OPEB Valuation Scenarios - Hay Group Actuarial Report Rule of 80 - No Health Rule of 80 - Rule of 80 - Rule of 80 - Health or Incentive - & Incentive Only - Health Only - Health Only - Current ERT Program 1 yr option No Incentive 1 yr option 1 yr option 3 yr option Scenario A Scenario B Scenario C Scenario D Scenario E Scenario FScenarios per BRT Document NEW Option #3 Option #1 Option #2 NEWPresent Value of BenefitsCurrent Retirees (Health) $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231Future Retirees (Health) $ 44,101,802 $ 9,472,760 $ 5,843,157 $ 5,843,157 $ 13,113,755 $ 20,788,198Future Retirees (Incentive) $ 14,606,063 $ 5,842,425 $ - $ 11,684,850 $ - $ -Total $ 65,631,096 $ 22,238,416 $ 12,766,388 $ 24,451,238 $ 20,036,986 $ 27,711,429Actuarial Accrued LiabilityCurrent Retirees (Health) $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231 $ 6,923,231Future Retirees (Health) $ 22,960,063 $ 6,272,047 $ 5,546,257 $ 5,546,257 $ 8,766,947 $ 12,297,807Future Retirees (Incentive) $ 7,604,136 $ 3,868,351 $ - $ 7,736,703 $ - $ -Total $ 37,487,430 $ 17,063,629 $ 12,469,488 $ 20,206,191 $ 15,690,178 $ 19,221,038Incentive pay - (A) Current program - 20 retirees at an avg $50,000 for $1,000,000 a year for 20 years ($20,000,000), with a discount rate of 3.2% (B) Rule of 80 Health/Incentive Option - 12.5 retirees at an avg $40,000 for $400,000 a year for 20 years ($8,000,000), with a discount rate of 3.2% (D) Rule of 80 Incentive Option only - 20 retirees at an avg $40,000 for $800,000 a year for 20 years ($16,000,000), with a discount rate of 3.2%Color Key: Scenarios Discussed in Prior BRT Meeting Scenarios Added based upon BRTs Feedback.Explanation of Document:This document is intended to be used to compare the financial impact of the various retirement plans. An outside actuarial firm, Hay Group,prepared the analysis of the various retirement scenarios. In order to compute the costs of each of the 6 scenarios, we provided the actuarieswith the age, service years, of current actives and existing retirees. Along with that, they received our medical, dental, vision, claimdata. This same data, assumptions, etc was used in valuing the various scenarios. A present value calculation is commonly used in financial analysis to measure the cost of various alternatives. The present value represents the amount of money you would need to put in a bank today, such that with interest earning it can pay ALL future benefits for all current retirees and actives who are expected to retire. The actuarial accrued liability represents the portion of the Present Value benefits that has already been earned by todays current actives and retired employees as of March 2011. The future retiree category represents the current active employees who have not yet retired. Implicit Rate Subsidies is when healthcare premiums paid by retirees and actives are the same amount. MCC is required to offer insurance to retirees at MCCs insurance rates; however, the retiree must pay the full cost of the premium. This explains why a healthcare cost appears in Scenario C. The true healthcare costs for retirees are, on average, greater than active employees healthcare costs. As such, retirees are paying less than they would if their premiums were calculated solely based on retiree-only expected healthcare costs. With an implicit rate subsidy, the active employee premiums are subsidizing the retiree premiums, and the subsidization creates a liability that the accounting standards require we recognize. This implicit rate subsidy is factored into all of the scenarios.H:OPEB Hay GroupComparionsOfHayGroupScenariosAthruF2011Mar15.xlsx/Comparison1 of 1 3/21/2011 at 10:28 AM
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