implemented for plan fiscal years beginning after June 15, 2013. For the City’s FPF plan,
reporting was first done for GASB 67 as of December 31, 2014. For GASB 67, note that a plan's
fiscal year might not be the same as the employer's fiscal year. Even if the Plan does not issue
stand-alone financial statements, but rather is considered a pension trust fund of a government,
it is our understanding that it is subject to GASB 67. Under GASB 67, enhancements to the
financial statement disclosures are required, along with certain required supplementary
information. Please note that we are actuaries and that Milliman’s advice is not intended to be a
substitute for qualified accounting counsel.
GASB 68 governs the specifics of accounting for public pension plan obligations for participating
employers and is required to be implemented for employer fiscal years beginning after June 15,
2014. For the City’s FPF plan, reporting was first done for GASB 68 as of December 31, 2015.
GASB 68 requires a liability for pension obligations, known as the Net Pension Liability, to be
recognized on the balance sheets of participating employers. Changes in the Net Pension
Liability will be immediately recognized as Pension Expense on the income statement or
reported as deferred inflows/outflows of resources depending on the nature of the change.
Relationship Between Valuation Date, Measurement Date, and Reporting Date
The Valuation Date is January 1, 2017. This is the date as of which the actuarial valuation is
performed. The Measurement Date is December 31, 2016. This is the date as of which the net
pension liability is determined. The Reporting Date is December 31, 2016. This is the Plan's
and/or employer's fiscal year ending date.
This work product was prepared solely for the City of Renton 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.
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Actuarially Determined Contribution
As mentioned in the Overview, GASB Statement 67 has separated funding from financial
reporting. Paragraph 32c of GASB Statement 67 provides guidance for a schedule of an
actuarially determined contribution, if such a contribution is calculated. For this report, the
actuarially determined contribution is equal to zero for all years, as the plan assets have been
significantly greater than the liabilities. It should be noted that for the fiscal years ending 2007-
2013, the reported Annual Required Contribution under GASB 25 and 27 had been negative.
Changes of Net Pension Liability
GASB Statement 67 requires a schedule of changes in Net Pension Liability from year to year.
For this report, the December 31, 2015 amount in this schedule is based on the January 1, 2015
actuarial valuation and uses a discount rate of 3.50%. The December 31, 2016 amount is based
on the January 1, 2017 actuarial valuation and uses a discount rate of 3.75%.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 3
GASB Statement No. 67 Schedule of Employer Contributions
Fiscal Year Actuarially Actual Contribution Contribution
Ending Determined Employer Deficiency Covered as a % of
December 31 Contribution Contribution*(Excess)Payroll Covered Payroll
2007 $0 $59,777 ($59,777)$0 N/A
2008 0 66,055 (66,055)0 N/A
2009 0 70,327 (70,327)0 N/A
2010 0 107,068 (107,068)0 N/A
2011 0 102,354 (102,354)0 N/A
2012 0 118,775 (118,775)0 N/A
2013 0 124,391 (124,391)0 N/A
2014 0 142,706 (142,706)0 N/A
2015 0 146,358 (146,358)0 N/A
2016 0 148,034 (148,034)0 N/A
*Employer contributions for pensions are total contributions to the Fund net of disbursements from the Fund
for medical expenses under RCW 41.26.150. It includes revenues from fire insurance premium taxes. Prior
to 2014, administrative expenses were also subtracted from employer contributions.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 4
GASB Statement No. 67 Money-Weighted Rate of Return
Calculation of Money-Weighted Rate of Return
The money-weighted rate of return considers the changing amounts actually invested during a
period and weights the amount of pension plan investments by the proportion of time they are
available to earn a return during that period. External cash flows are determined on a monthly
basis and are assumed to occur at the beginning of each month. External cash inflows are
netted with external cash outflows, resulting in a net external cash flow in each month. The
money-weighted rate of return is calculated net of investment expenses.
Fiscal Year Net
Ending Money-Weighted
December 31 Rate of Return
2007 N/A
2008 N/A
2009 N/A
2010 N/A
2011 N/A
2012 N/A
2013 N/A
2014 4.31%
2015 1.42%
2016 1.43%
Net External
Net External Periods Period Cash Flows
Cash Flows Invested Weight With Interest
Beginning Value - January 1, 2016 $9,531,202 12.00 1.00 $9,667,426
Monthly net external cash flows:
January (16,582)12.00 1.00 (16,819)
February (16,582)11.00 0.92 (16,800)
March (16,582)10.00 0.83 (16,778)
April (15,966)9.00 0.75 (16,136)
May 132,068 8.00 0.67 133,330
June (15,966)7.00 0.58 (16,097)
July (18,394)6.00 0.50 (18,525)
August (18,894)5.00 0.42 (19,007)
September (18,894)4.00 0.33 (18,983)
October (18,135)3.00 0.25 (18,200)
November (18,135)2.00 0.17 (18,179)
December (18,561)1.00 0.08 (18,582)
Ending Value - December 31, 2016 9,606,650 9,606,650
Money-Weighted Rate of Return 1.43%
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 5
GASB Statement No. 67 Long-Term Expected Rate of Return
The long-term expected rate of return is determined by combining expected inflation to expected
long-term real returns and reflecting expected volatility and correlation. The capital market
assumptions are per Milliman's investment consulting practice as of December 31, 2016.
Asset Class
Cash Citigroup 90-Day T-Bills
Short-Term Bonds Barclays 1-3 Year Gov/Cred
Long-Term Bonds Barclays Long Gov/Cred
Assumed Inflation - Mean
Long-Term Expected Rate of Return
Index
Long-Term Expected
Real Rate of Return
0.50%
1.41%
2.97%
2.25%
3.75%
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 6
GASB Statement No. 67 Calculation of the Discount Rate
GASB 67 generally requires that a blended discount rate be used to measure the Total Pension
Liability (the Actuarial Accrued Liability calculated using the Individual Entry Age Normal Cost
Method). The long-term expected return on plan investments may be used to discount liabilities
to the extent that the Plan’s Fiduciary Net Position (fair market value of assets) is projected to
cover benefit payments and administrative expenses. A 20-year high quality (AA/Aa or higher)
municipal bond rate must be used for periods where the Fiduciary Net Position is not projected
to cover benefit payments and administrative expenses. Determining the discount rate under
GASB 67 will often require that the actuary perform complex projections of future benefit
payments and asset values.
We believe that the assumption of 3.75% as of December 31, 2016 is an appropriate long-term
expected rate of return on investments such as those in the City's trust. The Bond Buyer
General Obligation 20-bond municipal bond index for bonds that mature in 20 years is 3.78% as
of December 31, 2016. Rounding this to the nearest 1/4% results in a discount rate of 3.75%.
Using 3.75% for both the long-term expected rate of return and the bond index will mean that
3.75% could be used as the single discount rate. This will need to be re-evaluated as of later
valuation dates.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 7
GASB Statement No. 67 Net Pension Liability
Net Pension Liability
The total pension liability was determined by an actuarial valuation as of the valuation date,
calculated based on the discount rate and actuarial assumptions below.
Discount Rate
Other Key Actuarial Assumptions
Valuation Date January 1, 2015 January 1, 2017
Measurement Date December 31, 2015 December 31, 2016
Inflation 2.25% 2.25%
Salary increases
including inflation
3.25%
2.50% in 2017 (reflected in data)
2.50% in 2018
3.25% thereafter
Mortality RP-2000 Mortality Table
(combined healthy) with
generational projection using
100% of Projection Scale BB, with
ages set back one year for males
and forward one year for females
(set forward two years for disabled
members)
RP-2000 Mortality Table
(combined healthy) with
generational projection using
100% of Projection Scale BB, with
ages set back one year for males
and forward one year for females
(set forward two years for disabled
members)
Actuarial cost
method
Entry Age Normal Entry Age Normal
December 31, 2015 December 31, 2016
Total pension liability $3,124,670 $2,868,342
Fiduciary net position 9,531,202 9,606,650
Net pension liability (6,406,532)(6,738,308)
Fiduciary net position as a % of total pension liability 305.03%334.92%
Covered payroll 0 0
Net pension liability as a % of covered payroll N/A N/A
Discount rate 3.50%3.75%
Long-term expected rate of return, net of investment expense 3.50%3.75%
Municipal bond rate 3.50%3.75%
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 8
GASB Statement No. 67 Changes in Net Pension Liability
Sensitivity Analysis
The following presents the net pension liability of the City, calculated using the discount rate of
3.75%, as well as what the City's net pension liability would be if it were calculated using a
discount rate that is 1 percentage point lower (2.75%) or 1 percentage point higher (4.75%) than
the current rate.
Increase (Decrease)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
Changes in Net Pension Liability (a)(b)(a) - (b)
Balances as of December 31, 2015 $3,124,670 $9,531,202 ($6,406,532)
Changes for the year:
Service cost 0 0
Interest on total pension liability 105,750 105,750
Effect of plan changes 0 0
Effect of economic/demographic gains or losses (28,709)(28,709)
Effect of assumptions changes or inputs (125,138)(125,138)
Benefit payments (208,231)(208,231)0
Medical payments from fund 0 0
Employer contributions 0 0
Contributions from state fire insurance premium tax 148,034 (148,034)
Net investment income 136,071 (136,071)
Adminstrative expenses (426)426
Balances as of December 31, 2016 2,868,342 9,606,650 (6,738,308)
1%Current 1%
Decrease Discount Rate Increase
2.75%3.75%4.75%
Total pension liability $3,109,560 $2,868,342 $2,657,386
Fiduciary net position 9,606,650 9,606,650 9,606,650
Net pension liability (6,497,090)(6,738,308)(6,949,264)
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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. 23
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TABLE 9
GASB Statement No. 67 Schedule of Changes in Net Pension Liability and Related Ratios
$ Thousands
Fiscal Year Ending December 31
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Total Pension Liability
Service cost $0 $0 $0 N/A N/A N/A N/A N/A N/A N/A
Interest on total pension liability 106 109 112 N/A N/A N/A N/A N/A N/A N/A
Effect of plan changes 0 0 0 N/A N/A N/A N/A N/A N/A N/A
Effect of economic/demographic (gains) or losses (29)0 0 N/A N/A N/A N/A N/A N/A N/A
Effect of assumption changes or inputs (125)0 0 N/A N/A N/A N/A N/A N/A N/A
Benefit payments (208)(205)(204)N/A N/A N/A N/A N/A N/A N/A
Net change in total pension liability (256)(96)(92)N/A N/A N/A N/A N/A N/A N/A
Total pension liability, beginning 3,125 3,221 3,313 N/A N/A N/A N/A N/A N/A N/A
Total pension liability, ending (a)2,868 3,125 3,221 N/A N/A N/A N/A N/A N/A N/A
Fiduciary Net Position
Employer contributions $0 $0 $0 N/A N/A N/A N/A N/A N/A N/A
Contributions from state fire insurance premium tax 148 146 143 N/A N/A N/A N/A N/A N/A N/A
Investment income net of investment expenses 136 134 394 N/A N/A N/A N/A N/A N/A N/A
Benefit payments (208)(205)(204)N/A N/A N/A N/A N/A N/A N/A
Medical payments from fund 0 0 0 N/A N/A N/A N/A N/A N/A N/A
Administrative expenses 0 (12)0 N/A N/A N/A N/A N/A N/A N/A
Net change in plan fiduciary net position 75 63 331 N/A N/A N/A N/A N/A N/A N/A
Fiduciary net position, beginning 9,531 9,468 9,136 N/A N/A N/A N/A N/A N/A N/A
Fiduciary net position, ending (b)9,607 9,531 9,468 N/A N/A N/A N/A N/A N/A N/A
Net pension liability, ending = (a) - (b)($6,738)($6,407)($6,247)N/A N/A N/A N/A N/A N/A N/A
Fiduciary net position as a % of total pension liability 334.92%305.03%293.97%N/A N/A N/A N/A N/A N/A N/A
Covered payroll $0 $0 $0 N/A N/A N/A N/A N/A N/A N/A
Net pension liability as a % of covered payroll N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
This schedule is presented to illustrate the requirement to show information for 10 years.However,recalculations of prior years are not required,and if prior years are not reported in accordance with
the current GASB standards, they should not be reported.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 10
GASB Statement No. 68 Pension Expense
January 1, 2015 to January 1, 2016 to
Pension Expense December 31, 2015 December 31, 2016
Service cost $0 $0
Interest on total pension liability 109,164 105,750
Effect of plan changes 0 0
Administrative expenses 11,775 426
Medical payments from fund 0 0
Contributions from state fire insurance premium tax (146,358)(148,034)
Expected investment return net of investment expenses (330,148)(332,540)
Recognition of Deferred Inflows/Outflows of Resources
Recognition of economic/demographic gains or losses 0 (28,709)
Recognition of assumption changes or inputs 0 (125,138)
Recognition of investment gains or losses 39,231 78,525
Pension Expense (316,336)(449,720)
Paragraph 33d of GASB Statement 68 states that contributions to the pension plan from nonemployer
contributing entities that are not in a special funding situation should be recognized as revenue.
Accordingly, we have treated the contributions from the state fire insurance premium tax as revenue.
As of December 31, 2016, the deferred inflows and outflows of resources are as follows:
Deferred Inflows Deferred Outflows
Deferred Inflows / Outflows of Resources of Resources of Resources
Differences between expected and actual experience $0 $0
Changes of assumptions 0 0
Net difference between projected and actual earnings 0 274,870
Contributions made subsequent to measurement date 0 0
Total 0 274,870
Year ended June 30:
2017 $78,525
2018 78,525
2019 78,527
2020 39,293
2021 0
Thereafter*0
Amounts currently reported as deferred outflows of resources and deferred inflows of resources related to
pensions will be recognized in pension expense as follows:
* Note that additional future deferred inflows and outflows of resources may impact these numbers.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE 11
GASB Statement No. 68 Schedule of Deferred Inflows
and Outflows of Resources
Amount Balance of Balance of
Original Recognized Deferred Deferred
Original Date Recognition in 12/31/2016 Inflows Outflows
Amount Established Period*Expense 12/31/2016 12/31/2016
Investment $196,469 12/31/2016 5.0 $39,294 $0 $157,175
(gains) or losses 196,157 12/31/2015 5.0 39,231 0 117,695
Total 78,525 0 274,870
Economic/demographic (28,709)12/31/2016 1.0 (28,709)0 0
(gains) or losses Total (28,709)0 0
Assumption (125,138)12/31/2016 1.0 (125,138)0 0
changes or inputs Total (125,138)0 0
* Investment (gains)/losses are recognized in pension expense over a period of five years;
economic/demographic (gains)/losses and assumption changes or inputs are recognized over the average
remaining service life for all active and inactive members; immediate recognition is used when the average
remaining service life is less than one.
This work product was prepared solely for the City of Renton 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.
26
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Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
27
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SECTION 4
Supplemental Information
Cash-Flow Projections
The table on the next page illustrates the projected excess annual pension payments for retired
members eligible for retirement benefits under FPF.
The table is based on the actuarial assumptions stated in Appendix A.
See Appendix B for a summary of plan provisions.
A summary of valuation data is found in Appendix C.
Appendix D contains a glossary of terms.
Ac tuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
28
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TABLE 12
Projection of Future Excess Pension Benefits
Year Ending
December 31
Total
Estimated
Payouts
2017 238,000$
2018 235,000
2019 236,000
2020 235,000
2021 234,000
2022 231,000
2023 226,000
2024 219,000
2025 211,000
2026 202,000
2027 192,000
2028 181,000
2029 168,000
2030 155,000
2031 142,000
2032 128,000
2033 115,000
2034 102,000
2035 90,000
2036 78,000
2037 68,000
2038 58,000
2039 48,000
2040 40,000
2041 33,000
2042 27,000
2043 21,000
2044 17,000
2045 13,000
2046 10,000
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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APPENDIX A
Actuarial Procedures and Assumptions
The actuarial procedures and assumptions used in this valuation are described in this appendix.
Note that since all active members have retired, some of these assumptions, such as
termination rates, are not applicable.
The actuarial assumptions are intended to estimate the future experience of the members of the
City's FPF. Any variations in future experience from that expected under these assumptions will
result in corresponding changes in the estimated costs of the System's benefits.
Since our last valuation, the economic assumptions have changed. The discount rate
assumption increased 0.25%. In addition, the salary inflation assumption was updated to reflect
known and expected amounts.
Table A-1 gives a brief summary of the assumptions.
Actuarial Cost Method
We are using the Entry Age Normal Cost Method. This funding method meets the parameters
required for GASB disclosure purposes.
Records and Data
The data regarding active members, retirees and survivors and the financial information used in
this valuation were supplied by the City and are accepted for valuation purposes without audit.
Replacement of Terminated Members
The City's FPF is a closed group. No new members are permitted.
Valuation of Assets (where applicable)
All assets are carried on a market value basis.
Investment Earnings
The future investment earnings of the assets of the City's FPF are assumed to accrue at an
annual rate of 3.75%.
Postretirement Benefit Increases
Certain benefits increase at the same rate as the salaries for active members of the same rank
the retiree had attained at retirement. These salaries were assumed to increase at the rate of
3.25% per annum in the long term (2.50% for 2017, reflected in data, and 2.50% for 2018).
Other benefits increase at the same rate as the CPI. The CPI was assumed to increase at the
rate of 2.25% per annum.
Appendix A
(continued)
This work product was prepared solely for the City of Renton 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
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Service Retirement
N/A.
Disability
N/A.
Other Terminations of Employment
N/A.
Mortality
The mortality assumptions used in this valuation are based on the 2007-2012 Experience Study
for the LEOFF Retirement System prepared by the Office of the State Actuary.
Mortality rates are expected to continue to decrease in the future, and the resulting longevity
should be anticipated in the actuarial valuation. This is done through the use of a generational
mortality table. A generational mortality table anticipates future improvements in mortality by
using a different static mortality table for each year of birth, with the tables for later years of birth
assuming lower mortality than the tables for earlier years of birth.
Members Retired from Service
and Spouses:
The mortality rates are based on the RP-2000 Mortality
Table (combined healthy) with generational projection
using 100% of Projection Scale BB, with ages set back
one year for males and forward one year for females.
Disabled Members: The mortality rates are based on the RP-2000 Mortality
Table (combined healthy) with generational projection
using 100% of Projection Scale BB, with ages set
forward two years.
Family Composition
All active members are assumed to be married with no children when they retire. Marital status
of retirees was supplied by the City. Wives are assumed to be three years younger than their
husbands. Surviving spouses are assumed not to remarry.
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE A-1
Summary of Valuation Assumptions
I. Economic assumptions
A. Salary increases 2.50% in 2017 (reflected in data)
2.50% in 2018
3.25% thereafter
B. Investment return assumption (discount rate) 3.75%
C. Growth in membership 0.0%
D. Postretirement benefit increases
1. Related to salaries 2.50% in 2017 (reflected in data)
2.50% in 2018
3.25% thereafter
2. Related to consumer price index 2.25%
II. Noneconomic assumptions
A. Service retirement N/A.
B. Disability N/A.
C. Other Terminations of Employment N/A.
D. Mortality
1. Service-retired RP-2000 Mortality Table (combined healthy)
members and spouses with generational projection using 100% of
Projection Scale BB, with ages set back one
year for males and set forward one year for
females.
2. Disabled members RP-2000 Mortality Table (combined healthy)
with generational projection using 100% of
Projection Scale BB, with ages set forward
two years.
This work product was prepared solely for the City of Renton 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.
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Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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APPENDIX B
Provisions of Governing Law
All actuarial calculations are based on our understanding of RCW 41.16 and 41.18, the statutes
establishing FPF, and RCW 41.26, the statute establishing the Washington Law Enforcement
Officers' and Firefighters' Retirement System.
Each firefighter in service on March 1, 1970 receives the greater of the benefit payable under
the Washington Law Enforcement Officers' and Firefighters' Retirement System and the benefits
available under the provisions of prior law. Where benefits under the old law exceed those
under the new for any firefighter, the excess benefits are paid from the FPF of the city
employing him on March 1, 1970.
The benefit provisions of the FPF are summarized briefly below for reference purposes. This
summary does not attempt to cover all of the detailed provisions of the laws.
For comparative purposes, the bracketed statements describe the corresponding LEOFF law.
Definitions
Salary: Basic salary attached to rank of firefighter at time of retirement.
(RCW 41.18.010(1)) [Same if he had the rank for at least 12 months;
otherwise, the highest 24-month average from the last 10 years of
service. (RCW 41.26.030(15a))]
Spouse: Surviving spouse who was married to, or in a state-registered
domestic partnership with, a disabled firefighter at time of disability or
to a retired firefighter for five years prior to retirement
(RCW 41.18.010(14)). [Same, except marriage to retired firefighter for
one year prior to retirement qualifies. (RCW 41.26.030(33))]
Child: Firefighter’s unmarried child under age 18. (RCW 41.18.010(4))
[Firefighter’s unmarried child under age 18 or up to age 20 years 11
months while attending an educational institution accredited or
approved by the state of Washington. (RCW 41.26.030(6))]
Appendix B
(continued)
This work product was prepared solely for the City of Renton 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.
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Service Retirement Benefit
Member’s Benefit:
Eligibility Age 50 and 25 years of service. (RCW 41.18.040) [Age 50 and five
years of service. (RCW 41.26.090)]
Amount of
benefit
50% of salary plus an additional 2% for each year of service in excess
of 25 years. Maximum benefit of 60% of salary. (RCW 41.18.040) [2%
of salary for each year of service if 20 or more years; 1½% of salary
for each year of service if at least 10 but less than 20 years of service;
1% of salary for each year of service if at least five but less than 10
years of service. For those retiring prior to July 1, 2006 the maximum
initial benefit of 60% of salary. That maximum does not apply for
those retiring after July 1, 2006. (RCW 41.26.100)]
Survivor’s Benefit:
Eligibility Spouse or child (RCW 41.18.040). [Same. (RCW 41.26.160)]
Amount of
benefit
Continuation of firefighter’s benefit. (RCW 41.18.040) [If spouse -
same plus additional 5% of salary per child. If no spouse - 30% of
salary for first child, 10% for each additional child. Maximum benefit in
either case - 60% of salary. (RCW 41.26.160)]
Duty Disability Retirement Benefit
Member’s Benefit:
Eligibility Disabled after six-month waiting period, during which time salary is
payable from the Fund. (RCW 41.18.050) [Same, except salary is
payable by City during the waiting period. (RCW 41.26.120)]
Amount of
benefit
Determined same as Service Retirement Benefit. (RCW 41.18.060)
[50% of salary plus an additional 5% for each child; maximum benefit
of 60% of salary. (RCW 41.26.130(1))]
Recovery
from disability
Restoration to service. (RCW 41.18.090) [Upon recovery before age
50, restoration to service with full credit for service while disabled.
Upon recovery after age 50, benefit continues as the greater of
service retirement benefit or current benefit. (RCW 41.26.130(3))]
Survivor’s Benefit: See Survivor’s Benefit section under Service Retirement.
Appendix B
(continued)
This work product was prepared solely for the City of Renton 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.
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Non-Duty Disability Retirement Benefit
Member’s Benefit:
Eligibility Disabled after 90-day waiting period, during which time salary is
payable from the Fund. (RCW 41.18.080) [Disabled after six-month
waiting period, during which time salary is payable by the City.
(RCW 41.26.125)]
Amount of
benefit
50% of salary, or service retirement benefit, if greater.
(RCW 41.18.080) [50% of salary plus an additional 5% for each child;
maximum benefit of 60% of salary, or service retirement benefit, if
greater. (RCW 41.26.130(1))]
Recovery
from disability
See section under Duty Disability Retirement.
Limitations No benefits payable if firefighter employed elsewhere when disabled.
(RCW 41.18.080) [All benefits are reduced by Workers’
Compensation, Social Security, or insurance provided by another
employer. Allowance cannot exceed difference between wage from
current gainful employment and salary currently attached to rank held
at retirement. (RCW 41.26.130(4))]
Survivor’s Benefit:
Eligibility Spouse or child. (RCW 41.18.080) [Same. (RCW 41.26.161)]
Amount of
benefit
Percentage of salary, as follows:
33.3% to widow only
45.8% to widow and one child
47.6% to widow and two children
50.0% to widow and three children
33.3% to children only
(RCW 41.18.080)
[Determined same as under Service Retirement Survivor’s Benefit.
(RCW 41.26.161)]
Duty Death Benefit
Eligibility Spouse or child. (RCW 41.18.100) [Same. (RCW 41.26.160)]
Amount of
benefit
50% of salary. (RCW 41.18.100) [If spouse – 50% of salary plus an
additional 5% of salary per child; maximum benefit 60% of salary. If
no spouse - 30% of salary for first child; 10% for each additional child.
Maximum benefit in either case of 60% of salary. (RCW 41.26.160)]
Appendix B
(continued)
This work product was prepared solely for the City of Renton 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
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Non-Duty Death Benefit
Provisions same as Survivor’s Benefit under Non-Duty Disability Retirement. (RCW 41.18.080)
[Provisions same as Survivor’s Benefit under Duty Death Retirement. (RCW 41.26.161)]
Special Provisions
Under disability or death benefits, a surviving spouse may elect a lump-sum payment of $5,000
in lieu of future monthly benefits. (RCW 41.18.080) [If firefighter’s contributions are not
exhausted by payments to survivors, the balance goes to the firefighter’s legal heirs. Applies to
service, disability and death benefits. (RCW 41.26.160(3) and 41.26.161(3))]
Vesting
Eligibility Termination after 20 years of service. (RCW 41.18.130) [Termination
after five years of service. (RCW 41.26.090)]
Deferred Benefit
Commences When firefighter would have had 25 years of service.
(RCW 41.18.130) [Age 50. (RCW 41.26.090(2))]
Amount of
benefit
2% of salary for each year of service. (RCW 41.18.130) [Same, if at
least 20 years of service; 1.5% of salary for each year of service if at
least 10 but less than 20 years of service; 1% of salary for each year
of service if at least five but less than 10 years of service.
(RCW 41.26.090 and RCW 41.26.100)]
Death while
vested prior to
commencement
of benefits:
Payment of firefighter’s deferred benefit to his spouse or child.
(RCW 41.18.130)
[a. Firefighter with 20 or more years of service:
If spouse - firefighter’s deferred benefit plus an additional 5% of
salary per child. If no spouse - 30% of salary for first child, 10% for
each additional child. Maximum benefit in either case - 60% of
salary. (RCW 41.26.161)
b. Firefighter with less than 20 years of service:
Payment to spouse or estate of accumulated contributions less
any payments made to firefighter. (RCW 41.26.090)]
Withdrawal
Eligibility Termination with no other benefit.
(RCW 41.18.130) [Same. (RCW 41.26.170)]
Benefit Return of accumulated contributions less any benefit paid.
(RCW 41.18.130) [Same. (RCW 41.26.170)]
Appendix B
(continued)
This work product was prepared solely for the City of Renton 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.
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Postretirement
Increase
Type 1. Escalation by salary in proportion to current salary of rank from
which firefighter retired. (RCW 41.18.040)
2. Increase proportionate to the increase in the Seattle-area CPI,
with change computed annually. Regardless of the increase (or
decrease) in the CPI, the benefits are increased at least 2% each
year. (RCW 41.18.104)
[Increase or decrease proportionate to the increase or decrease
in the Seattle-area CPI, with change computed annually. No
benefit may decrease below original amount. (RCW 41.26.240)]
Applicability Escalation Type 1 applies to firefighters who retired from service after
1969, their survivors, and to firefighters who retired for duty disability
(but not their survivors) after 1961. The second type applies to all
other types of monthly benefits. (RCW 41.18.104) [All monthly
benefits. (RCW 41.26.240)]
Minimum Benefit
After April 25, 1973, a minimum benefit of $300 per month to all retired firefighters and their
survivors. This minimum is increased by the CPI. (RCW 41.18.200)
[No provision under RCW 41.26.]
Funeral Benefit
$500 to defray funeral expenses. (RCW 41.18.140) [No provision under RCW 41.26.]
This work product was prepared solely for the City of Renton for the purposes described herein and may not be
appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other
parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other
qualified professional when reviewing the Milliman work product.
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Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton for the purposes described herein and may not be
appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other
parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other
qualified professional when reviewing the Milliman work product.
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APPENDIX C
Valuation Data
This valuation is based on the membership of the City's FPF as of January 1, 2017.
It is our understanding that, as of the valuation date, the only liabilities for future benefits to
present or retired firefighters or their survivors are those allocable to the persons included in
Tables C-1 through C-3.
Tables C-1 through C-3 show the distributions of retirees and surviving spouses of retirees
receiving service and disability retirement pensions and the amount of the monthly benefits
received.
Active Members Retired Members and Survivors
Monthly Pensions
Number Annual Salaries
Average Annual
Salaries Number Paid by City Paid by LEOFF
0 0.00$ 0.00$ 28 20,669.28$ 114,117.27$
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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TABLE C-1
Firefighters Retired for Service
TABLE C-2
Firefighters Disabled in Line of Duty
TABLE C-3
Survivors of Firefighters
Monthly Pension
Age Number Paid by City Paid by LEOFF
70 - 74 1 0$ 7,051.97$
80 - 84 3 729.80 17,036.39
85 - 89 2 559.66 12,798.74
Totals 6 1,289.46$ 36,887.10$
Monthly Pension
Age Number Paid by City Paid by LEOFF
70 - 74 1 211.10$ 3,426.90$
75 - 79 4 1,476.31 15,925.49
80 - 84 1 508.82 4,314.68
85 - 89 1 644.54 4,247.96
Totals 7 2,840.77$ 27,915.03$
Monthly Pension
Age Number Paid by City Paid by LEOFF
70 - 74 3 2,502.77$ 13,963.21$
75 - 79 3 4,416.68 6,499.61
80 - 84 5 7,501.93 9,699.59
85 - 89 2 1,710.50 7,454.98
90 - 94 2 407.17 11,697.75
Totals 15 16,539.05$ 49,315.14$
Actuarial Valuation of
Firefighters' Pension Fund
City of Renton
January 1, 2017
This work product was prepared solely for the City of Renton 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.
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APPENDIX D
Glossary
Actuarially Determined
Contribution
A target or recommended contribution to a defined benefit pension plan for
the reporting period, determined based on the funding policy and most
recent measurement available when the contribution for the reporting period
was adopted.
Deferred
Inflows/Outflows of
Resources
Portion of changes in net pension liability that is not immediately recognized
in Pension Expense. These changes include differences between expected
and actual experience, changes in assumptions, and differences between
expected and actual earnings on a plan investments.
Discount Rate Single rate of return that, when applied to all projected benefit payments,
results in an actuarial present value of projected benefit payments equal to
the sum of:
1) The actuarial present value of benefit payments projected to be made in
future periods where the plan assets are projected to be sufficient to
meet benefit payments, calculated using the Long-Term Expected Rate
of Return.
2) The actuarial present value of projected benefit payments not included
in (1), calculated using the Municipal Bond Rate.
Fiduciary Net Position Equal to market value of assets.
Long-Term Expected
Rate of Return
Long-term expected rate of return on pension plan investments expected to
be used to finance the payment of benefits, net of investment expenses.
Money-Weighted
Rate of Return
The internal rate of return on pension plan investments, net of investment
expenses.
Municipal Bond Rate Yield or index rate for 20-year, tax-exempt general obligation municipal
bonds with an average rating of AA/Aa or higher.
Net Pension Liability Total Pension Liability minus the Plan's Fiduciary Net Position.
Projected Benefit
Payments
All benefits estimated to be payable through the pension plan to current
active and inactive employees as a result of their past service and expected
future service.
Service Cost The portion of the actuarial present value of projected benefit payments that
is attributed to a valuation year.
Total Pension Liability The portion of actuarial present value of projected benefit payments that is
attributable to past periods of member service using the Entry Age Normal
cost method based on the requirements of GASB 67 and 68.