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AGENDA
ORO VALLEY TOWN COUNCIL - BUDGET AND FINANCE COMMISSION -
CORRECTIONS OFFICER RETIREMENT PLAN BOARD AND THE
PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM BOARD
JOINT STUDY SESSION
May 22, 2019
ORO VALLEY COUNCIL CHAMBERS
11000 N. LA CAÑADA DRIVE
JOINT STUDY SESSION AT OR AFTER 6:00 PM
CALL TO ORDER
ROLL CALL
JOINT STUDY SESSION AGENDA
1.PRESENTATION AND DISCUSSION BY REPRESENTATIVES OF THE PUBLIC SAFETY PERSONNEL
RETIREMENT SYSTEM (PSPRS) REGARDING THE STATUS AND OPERATION OF THE PSPRS
OVERALL AS WELL AS ORO VALLEY'S PSPRS PLAN
ADJOURNMENT
POSTED: 5/20/19 at 5:00 p.m. by pp
When possible, a packet of agenda materials as listed above is available for public inspection at least 24 hours prior
to the Council meeting in the office of the Town Clerk between the hours of 8:00 a.m. – 5:00 p.m.
The Town of Oro Valley complies with the Americans with Disabilities Act (ADA). If any person with a disability needs
any type of accommodation, please notify the Town Clerk’s Office at least five days prior to the Council meeting at
229-4700.
CC-2854 1.
Town Council Joint Study Session
Meeting Date:05/22/2019
Requested by: Stacey Lemos Submitted By:Stacey Lemos, Finance
Department:Finance
Information
SUBJECT:
PRESENTATION AND DISCUSSION BY REPRESENTATIVES OF THE PUBLIC SAFETY PERSONNEL
RETIREMENT SYSTEM (PSPRS) REGARDING THE STATUS AND OPERATION OF THE PSPRS OVERALL AS
WELL AS ORO VALLEY'S PSPRS PLAN
EXECUTIVE SUMMARY:
There has been significant interest regarding the Public Safety Personnel Retirement System (PSPRS) and
Corrections Officer Retirement Plan (CORP), which is also administered by the PSRPS system. Over the past
several years, these pension systems have become a focal point state-wide with a focus on the financial stability of
the system. Recent legislative changes have impacted the plan as well as the budgets of cities and towns related to
rising contribution rates. In addition, House Bill 2097 was passed into law on April 3, 2018 (Arizona Revised
Statutes section 38-863.01), requiring that cities and towns adopt a pension funding policy by July 1, 2019, to
communicate how the jurisdiction will maintain stability of the annual required contributions, how and when the
jurisdiction's funding requirements will be met, and defining the funded ratio target under PSPRS and when it will be
met. It also requires that cities and towns formally accept their share of the assets and liabilities based on the
PSPRS actuarial report and post the pension funding policy on their website.
In order to provide an opportunity for Town Council, the Budget and Finance Commission, and the PSPRS and
CORP Local Boards to gain additional information about these plans, representatives from PSPRS have been
invited to give a presentation on the plans at this joint study session. This presentation will be given by Mr. Dave
DeJonge, PSPRS Deputy Administrator, and Mr. Phil Coleman, PSPRS Employer Relationship Manager, and will
include an overview of the plans, their historical performance, and an overview of the specific aspects of the Town
of Oro Valley plans, including the current funding status, contribution rates, unfunded liabilities and other information
included in the attached annual actuarial valuation reports. Mr. DeJonge and Mr. Coleman will then answer any
questions from the Council and board and commission members.
The Town's sworn police personnel are members of the PSPRS plan, and three (3) police dispatch personnel are
currently active members of the CORP plan. Copies of each respective plans' most recent actuarial valuation
reports are attached to this communication. Also, attached is a draft PSPRS pension funding policy developed by
staff, following a standard format provided to all cities and towns by the League of Arizona Cities and Towns, for
review and adoption at a future meeting prior to July 1, 2019.
FISCAL IMPACT:
N/A
Attachments
PSPRS Actuarial
CORP Actuarial
Draft Pension Policy
Oro Valley Police Dept.
(122)
Arizona Public Safety Personnel
Retirement System
June 30, 2018
December 12, 2018
Board of Trustees
Arizona Public Safety Personnel Retirement System
Phoenix, Arizona
Re: Oro Valley Police Dept.
The results of the June 30, 2018 annual actuarial valuation of members covered by the Arizona Public
Safety Personnel Retirement System (PSPRS) are presented in this report.
This report was prepared at the request of the Board and is intended for use by the Retirement System
and those designated or approved by the Board. This report may be provided to parties other than the
System only in its entirety and only with the permission of the Board. GRS is not responsible for
unauthorized use of this report.
The purpose of the valuation was to measure the Retirement System's funding progress and to determine
the employer contribution for the 2019-2020 fiscal year. The funding objective is stated in Article 4,
Chapter 5, Title 38, Section 843B of the Arizona Revised Statutes. In addition, this consolidated report
provides summary information for PSPRS participating employers. This report should not be relied on for
any purpose other than the purposes described herein. Determinations of financial results, associated
with the benefits described in this report, for purposes other than those identified above may be
significantly different.
The computed contribution rate shown on page A-2 should be considered as a minimum contribution rate
that complies with the Board’s funding policy and Arizona Statutes. Users of this report should be aware
that contributions made at that rate do not guarantee benefit security. Given the importance of benefit
security to any retirement system, we suggest that contributions to the System in excess of those
presented in this report be considered.
The findings in this report are based on data and other information through June 30, 2018. 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. The scope of an actuarial valuation does not
include an analysis of the potential range of such future measurements.
Arizona Public Safety Personnel Retirement System
December 12, 2018
Page 2
This valuation assumes the continuing ability of the participating employers to make the contributions
necessary to fund this plan. A determination regarding whether or not the participating employers are
actually able to do so is outside our scope of expertise. Consequently, we did not perform such an
analysis.
The valuation was based upon information furnished by the Retirement System, concerning Retirement
System benefits, financial transactions, plan provisions and active members, terminated members,
retirees and beneficiaries. We checked for internal reasonability and year-to-year consistency, but did not
audit the data. We are not responsible for the accuracy or completenes s of the information provided by
the Retirement System.
In addition, this report was prepared using certain assumptions approved by the Board as described in the
section of this report entitled Methods and Assumptions.
This report has been prepared by actuaries who have substantial experience valuing public employee
retirement systems. To the best of our knowledge the information contained in this report is accurate and
fairly presents the actuarial position of the Arizona Public Safety Personnel Retirem ent System as of the
valuation date. All calculations have been made in conformity with generally accepted actuarial principles
and practices, with the Actuarial Standards of Practice issued by the Actuarial Standards Board, and with
applicable statutes.
Mark Buis, James D. Anderson and Francois Pieterse are Members of the American Academy of Actuaries
(MAAA). These actuaries meet the Academy’s Qualification Standards to render the actuarial opinions
contained herein.
The signing actuaries are independent of the plan sponsor.
Gabriel, Roeder, Smith & Company will be pleased to review this valuation report with the Board of
Trustees and to answer any questions pertaining to the valuation.
Respectfully submitted,
GABRIEL, ROEDER, SMITH & COMPANY
Mark Buis James D. Anderson Francois Pieterse
FSA, EA, FCA, MAAA FSA, EA, FCA, MAAA ASA, FCA, MAAA
MB/JDA/FP:rmn
Oro Valley Police Dept.
Table of Contents
Page
Executive Summary/Board Summary ........................................................................................................... 1
Section A Introduction
Funding Objective ........................................................................................................... 1
Contribution Rates .......................................................................................................... 1
Contribution Requirements ............................................................................................ 2
Impact of Contributions .................................................................................................. 4
Historical Summary of Employer Rates .......................................................................... 5
Section B Funding Results
Present Value of Future Benefits and Accrued Liability – Tier 1 & 2 .............................. 1
Present Value of Future Benefits and Accrued Liability – Tier 3 .................................... 2
Derivation of Experience Gain/(Loss) Tier 1 & 2............................................................. 3
Pension Contribution Projection .................................................................................... 4
Section C Fund Assets
Development of Pension Funding Value of Assets (7-Year Smoothing) ......................... 1
Development of Health Funding Value of Assets (7-Year Smoothing) ........................... 2
Development of Pension Funding Value of Assets (7-Year Smoothing) ......................... 3
Development of Health Funding Value of Assets (7-Year Smoothing) ........................... 4
Section D Census Data
June 30, 2018 Valuation Data Summary ......................................................................... 1
Active Members – Tier 1 & 2 .......................................................................................... 2
Active Members – Tier 3 ................................................................................................. 3
Terminated Vested Members ......................................................................................... 4
Retirees and Beneficiaries .............................................................................................. 5
DROP Members .............................................................................................................. 6
Pension being Paid – Historical Schedule ....................................................................... 7
Section E Methods and Assumptions ................................................................................................... 1
Section F Plan Provisions ...................................................................................................................... 1
Section G Funding Policy ....................................................................................................................... 1
Appendix A Accounting Disclosures
Schedule of Funding Progress ......................................................................................... 1
Schedule of Employer Contributions .............................................................................. 2
Summary of Actuarial Methods and Assumptions ......................................................... 3
Health Insurance Subsidy Supplementary Information.................................................. 4
Annual Required Contribution ........................................................................................ 5
Oro Valley Police Dept.
Appendix B Contribution Rates ................................................................................................................ 1
Appendix C Determination of Tier 3 Amortization Payment ................................................................... 1
Oro Valley Police Dept. 1
Executive Summary/Board Summary
1. Required Employer Contributions to Support Retirement Benefits
The funded status as of June 30, 2018 and the computed employer contribution for the fiscal year
beginning July 1, 2019 are shown below:
Tier 1 & Tier 2 Members:
Averages Pension Health Total
Employer Contribution Rate 38.26%0.33% 38.59%
Funded Status 59.9%115.9%61.0%
Tier 3 members (hired on or after July 1, 2017) – pension only:
• Employer contribution for Tier 3 benefits:9.68%
• Employer contribution for Tier 1 and Tier 2 unfunded liability:24.11%
• Total employer contribution as a percentage of Tier 3 payroll:33.79%
2. Contribution Rate Comparison
The chart below compares the results for this valuation of the Retirement System with the results of the
prior year’s valuation:
Valuation Date Pension Health Total Pension Health
6/30/2017 36.71%0.33%37.04%9.68%0.26%
6/30/2018 38.26%0.33%38.59%9.68%0.26%
Tier 1 & 2 Tier 3*
* At the November 28, 2018 Board of Trustees meeting, the PSPRS Board of Trustees decided not to change the Tier 3
Pension and Health Rates for Employers and Employees, calculated with the June 30, 2017 valuation, for the fiscal
year beginning July 1, 2019. In addition to the Tier 3 Pension and Health rates above, the e mployer must also
contribute 24.11% of Tier 3 payroll for Legacy UAL.
The PSPRS aggregate pension contribution rate increased slightly from the June 30, 2017 valuation due to
asset experience and payroll growth different from expected, which impacted all employers; offset by the
impact of certain employers lengthening the amortization period used for financing unfunded accrued
liabilities. It is very important to note that the impact of these changes vary significantly from one
employer to another, depending on plan demographics and other factors. In addition, those hired on or
after July 1, 2017 (Tier 3) have a different level of benefit promise, which is financed on a 50/50 basis
between Employer/Employee. Pursuant to ARS 38-843, Subsection B, existing unfunded accrued liabilities
for Tier 1 & 2 are financed over all employer payroll (including Tier 3).
Oro Valley Police Dept. 2
Executive Summary/Board Summary
3. Reasons for Change
Changes in the contribution rate are illustrated on the following chart. The impact of each change will be
different for each employer.
Contribution Rate Pension Health Total
Contribution Rate Last Valuation 36.71%0.33%37.04%
Asset Losses 0.47%0.01%0.48%
Tier 2 (0.14)%0.00%(0.14)%
Payroll Base 1.04%0.00%1.04%
COLA 0.07%0.00%0.07%
Amortization Method Change 0.00%0.00%0.00%
Other 0.11%(0.01)%0.10%
Contribution Rate This Valuation 38.26%0.33%38.59%
Funded Status Pension Health Total
Funded Status Last Valuation 60.1%116.2%61.2%
Asset Losses (0.5)%(0.8)%(0.5)%
Payroll Base 0.1%0.0%0.1%
COLA (0.1)%0.0%(0.1)%
Hall/Parker Settlement (1.1)%0.0%(1.1)%
Other 1.4%0.5%1.4%
Funded Status This Valuation 59.9%115.9%61.0%
Asset Losses – Asset gains and losses (relative to the assumed investment return) are smoothed over 7-
years. The return on market value was 7.0% for the year ending June 30, 2018. However, based on
funding value, the average return for the last 7 years is approximately 5.9%
Oro Valley Police Dept. 3
Executive Summary/Board Summary
Tier 2 – The decrease in the contribution rate is due to the fact that as current members retire, they are
replaced by new members who have a less costly Tier of Benefits (for members hired on or after January
1, 2012). This will typically result in a declining normal cost rate that will occur gradually over time as the
population mix (Tier 1 / Tier 2) changes. Occasionally, the normal cost rate may change if there has been
a shift in demographics during the year.
Payroll Base – Under the current amortization policy, the contribution rate is developed based on a
percentage of payroll. To the extent that overall payroll is lower/greater than last year’s payroll projected
payroll growth, the contribution rate will increase/decrease as a result. For example, if the re were two
active members in the Plan last year and one of the members retired, the existing unfunded liability
would now be spread over the payroll of one member instead of two members and the resulting
contribution rate would be much higher. Therefore, it is important to consider the overall dollar level of
the contribution along with the contribution rate. The dollar contributions are also shown on Page A-2.
The change in the funded status is primarily due to gains or losses on the overall salary ass umption, which
includes both the wage base assumption and the merit and longevity components of the salary
assumption. To the extent that payroll is lower/greater than last year’s payroll projected payroll growth,
the funded status rate will increase/decrease as a result.
COLA – A Cost of Living adjustment of 2% impacts benefits as of July 1, 2018 for eligible retirees, which
exceeds the 1.75% assumption.
Amortization Method Changes – Some employers elected to extend the amortization period to 30
years. It is important to note that even if all assumptions are realized, including asset return at 7.4% per
year -- under the 30 year level percent of payroll amortization method the unfunded liability is projected
to grow for the next 10 years before declining (sometimes referred to as “negative amortization”).
Hall/Parker Settlement – Final disposition of liabilities related to these court cases served to decrease
funded status.
Other – This is the combination of all factors other than those listed above and primarily reflect
demographic gains and losses (i.e., service purchases, retirement, turnover, disability, etc. experience that
differs from the actuarial assumptions). While this number is small on a combined plan basis, it will vary
considerably from employer to employer, especially for employers with a smaller number of members.
4. Amortization Period
Unfunded liabilities were amortized as level percent-of-payroll over a closed period of 18 years. If the
actuarial value of assets exceeded the actuarial accrued liability, the excess was amortized over an open
period of 20 years and applied as a credit to reduce the normal cost which otherwise would be payable.
Oro Valley Police Dept. 4
Executive Summary/Board Summary
5. Looking Ahead
The continuing effect of prior asset losses was dampened by the 7-year smoothing period, and further
offset by the effect of lower than expected pay increases. There remains unrecognized investment losses
that will, in the absence of other gains, put upward pressure on the contribution rate next year.
If the June 30, 2018 pension valuation results were based on market value instead of smoothed funding
value, the pension funded percent of the plan would be 58.6% (instead of 59.9%), and the pension
employer contribution requirement would be 39.09% of payroll (instead of 38.26%).
6. Conclusion
The recent changes in benefit structure and actuarial assumptions increased contribution rates for most
employers. For some employers, this was offset by lengthening the amortization period. Additionally, the
changes to the historical PBI structure will help dampen the volatility of contribution rates in the future
and provide more predictable benefit increases to retirees.
For some plans, after accounting for active member contributions, the retired lives are less than fully
funded on a funding value of assets basis. It is most important that this Plan receive contributions at least
equal to the rates shown in this report.
SECTION A
INTRODUCTION
Oro Valley Police Dept. A-1
Funding Objective
The purpose of the annual actuarial valuation of the Arizona Public Safety Personnel Retirement System
as of June 30, 2018 is to:
Compute the liabilities associated with benefits likely to be paid on behalf of current retired
and active members. This information is contained in Section B.
Compare accrued assets with accrued liabilities to assess the funded condition. This
information is contained in Section B.
Compute the employers’ recommended contribution rates for the Fiscal Year beginning July
1, 2019. This information is contained in Section A.
This objective is stated in Article 4, Chapter 5, Title 38, Section 843B of the Arizona Revised Statutes.
Contribution Rates
The Retirement System is supported by member contributions, employer contributions and investment
income from Retirement System assets.
Contributions which satisfy the funding objective are determined by the annual actuarial valuation and
are sufficient to:
(1) Cover the actuarial present value of benefits allocated to the current year by the actuarial cost
method described in Section E (the normal cost); and
(2) Finance over a period of future years the actuarial present value of benefits not covered by
valuation assets and anticipated future normal costs (the unfunded actuarial accrued liability).
Computed contribution rates for the fiscal year beginning July 1, 2019 are shown on pages A-2 and A-3.
Oro Valley Police Dept. A-2
Contribution Requirements
Development of Employer Contributions for the Indicated Valuation Date
Valuation Date
Contribution for Fiscal Year ending
TIERS 1 & 2 MEMBERS
Pension Rate Dollar Rate Dollar
Normal Cost
Service Pension 17.78%1,341,874$ 17.58%1,213,956$
Disability Pension 2.14%161,508 2.19%151,227
Survivors of Active Members 0.76%57,358 0.76%52,480
Refund of Member Accumulated Contributions 1.26%95,093 1.27%87,698
Total Normal Cost 21.94%1,655,833$ 21.80%1,505,361$
Total Employee Cost*(7.65%)(577,353)$ (7.65%)(528,257)$
Employer Normal Cost 14.29%1,078,480 14.15%977,104
Employer Amortization of Unfunded Liabilities (Legacy)22.42%1,692,059 24.11%1,783,454
Total Employer Cost (Pension)36.71%2,770,539$ 38.26%2,760,558$
Health Rate Dollar Rate Dollar
Total Normal Cost 0.33%24,905$ 0.33%22,788$
Employer Amortization of Unfunded Liabilities (Legacy)0.00%-$ 0.00%-$
Total Employer Cost (Health)0.33%24,905$ 0.33%22,788$
Tiers 1 & 2 Required Total Employer Cost (Pension + Health)37.04%2,795,444$ 38.59%2,783,346$
Total Minimum Contribution Requirement (if applicable)0.00%0.00%
Alternate Contribution Rate (ACR)**22.42%24.11%
Rate Dollar
Total Pension Employer Cost (25-year amortization)33.57%2,424,778$
Total Pension Employer Cost (30-year amortization)31.63%2,280,160$
June 30, 2017 June 30, 2018
2019 2020
* Tier 2 Members contribute 11.65%, but statutory requirements dictate only 7.65% is applied toward employer costs.
**The Alternate Contribution Rate is the sum of the positive amortization payments for Tiers 1 &2 Pension and Health,required for when retirees return
to active status.
The results above are shown both prior to and after the application of the statutory minimum contribution requirement of 8% of
payroll (5% of payroll if the actual employer contribution rate is less than 5% for the 2006/2007 Fiscal Year) and are based on the
current amortization schedule approved by the Board of Trustees for your individual plan (see page E-1).
A.R.S. 38-843, subsection I allows for the employer to request a one-time increase in the amortization period up to a maximum of 30
years. The following costs are being provided to facilitate that decision. If the current approved amortization period on page E-1 is
greater than those below, that request has already been made for this plan where the following is provided to faciliate earlier
payoff, if desired.
Oro Valley Police Dept. A-3
Contribution Requirements
Development of Employer Contributions for the Indicated Valuation Date
Valuation Date
Contribution for Fiscal Year ending
TIER 3 MEMBERS - DEFINED BENEFIT (DB) PLAN
Pension Rate Rate Dollar
Total Normal Cost 19.36%19.46%11,171$
Amortization of Unfunded Liabilities 0.00%0.14%80
Total Pension Cost 19.36%19.60%11,251$
Employee (EE) Pension Cost 9.68%9.80%5,626$
Employer (ER) Pension Cost 9.68%9.80%5,626$
Health Rate Rate Dollar
Total Normal Cost 0.52%0.42%241$
Amortization of Unfunded Liabilities 0.00%0.00%-
Total Health Cost 0.52%0.42%241$
Employee (EE) Health Cost 0.26%0.21%121$
Employer (ER) Health Cost 0.26%0.21%121$
Total Calculated Tier 3 Required EE/ER Individual Cost (before Legacy)9.94%10.01%5,747$
Total Board Approved Tier 3 Required EE/ER Individual Cost (before Legacy)9.94%9.94%5,706$
ER Legacy Cost of Tier 1 & 2 Amort of Unfunded Liabilities*22.42%24.11%13,840$
Total Calculated Tier 3 Required Employer Defined Benefit Cost 32.36%34.12%19,587$
Total Board Approved Tier 3 Required Employer Defined Benefit Cost 32.36%34.05%19,546$
The PSPRS Board of Trustees decided to keep Tier 3 Rates level (as calculated with the June 30, 2017 valuation), for the fiscal year beginning July 1, 2019.
Defined Contribution (DC) Retirement Plan Rate Rate Dollar
Tiers 2 & 3 DB Member, Non-Soc Sec Participant - Employee**3.00%3.00%-$
Tiers 2 & 3 DB Member, Non-Soc Sec Participant - Employer**3.00%3.00%-$
Tier 3 DC Only - Employee**9.00%9.00%-$
Tier 3 DC Only - Employee Disability Program***1.51%1.51%-
Tier 3 DC Only - Total Employee 10.51%10.51%-$
Tier 3 DC Only - Employer**9.00%9.00%-$
Tier 3 DC Only - Employer Disability Program***1.51%1.51%-
Tier 3 DC Only - Total Employer (before Legacy)10.51%10.51%-$
Tier 3 DC Only - Employer Tier 1 & 2 Legacy Cost*22.42%24.11%-$
Tier 3 DC Only - Total Employer Cost 32.93%34.62%-$
*** Paid directly to PSPRS along with the legacy cost
* Pursuant to A.R.S. 38-843, subsection B, the amortization of unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent
basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that
unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3
before application of those legacy costs.
** Paid directly to third-party DC administrator, currently Nationwide
June 30, 2017 June 30, 2018
2019 2020
Note:Due to Tier 3 beginning July 1,2017,equivalent dollar amounts are not available until actual payroll data is experienced in order to provide
accurate projections.
(Employer rate is 4% for Tier 2 members for a period of time depending on the individual's membership date.)
Oro Valley Police Dept. A-4
Impact of Extra Contributions
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000
Impact on:
59.9%61.7%63.5%65.3%67.1%68.9%70.7%72.5%74.3%76.1%77.9%
38.26%37.12%35.98%34.84%33.70%32.56%31.42%30.28%29.14%28.00%26.86%
Extra Contribution in
$(000)
- June 30, 2018
Funded Status
- FYE 2020
Contribution Rate
Based on the June 30, 2018 actuarial valuation, the table above shows the hypothetical change in the funded status and contribution rate due to
each additional $1,000,000 in market value.
Oro Valley Police Dept. A-5
Historical Summary of Employer Pension Rates - Tier 1 & 2
Unfunded
Valuation Date Fiscal Year Actuarial
June 30 Ending June 30 Normal Cost Accrued Liability Total
2011 2013 12.19 % 6.53 % 18.72 %
2012 2014 12.70 7.63 20.33
2013 2015 12.41 8.19 20.60
2014* (before phase-in)2016 11.97 12.73 24.70
2014* (after phase-in)2016 11.97 9.16 21.13
2015 (before phase-in)2017 11.80 13.52 25.32
2015 (after phase-in)2017 11.80 11.53 23.33
2016 2018 15.61 18.86 34.47
2017 2019 14.29 22.42 36.71
2018 2020 14.15 24.11 38.26
* Beginning with the June 30, 2014 valuation, the rates are for pension only.
Historical Summary of Employer Health Rates - Tier 1 & 2
Unfunded
Valuation Date Fiscal Year Actuarial
June 30 Ending June 30 Normal Cost Accrued Liability Total
2014 2016 0.41 % (0.04)% 0.37 %
2015 2017 0.36 (0.03) 0.33
2016 2018 0.38 0.00 0.38
2017 2019 0.33 0.00 0.33
2018 2020 0.33 0.00 0.33
Oro Valley Police Dept. A-6
Historical Summary of Employer Pension Rates - Tier 3
Unfunded
Valuation Date Fiscal Year Actuarial
June 30 Ending June 30 Normal Cost Accrued Liability Total
2017 2019 9.68 % 9.68 %
2018* 2020 9.73 0.07 % 9.80
2018** 2020 9.68 0.00 9.68
* Calculated Tier 3 EE/ER rates
** Board approved Tier 3 EE/ER rates
Historical Summary of Employer Health Rates - Tier 3
Unfunded
Valuation Date Fiscal Year Actuarial
June 30 Ending June 30 Normal Cost Accrued Liability Total
2017 2019 0.26 % 0.26 %
2018* 2020 0.21 0.00 % 0.21
2018** 2020 0.26 0.00 0.26
* Calculated Tier 3 EE/ER rates
** Board approved Tier 3 EE/ER rates
SECTION B
FUNDING RESULTS
Oro Valley Police Dept.. B-1
Present Value of Future Benefits and Accrued Liability – Tier 1 & 2
June 30, 2017 June 30, 2018
Pension
A.Accrued Liability
1. For retirees and beneficiaries 21,020,711$ 21,952,632$
2. For DROP members 1,373,961 5,873,785
3. For inactive/vested members 278,308 293,792
4. For present active members
a. Value of expected future benefit payments 41,534,269 39,990,194
b. Value of future normal costs (11,169,683) (11,088,347)
c. Active member accrued liability: (a) - (b)30,364,586 28,901,847
5. Total accrued liability 53,037,566 57,022,056
B.Present Assets (Funding Value)31,882,797 34,172,618
C.Unfunded Accrued Liability: (A.5) - (B)21,154,769 22,849,438
D.Stabilization Reserve - -
E.Net Unfunded Accrued Liability: (C) + (D)21,154,769$ 22,849,438$
F.Funding Ratio: (B) / (A.5)60.1%59.9%
Health
A.Accrued Liability
1. For retirees and beneficiaries 265,058$ 282,864$
2. For DROP members 34,201 98,182
3. For present active members
a. Value of expected future benefit payments 928,759 890,610
b. Value of future normal costs (171,132) (165,681)
c. Active member accrued liability: (a) - (b)757,627 724,929
4. Total accrued liability 1,056,886 1,105,975
B.Present Assets (Funding Value)1,227,952 1,281,346
C.Net Unfunded Accrued Liability: (A.4) - (B)(171,066)$ (175,371)$
D.Funding Ratio: (B) / (A.4)116.2%115.9%
Oro Valley Police Dept.. B-2
Present Value of Future Benefits and Accrued Liability – Tier 3*
June 30, 2017 June 30, 2018
Pension
A.Accrued Liability
1. For retirees and beneficiaries -$ -$
2. For inactive/vested members - 38,764
3. For present active members
a. Value of expected future benefit payments - 49,300,546
b. Value of future normal costs - (47,507,595)
c. Active member accrued liability: (a) - (b)- 1,792,951
4. Total accrued liability - 1,831,715
B.Present Assets (Funding Value)- 1,635,349
C.Unfunded Accrued Liability: (A.4) - (B)-$ 196,366$
D.Funding Ratio: (B) / (A.4) -89.3%
Health
A.Accrued Liability
1. For retirees and beneficiaries -$ -$
2. For present active members
a. Value of expected future benefit payments - 1,040,288
b. Value of future normal costs - (1,000,653)
c. Active member accrued liability: (a) - (b)- 39,635
3. Total accrued liability - 39,635
B.Present Assets (Funding Value)- 43,798
C.Unfunded Accrued Liability: (A.3) - (B)-$ (4,163)$
D.Funding Ratio: (B) / (A.3) -110.5%
* The liabilities shown on this page are the liabilities for all Tier 3 members grouped together in the 'Other (less than 250
employees)' group. These liabilities are NOT the liabilities for Oro Valley Police Dept. Tier 3 members.
Oro Valley Police Dept.. B-3
Derivation of Experience Gain/(Loss) Tier 1 & 2
Actual experience will never (except by coincidence) exactly match assumed experience. Gains and losses
often cancel each other over a period of years, but sizable year-to-year fluctuations are common. Detail
on the derivation of the experience gain/(loss) is shown below, along with a year-by-year comparative
schedule.
2018
(1)UAAL* at start of year $21,154,769
(2)Normal cost from last valuation 1,515,028
(3)Actual contributions 2,999,316
(4)Interest accrual 1,551,189
(5)Expected UAAL before changes: (1) + (2) - (3) + (4)21,221,671
(6)Changes from benefit increases, methods and assumptions 1,098,789
(7)Change in reserve for future pension increases -
(8)Expected UAAL after changes: (5) + (6) + (7)22,320,460
(9)Actual UAAL at end of year 22,849,438
(10)Experience Gain/(Loss): (8) - (9)$ (528,978)
* Unfunded Actuarial Accrued Liability
Oro Valley Police Dept.. B-4
Pension Contribution Projection
Fiscal Year
Ending Contribution
June 30 Amount (Estimate)
2020 38.23 %$ 2,779,955
2021 37.98 2,930,334
2022 38.00 3,034,493
2023 38.31 3,166,322
2024 38.46 3,289,975
2025 38.21 3,382,989
2026 38.21 3,501,394
2027 38.18 3,621,098
2028 38.17 3,746,854
2029 38.18 3,879,010
2030 38.23 4,020,033
Contribution
Rate
Contribution Amount estimated based on June 30, 2018 valuation data, methods, and assumptions,
including 7.40% investment return and 3.50% payroll growth. Future years incorporated emerging Tier 3
normal cost.
SECTION C
FUND ASSETS
Oro Valley Police Dept. C-1
Development of Tier 1 & 2 Pension Funding Value of Assets (7-Year Smoothing)
2018 2019 2020 2021 2022 2023 2024
A.Funding Value Beginning of Year 7,062,649,989$
B.Market Value End of Year 7,284,786,674
C.Market Value Beginning of Year 6,841,326,541
D.Non Investment Net Cash Flow (34,051,612)
E.Investment Income
E1. Total: B-C-D 477,511,745
E2. Amount for Immediate Recognition: (7.40%)521,376,190
E3. Amount for Phased-in Recognition: E1-E2 (43,864,445)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 (6,266,349)
F2. First Prior Year 33,380,149 (6,266,349)$
F3. Second Prior Year (64,250,729) 33,380,149 (6,266,349)$
F4. Third Prior Year (36,894,248) (64,250,729) 33,380,149 (6,266,349)$
F5. Fourth Prior Year 33,458,496 (36,894,248) (64,250,729) 33,380,149 (6,266,349)$
F6. Fifth Prior Year 9,542,555 33,458,496 (36,894,248) (64,250,729) 33,380,149 (6,266,349)$
F7. Sixth Prior Year (72,234,303) 9,542,556 33,458,496 (36,894,251) (64,250,726) 33,380,148 (6,266,351)$
F8. Total Recognized Investment Gain (103,264,429) (31,030,125) (40,572,681) (74,031,180) (37,136,926) 27,113,799 (6,266,351)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F7)7,446,710,138
G2. Upper Corridor: (120% x B)8,741,744,009
G3. Lower Corridor: (80% x B)5,827,829,339
G4. End of Year: (G1 subject to max of G2 and min of G3)7,446,710,138
H.Difference Between Market Value & Funding Value: (B-G4)(161,923,464) (130,893,339) (90,320,658) (16,289,478) 20,847,448 (6,266,351) 0
I.Market Rate of Return 7.0%
J.Recognized Rate of Return 5.9%
K.Ratio of Funding Value to Market Value 102.2%
L.Market Value of Assets for Division 33,429,558
M.Funding Value of Assets for Division 34,172,618
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 7-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investmen t return are exactly equal for 7 consecutive
years, the funding value will become equal to market value.
Oro Valley Police Dept. C-2
Development of Tier 1 & 2 Health Funding Value of Assets (7-Year Smoothing)
2018 2019 2020 2021 2022 2023 2024
A.Funding Value Beginning of Year 332,916,139$
B.Market Value End of Year 328,284,037
C.Market Value Beginning of Year 321,261,466
D.Non Investment Net Cash Flow (14,928,302)
E.Investment Income
E1. Total: B-C-D 21,950,873
E2. Amount for Immediate Recognition: (7.40%)24,083,447
E3. Amount for Phased-in Recognition: E1-E2 (2,132,574)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 (304,653)
F2. First Prior Year 1,532,136 (304,653)$
F3. Second Prior Year (3,221,043) 1,532,136 (304,653)$
F4. Third Prior Year (1,796,589) (3,221,043) 1,532,136 (304,653)$
F5. Fourth Prior Year 1,653,381 (1,796,589) (3,221,043) 1,532,136 (304,653)$
F6. Fifth Prior Year 451,741 1,653,381 (1,796,589) (3,221,043) 1,532,136 (304,653)$
F7. Sixth Prior Year (3,419,544) 451,740 1,653,381 (1,796,586) (3,221,044) 1,532,136 (304,656)$
F8. Total Recognized Investment Gain (5,104,571) (1,685,028) (2,136,768) (3,790,146) (1,993,561) 1,227,483 (304,656)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F7)336,966,713
G2. Upper Corridor: (120% x B)393,940,844
G3. Lower Corridor: (80% x B)262,627,230
G4. End of Year: (G1 subject to max of G2 and min of G3)336,966,713
H.Difference Between Market Value & Funding Value: (B-G4)(8,682,676) (6,997,648) (4,860,880) (1,070,734) 922,827 (304,656) 0
I.Market Rate of Return 7.0%
J.Recognized Rate of Return 5.8%
K.Ratio of Funding Value to Market Value 102.6%
L.Market Value of Assets for Division 1,248,330
M.Funding Value of Assets for Division 1,281,346
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 7-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investment return are exactly equal for 7 consecutive
years, the funding value will become equal to market value.
Oro Valley Police Dept. C-3
Development of Tier 3 Pension Funding Value of Assets (5-Year Smoothing)
2018 2019 2020 2021 2022
A.Funding Value Beginning of Year 0$
B.Market Value End of Year 3,198,018
C.Market Value Beginning of Year 0
D.Non Investment Net Cash Flow 3,091,661
E.Investment Income
E1. Total: B-C-D 106,357
E2. Amount for Immediate Recognition: (7.00%)108,208
E3. Amount for Phased-in Recognition: E1-E2 (1,851)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 (370)
F2. First Prior Year 0 (370)$
F3. Second Prior Year 0 0 (370)$
F4. Third Prior Year 0 0 0 (370)$
F5. Fourth Prior Year 0 0 0 0 (371)$
F6. Total Recognized Investment Gain (370) (370) (370) (370) (371)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F5)3,199,499
G2. Upper Corridor: (120% x B)3,837,622
G3. Lower Corridor: (80% x B)2,558,414
G4. End of Year: (G1 subject to max of G2 and min of G3)3,199,499
H.Difference Between Market Value & Funding Value: (B-G4)(1,481) (1,111) (741) (371) 0
I.Market Rate of Return 6.9%
J.Recognized Rate of Return 7.0%
K.Ratio of Funding Value to Market Value 100.0%
L.Market Value of Assets for Division 1,634,595
M.Funding Value of Assets for Division 1,635,349
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 5-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investment return are exactly equal for 5 consecutive
years, the funding value will become equal to market value.
Oro Valley Police Dept. C-4
Development of Tier 3 Health Funding Value of Assets (5-Year Smoothing)
2018 2019 2020 2021 2022
A.Funding Value Beginning of Year 0$
B.Market Value End of Year 77,352
C.Market Value Beginning of Year 0
D.Non Investment Net Cash Flow 74,738
E.Investment Income
E1. Total: B-C-D 2,614
E2. Amount for Immediate Recognition: (7.00%)2,616
E3. Amount for Phased-in Recognition: E1-E2 (2)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 0
F2. First Prior Year 0 0$
F3. Second Prior Year 0 0 0$
F4. Third Prior Year 0 0 0 0$
F5. Fourth Prior Year 0 0 0 0 (2)$
F6. Total Recognized Investment Gain 0 0 0 0 (2)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F5)77,354
G2. Upper Corridor: (120% x B)92,822
G3. Lower Corridor: (80% x B)61,882
G4. End of Year: (G1 subject to max of G2 and min of G3)77,354
H.Difference Between Market Value & Funding Value: (B-G4)(2) (2) (2) (2) 0
I.Market Rate of Return 7.0%
J.Recognized Rate of Return 7.0%
K.Ratio of Funding Value to Market Value 100.0%
L.Market Value of Assets for Division 43,800
M.Funding Value of Assets for Division 43,798
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 5-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investment return are exactly equal for 5 consecutive
years, the funding value will become equal to market value.
SECTION D
CENSUS DATA
Oro Valley Police Dept. D-1
June 30, 2018 Valuation Data Summary
For purposes of the June 30, 2018 valuation, information on covered persons was furnished by the Board
of Trustees. These people may be briefly described as follows. (In addition there were 0 defined
contribution members with $0 in payroll.)
Tier 1 & 2:
Annual Pay or
No.Age Service Retirement Allowance
Actives 90 39.8 12.5 $76,726
Retirees & Beneficiaries 37 42,830
DROP 6 62,689
Inactive/Vested 9
142
Averages
Tier 3:
Annual Pay or
No.Age Service Retirement Allowance
Actives 1 23.5 1.0 $53,587
Retirees & Beneficiaries 0 0
DROP 0 0
Inactive/Vested 0
1
Averages
Oro Valley Police Dept. D-2
Active Members Tier 1 & 2
Members in Active Service as of June 30, 2018
by Years of Service
Total Total Average
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 & Up Count Pay Pay
Under 25 1 1 $ 57,470 $ 57,470
25 - 29 9 1 10 609,578 60,958
30 - 34 7 8 2 17 1,143,750 67,279
35 - 39 3 2 10 2 17 1,324,173 77,893
40 - 44 8 7 3 18 1,442,340 80,130
45 - 49 2 4 5 11 929,041 84,458
50 - 54 1 1 5 2 3 12 1,071,600 89,300
55 - 59 1 1 1 3 257,554 85,851
60 - 64 1 1 69,816 69,816
65 and over 0 0
Total 20 12 24 19 10 4 1 90 $ 6,905,322 $ 76,726
Years of Service
Oro Valley Police Dept. D-3
Active Members Tier 3
Members in Active Service as of June 30, 2018
by Years of Service
Total Total Average
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 & Up Count Pay Pay
Under 25 1 1 $ 53,587 $ 53,587
25 - 29 0 0
30 - 34 0 0
35 - 39 0 0
40 - 44 0 0
45 - 49 0 0
50 - 54 0 0
55 - 59 0 0
60 - 64 0 0
65 and over 0 0
Total 1 1 $ 53,587 $ 53,587
Years of Service
Oro Valley Police Dept. D-4
Inactive/Vested Members Tier 1 & 2
Inactive/Vested Members as of June 30, 2018
by Years of Service
Total
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 & Up Count
Under 30 0
30 - 39 2 1 1 4
40 - 44 2 1 3
45 - 49 1 1 2
50 - 54 0
55 - 59 0
60 - 69 0
70 and over 0
Total 5 2 2 0 0 9
Years of Service
Inactive/Vested Members Tier 3
Inactive/Vested Members as of June 30, 2018
by Years of Service
Total
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 & Up Count
Under 30 0
30 - 39 0
40 - 44 0
45 - 49 0
50 - 54 0
55 - 59 0
60 - 69 0
70 and over 0
Total 0 0 0 0 0 0
Years of Service
Oro Valley Police Dept. D-5
Retirees and Beneficiaries Tier 1 & 2
All Retirants and Beneficiaries June 30, 2018
by Attained Ages
Attained Annual Annual Annual
Ages No.Benefits No.Benefits No.Benefits
Under 25 0 $ 0 0 $ 0 0 $ 0
25-29 0 0 0 0 0 0
30-34 0 0 0 0 0 0
35-39 0 0 0 0 0 0
40-44 1 28,526 1 36,149 2 64,675
45-49 7 279,643 1 34,336 8 313,979
50-54 4 164,141 2 66,087 6 230,228
55-59 5 248,700 1 35,193 6 283,893
60-64 4 262,275 4 161,604 8 423,879
65-69 1 39,357 2 44,009 3 83,366
70-74 1 45,240 1 35,871 2 81,111
75-79 1 49,245 1 54,328 2 103,573
80-84 0 0 0 0 0 0
85-89 0 0 0 0 0 0
90-94 0 0 0 0 0 0
95-99 0 0 0 0 0 0
100 and Over 0 0 0 0 0 0
Totals 24 $ 1,117,127 13 $ 467,577 37 $ 1,584,704
Males Females Total
Pension Being Paid Number Annual Pensions Average Pensions
Retired Members Service Pensions 19 $ 945,836 $49,781
Disability Pensions 12 438,522 36,544
Totals 31 1,384,358 44,657
Survivors of Members Spouses 5 196,558 39,312
Children with Guardians 1 3,788 3,788
Total 6 200,346 33,391
Total Pension being Paid 37 $1,584,704 $42,830
Average Average Average Age
Age Service at Retirement
Normal Retired Members 58.7 22.6 52.6
Disability Retired Members 51.0 12.9 42.8
Spouse Beneficiaries 67.1 13.0 50.7
Oro Valley Police Dept. D-6
DROP Members Tier 1 & 2
DROP Members as of June 30, 2018
by Attained Ages
Attained Annual Annual Annual
Ages No.Benefits No.Benefits No.Benefits
Under 45 0 $ 0 0 $ 0 0 $ 0
45-49 1 68,381 0 0 1 68,381
50-54 4 242,120 0 0 4 242,120
55-59 0 0 0 0 0 0
60-64 1 65,635 0 0 1 65,635
65 and Over 0 0 0 0 0 0
Totals 6 $376,136 0 $0 6 $376,136
Males Females Total
Oro Valley Police Dept. D-7
Pension Being Paid
Historical Schedule
Valuation
Date Annual Average
June 30 No.Pensions Pension Total Average
2009 20 704,147$ 0.0 %35,207$ 7,705,457$ 385,273$
2010 20 723,691 2.8 36,185 7,843,255 392,163
2011 23 850,429 17.5 36,975 9,439,237 410,402
2012 24 971,065 14.2 40,461 11,124,306 463,513
2013 24 971,794 0.1 40,491 11,125,281 463,553
2014 25 1,055,903 8.7 42,236 14,234,040 569,362
2015 28 1,183,479 12.1 42,267 15,902,132 567,933
2016 31 1,285,577 8.6 41,470 17,504,675 564,667
2017 38 1,588,587 23.6 41,805 22,394,672 589,333
2018 43 1,960,840 23.4 45,601 27,826,417 647,126
% Incr. in
Annual Present Value of Pensions
Pensions
SECTION E
METHODS AND ASSUMPTIONS
Oro Valley Police Dept. E-1
Valuation Methods
Actuarial Cost Method - Normal cost and the allocation of benefit values between service rendered
before and after the valuation date were determined using an individual entry-age actuarial cost method
having the following characteristics:
(i) the annual normal costs for each individual active member, payable from the date of
hire to the date of retirement, are sufficient to accumulate to the value of the
member’s benefits.
(ii) each annual normal cost is a constant percentage of the member’s year-by-year
projected covered pay.
The entry-age actuarial cost method allocates the actuarial present value of each member's projected
benefits on a level basis over the member's compensation between the entry age of the member and the
assumed exit ages.
Actuarial Accrued Liability - The actuarial accrued liability is the portion of actuarial present value
allocated to service rendered prior to the valuation date, including experience gains and losses. The
actuarial accrued liability was computed using the assumptions summarized in this report.
Actuarial Value of System Assets – Tier 1 & 2 - The actuarial value of assets recognizes assumed
investment income fully each year. Differences between actual and assumed investment income are
phased-in over a closed seven-year period subject to a 20% corridor. During periods when investment
performance exceeds the assumed rate, actuarial value of assets will tend to be less than market value.
During periods when investment performance is less than the assumed rate, the actuarial value of assets
will tend to be greater than market value.
Actuarial Value of System Assets – Tier 3 - The actuarial value of assets recognizes assumed investment
income fully each year. Differences between actual and assumed investment income are phased-in over a
closed five-year period subject to a 20% corridor. During periods when investment performance exceeds
the assumed rate, actuarial value of assets will tend to be less than market value. During periods when
investment performance is less than the assumed rate, the actuarial value of assets will tend to be greater
than market value.
Financing of Unfunded Actuarial Accrued Liabilities – Tier 1 & 2 - The actuarial value of assets were
subtracted from the computed actuarial accrued liability. Any unfunded amount would be amortized as
level percent-of-payroll over a closed period of 18 years. If the actuarial value of assets exceeded the
actuarial accrued liability, the excess was amortized over an open period of 20 years and applied as a
credit to reduce the normal cost which otherwise would be payable.
Financing of Unfunded Actuarial Accrued Liabilities – Tier 3 - The actuarial value of assets were
subtracted from the computed actuarial accrued liability. Any unfunded amount would be amortized as a
level dollar amount over a closed period of 10 years. No credit to reduce the normal cost will be applied if
the actuarial value of assets exceeded the actuarial accrued liability.
Oro Valley Police Dept. E-2
Valuation Methods
Active member payroll was assumed to increase 3.5% annually for the purpose of computing the
amortization payment (credit) as a level percent-of-payroll.
Funded Ratio - Unless otherwise indicated, a funded ratio measurement presented in this report is based
upon the actuarial accrued liability and the actuarial value of assets. Unless otherwise indicated, with
regard to any funded status measurements presented in this report:
1. The measurement is inappropriate for assessing the sufficiency of plan assets to cover the
estimated cost of settling the plan’s benefit obligations, in other words, of transferring the
obligations to a unrelated third party in an arm’s length market value type transaction.
2. The measurement is dependent upon the actuarial cost method which, in combination with the
plan’s amortization policy, affects the timing and amounts of future contributions. The amount of
future contributions will most certainly differ from those assumed in this report due to future
actual experience differing from assumed experience based upon actuarial assumptions. A funded
ratio measurement in this report of 100% is not synonymous with no required future
contributions. If the funded ratio were 100%, the plan would still require future normal cost
contributions (i.e., contributions to cover the cost of the active membership accruing an additional
year of service credit).
3. The measurement would produce a different result if the market value of assets were used
instead of the actuarial value of assets, unless the market value of assets is used in the
measurement.
Stabilization Reserve - Beginning with the June 30, 2007 valuation and with each subsequent valuation, if
the actuarial value of assets exceeds the actuarial accrued liabilities, one half of this excess in each yea r is
allocated to a Stabilization Reserve. The Stabilization Reserve is excluded from the calculation of the
employer contribution rates. The Stabilization Reserve continues to accumulate as long as the plan is
over-funded. Once the plan becomes underfunded, the Stabilization Reserve will be used to dampen
increases in the employer contribution rates. With the June 30, 2018 valuation, the Plan is underfunded
and the Stabilization Reserve is zero.
Oro Valley Police Dept. E-3
Valuation Assumptions
Assumptions for this valuation are based on the most recent experience study performed in 2017. As
experience emerges for Tier 3 members, separate assumptions may be developed for that Tier.
The rate of investment return – Tier 1 & 2 was 7.40% a year, compounded annually net of investment and
administrative expenses.
The assumed real return is the rate of return in excess of wage growth. Considering other assumptions
used in the valuation, the 7.40% nominal rate translates to a net real return over wag e growth of 3.90% a
year.
The rate of investment return – Tier 3 was 7.00% a year, compounded annually net of investment and
administrative expenses.
The assumed real return is the rate of return in excess of wage growth. Considering other assumptions
used in the valuation, the 7.00% nominal rate translates to a net real return over wage growth of 3.50% a
year.
The rates of pay increase used for individual members are shown below. This assumption is used to
project a member’s current pay to the pay upon which System benefits will be based. This assumption
was first used for the June 30, 2017 valuation of the System.
The price inflation component of the investment return rate and the wage inflation rate is assumed to be
2.50%.
Sample
Ages
Maricopa
County
Police
Pima
County
Police
Other
Police
Maricopa
County
Fire
Pima
County
Fire
Other
Fire
Base
(Economy)
Maricopa
County
Police
Pima
County
Police
Other
Police
Maricopa
County
Fire
Pima
County
Fire
Other
Fire
20 4.00%4.00%4.00%4.00%4.00%3.70%3.50%7.50%7.50%7.50%7.50%7.50%7.20%
25 3.64%2.74%3.10%3.85%2.86%3.10%3.50%7.14%6.24%6.60%7.35%6.36%6.60%
30 2.50%1.66%1.75%3.24%1.98%2.10%3.50%6.00%5.16%5.25%6.74%5.48%5.60%
35 1.27%1.05%0.65%2.06%1.33%1.46%3.50%4.77%4.55%4.15%5.56%4.83%4.96%
40 0.40%0.39%0.10%0.96%0.53%0.94%3.50%3.90%3.89%3.60%4.46%4.03%4.44%
45 0.04%0.06%0.00%0.24%0.10%0.28%3.50%3.54%3.56%3.50%3.74%3.60%3.78%
50 0.00%0.00%0.00%0.00%0.00%0.00%3.50%3.50%3.50%3.50%3.50%3.50%3.50%
55 0.00%0.00%0.00%0.00%0.00%0.00%3.50%3.50%3.50%3.50%3.50%3.50%3.50%
60 0.00%0.00%0.00%0.00%0.00%0.00%3.50%3.50%3.50%3.50%3.50%3.50%3.50%
65 0.00%0.00%0.00%0.00%0.00%0.00%3.50%3.50%3.50%3.50%3.50%3.50%3.50%
Merit & Seniority Increase Next Year
Salary Increase Assumptions for an Individual Member
Oro Valley Police Dept. E-4
Valuation Assumptions
Mortality Tables. The mortality tables utilized are based upon the RP-2014 tables, as extended, and
include a margin for future mortality improvement using a fully generational improvement scale. The
tables used were as follows:
Healthy Pre-Retirement: The RP-2014 Employee Mortality Tables, extended via cubic spline,
projected backwards 1 year to 2013 with mortality improvement scale MP -2014. Future
mortality improvements are assumed each year using 75% of scale MP-2016.
Healthy Post-Retirement: The RP-2014 Healthy Annuitant Mortality Tables (110% for
females), extended via cubic spline, projected backwards 1 year to 2013 with mortality
improvement scale MP-2014. Future mortality improvements are assumed each year using
75% of scale MP-2016.
Disability Retirement: The RP-2014 Disabled Mortality Tables, extended via cubic spline,
projected backwards 1 year to 2013 with mortality improvement scale MP -2014. Future
mortality improvements are assumed each year using 75% of scale MP-2016.
This assumption was first used for the June 30, 2017 valuation of the System.
Sample Ages
in 2018
40
45
50
55
60
65
70
75
80 4.5399% 3.8849% 7.7775% 6.1866%
1.7008% 1.4373% 4.0920% 2.8638%
2.7223% 2.3333% 5.5091% 4.1583%
0.7793% 0.5773% 2.6681% 1.7187%
1.1112% 0.9006% 3.1971% 2.1221%
0.2794% 0.2364% 1.7112% 0.9348%
0.4119% 0.3059% 2.0675% 1.1964%
0.1854% 0.1706% 1.2941% 0.6702%
% Dying Next Year
0.5764% 0.3984% 2.3485% 1.4481%
Healthy Post-Retirement Disability Retirement
Males Females Males Females
Sample
Ages
in 2018
50
55
60
65 0.6681% 0.1880%
0.3762% 0.1234%
0.2242% 0.0837%
0.1368% 0.0553%
Males Females
% Dying Next Year
Healthy Pre-Retirement
Oro Valley Police Dept. E-5
Valuation Assumptions
Mortality Tables (continued)
* Based on retirements in 2018. Retirements in future years will reflect improvements in life expectancy.
Retirement/DROP Rates: Age-related rates for employees who were hired before January 1, 2012 are
shown below, and was first used for the June 30, 2017 valuation of the System:
These retirement rates are applicable to employees attaining age 62 before attaining 20 years of service.
Sample
Attained
Ages Men Women Men Women Men Women
55 29.46 31.11 32.98 41.17 21.20 25.09
60 25.01 26.45 28.08 36.09 18.27 21.54
65 20.74 22.00 23.40 31.07 15.39 18.09
70 16.71 17.82 19.01 26.15 12.64 14.77
75 13.00 13.95 14.94 21.37 10.06 11.71
80 9.70 10.48 11.24 16.78 7.72 9.05
Expectancy (Years)*Expectancy (Years)*Expectancy (Years)*
Healthy Post-Retirement Healthy Pre-Retirement Disabled Retirement
Future Life Future Life Future Life
Age at
Retirement
Maricopa
County Police
Pima County
Police Other Police
Maricopa
County Fire
Pima County
Fire Other Fire
62 60% 60% 60% 60% 60% 60%
63 50% 50% 50% 50% 50% 50%
64 50% 50% 50% 50% 50% 50%
65 50% 50% 50% 50% 50% 50%
66 50% 50% 50% 50% 50% 50%
67 50% 50% 50% 50% 50% 50%
68 50% 50% 50% 50% 50% 50%
69 50% 50% 50% 50% 50% 50%
70 100% 100% 100% 100% 100% 100%
Rates
Oro Valley Police Dept. E-6
Valuation Assumptions
Service-related rates for employees who were hired before January 1, 2012 are shown below:
These retirement rates are applicable to employees attaining 20 years of service before attaining age 62.
Age-related rates for employees who were hired after January 1, 2012 are shown below:
Service at
Retirement
Maricopa
County Police
Pima County
Police Other Police
Maricopa
County Fire
Pima County
Fire Other Fire
20 27% 24% 35% 14% 18%23%
21 18% 19% 30% 14% 18%18%
22 14% 14% 23% 7%11% 11%
23 10% 10% 10% 7%7% 8%
24 8% 7% 10% 7%7% 5%
25 38% 32% 36% 22% 22%30%
26 36% 32% 30% 26% 26%30%
27 29% 22% 30% 19% 19%30%
28 29% 22% 30% 32% 25%25%
29 29% 22% 30% 30% 25%16%
30 34% 35% 30% 30% 30%32%
31 34% 35% 30% 30% 30%35%
32 65% 65% 70% 55% 55%60%
33 65% 65% 70% 55% 55%60%
34 100%100% 100% 100%100%100%
Rates
Age at
Retirement
Maricopa
County Police
Pima County
Police Other Police
Maricopa
County Fire
Pima County
Fire Other Fire
53 38% 32% 36% 22% 22%30%
54 36% 32% 30% 26% 26%30%
55 29% 22% 30% 19% 19%30%
56 29% 22% 30% 32% 25%25%
57 29% 22% 30% 30% 25%16%
58 34% 35% 30% 30% 30%32%
59 34% 35% 30% 30% 30%35%
60 65% 65% 70% 55% 55%60%
61 65% 65% 70% 55% 55%60%
62 65% 65% 70% 55% 55%60%
63 65% 65% 70% 55% 55%60%
64 100% 100% 100% 100% 100%100%
Rates
Oro Valley Police Dept. E-7
Valuation Assumptions
Rates of separation from active membership used in the valuation are shown below (rates do not apply
to members eligible to retire and do not include separation on account of death or disability). This
assumption measures the probabilities of members remaining in employment. This assumption was first
used for the June 30, 2017 valuation of the System.
Sample
Ages
Service
Index
Maricopa
County
Police
Pima County
Police Other Police
Maricopa
County Fire
Pima County
Fire Other Fire
All 1 14.00%16.00%16.00%7.00%10.00%9.50%
2 8.50%9.00%12.50%4.50%5.00%9.00%
3 6.50%7.50%11.50%3.70%5.00%7.50%
4 4.50%6.00%9.00%3.00%4.00%7.50%
5 3.60%6.00%8.00%2.50%4.00%6.50%
6 3.30%4.50%8.00%1.70%3.50%4.50%
7 3.30%4.50%7.00%1.70%3.00%4.00%
8 3.30%3.20%7.00%1.70%2.40%3.50%
9 2.70%3.20%6.50%1.70%2.40%3.50%
10 2.70%3.20%6.00%1.50%2.40%3.00%
11 2.70%3.20%5.00%1.10%2.40%2.70%
12 1.80%1.40%4.00%0.70%1.00%2.00%
13 1.30%1.40%3.50%0.70%1.00%2.00%
14 1.30%1.40%3.00%0.70%1.00%1.70%
15 1.30%1.00%3.00%0.60%1.00%1.20%
16 0.70%1.00%2.00%0.50%1.00%1.20%
17 0.70%1.00%1.75%0.50%0.50%1.20%
18 0.70%1.00%1.75%0.40%0.50%1.20%
19 0.50%1.00%1.75%0.40%0.50%1.20%
20 0.50%1.00%1.75%0.40%0.50%0.50%
21 & Over 0.50%1.00%1.75%0.40%0.50%0.50%
% of Active Members Separating within Next Year
Oro Valley Police Dept. E-8
Valuation Assumptions
Rates of disability among active members used in the valuation are shown below, and were first used for
the June 30, 2017 valuation of the System.
The Pima County Police group assumptions were used for the Oro Valley Police Dept. valuation.
Sample
Ages
Maricopa
County Police
Pima County
Police Other Police
Maricopa
County Fire
Pima County
Fire Other Fire
20 0.08% 0.08% 0.10% 0.03% 0.03% 0.03%
25 0.08% 0.08% 0.10% 0.03% 0.03% 0.03%
30 0.17% 0.16% 0.20% 0.04% 0.03% 0.03%
35 0.22% 0.21% 0.26% 0.09% 0.07% 0.08%
40 0.36% 0.35% 0.44% 0.17% 0.16% 0.17%
45 0.51% 0.49% 0.62% 0.17% 0.43% 0.48%
50 0.78% 0.75% 0.95% 0.43% 0.59% 0.65%
55 1.02% 0.98% 1.23% 1.00% 1.01% 1.13%
% of Active Members Becoming Disabled within Next Year
Oro Valley Police Dept. E-9
Summary of Assumptions Used
June 30, 2018
Miscellaneous and Technical Assumptions
Marriage Assumption: 85% of males and 60% of females are assumed to be married for
purposes of death-in-service benefits. Male spouses are assumed to be
three years older than female spouses for active member valuation
purposes.
Pay Increase Timing: Six months after the valuation date. This means that the pays received
are assumed to be annual rates of pay on the valuation date as
opposed to W-2 type earnings for the prior 12 months.
Decrement Timing: Decrements of all types are assumed to occur mid-year.
Eligibility Testing: Eligibility for benefits is determined based upon the age nearest
birthday and service nearest whole year on the date the decrement is
assumed to occur.
Decrement Relativity: Decrement rates are used directly from the experience study, without
adjustment for multiple decrement table effects.
Decrement Operation: Disability and turnover decrements do not operate during retirement
eligibility.
Service Credit Accruals: It is assumed that members accrue one year of service credit per year.
Incidence of Contributions: Contributions are assumed to be received continuously throughout the
year based upon the computed percent of payroll shown in this report,
and the actual payroll payable at the time contributions are made.
Normal Form of Benefit: A straight life payment is the assumed normal form of benefit for
members who are not married, and the 80% Joint and Survivor form of
payment with no reduction, for married members. 85% of males and
60% of females are assumed to be married at time of retirement.
Benefit Service: Exact fractional service is used to determine the amount of benefit
payable.
Health Care Utilization: 70% of future retirees are expected to utilize retiree health care. 85%
of males and 60% of females are assumed to be married.
Assumed Future Permanent
Benefit Increases (PBI):
The cost-of-living adjustment will be based on the average annual
percentage change in the Metropolitan Phoenix-Mesa Consumer Price
Index published by the United States Department of Labor, Bureau of
Statistics. We have assumed that to be 1.75% for this valuation.
Oro Valley Police Dept. E-10
Summary of Assumptions Used
June 30, 2018
Miscellaneous and Technical Assumptions
Financing of Unfunded
Actuarial Accrued Liabilities
(Money in the Pipes):
The rate-setting valuation projects the unfunded actuarial accrued
liability to the beginning of the applicable fiscal year to determine the
applicable unfunded amortization rate.
Maintenance of Effort: For Tier 1 & 2 members, the amount of member contributions that
exceed 7.65% of the member’s compensation will NOT be used to
reduce the employer’s contribution requirement. Therefore, this
Maintenance of Effort is subtracted from assets prior to calculating the
contribution rate.
SECTION F
PLAN PROVISIONS
Oro Valley Police Dept. F-1
Summary of Plan Provisions Valued and/or Considered
Membership: Persons who are employed in an eligible group, prior to attaining age 65 years, for at least
40 hours a week for more than six months per year.
Average Monthly Benefit Compensation:
For members hired before January 1, 2012:
One-thirty-sixth of total compensation paid to member during the three consecutive years, out of the last
20 years of credited service, in which the amount paid was highest. Compensation is the amount
including base salary, overtime pay, shift and military differential pay, compensatory time used in lieu of
overtime pay, and holiday pay, paid to an employee on a regular payroll basis and longevity pay paid at
least every six months for which contributions are made to the System.
For members hired on or after January 1, 2012 and before July 1, 2017:
One-sixtieth of total compensation paid to member during the five consecutive years, out of the last 20
years of credited service, in which the amount paid was highest. Compensation is the amount including
base salary, overtime pay, shift and military differential pay, compensatory time used in lieu of overtime
pay, and holiday pay, paid to an employee on a regular payroll basis and longevity pay paid at least every
six months for which contributions are made to the System.
For members hired on or after July 1, 2017:
One-sixtieth of total compensation paid to member during the five consecutive years, out of the last 15
years of credited service, in which the amount paid was highest. Compensation is the amount including
base salary, overtime pay, shift and military differential pay, compensatory time used in lieu of overtime
pay, and holiday pay, paid to an employee on a regular payroll basis and longevity pay paid at least every
six months for which contributions are made to the System.
Normal Retirement:
For members hired before January 1, 2012:
First day of month following completion of 20 years of service or following 62 nd birthday and completion
of 15 years of service.
The amount of monthly normal pension is based on credited service and average monthly compensation
as follows:
For retirement with 25 or more years of credited service, 50% of average monthly compensation
for the first 20 years of credited service, plus 2.5% of average monthly compensation for each year
of credited service above 20 years.
For retirement with 20 years of credited service but less than 25 years of credited service, 50% of
average monthly compensation for the first 20 years of credited service, plus 2% of average
monthly compensation for each year of credited service between 20 and 25 years.
For retirement with less than 20 years of credited service, the percent of average monthly
compensation is reduced at a rate of 4% for each year less than 20 years of credited service.
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
Oro Valley Police Dept. F-2
Summary of Plan Provisions Valued and/or Considered
For members hired on or after January 1, 2012 and before July 1, 2017:
First day of month following the attainment of age 52.5 and completion of 15 years of service.
The amount of monthly normal pension is based on credited service and average monthly compensation
as follows:
For retirement with 15 years of credited service, but less than 17 years of credited service, 1.5%
of average monthly compensation for each credited year of service.
For retirement with 17 years of credited service, but less than 19 years of credited service, 1.75%
of average monthly compensation for each credited year of service.
For retirement with 19 years of credited service, but less than 22 years of credited service, 2.0%
of average monthly compensation for each credited year of service.
For retirement with 22 years of credited service, but less than 25 years of credited service, 2.25%
of average monthly compensation for each credited year of service.
For retirement with 25 years of service or more, 62.5% of average monthly compensation for the
first 25 years plus 2.5% of average monthly compensation for each year over 25 years of credited
service.
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
For members hired on or after July 1, 2017:
First day of month following the attainment of age 55 and completion of 15 years of service.
The amount of monthly normal pension is based on credited service and average monthly compensation
as follows:
For retirement with 15 years of credited service, but less than 17 years of credited service, 1.5%
of average monthly compensation for each credited year of service.
For retirement with 17 years of credited service, but less than 19 years of credited service, 1.75%
of average monthly compensation for each credited year of service.
For retirement with 19 years of credited service, but less than 22 years of credited service, 2.0%
of average monthly compensation for each credited year of service.
For retirement with 22 years of credited service, but less than 25 years of credited service, 2.25%
of average monthly compensation for each credited year of service.
For retirement with 25 or more years of credited service, 2.5% of average monthly compensation
for each credited year of service.
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
Oro Valley Police Dept. F-3
Summary of Plan Provisions Valued and/or Considered
Early Retirement:
For members hired before July 1, 2017:
Not eligible for an early retirement benefit.
For members hired on or after July 1, 2017:
Members who have earned at least 15 years of credited service may retire at age 52.5 and will receive a
benefit that is actuarially equivalent to their normal retirement benefit.
Vested Termination (deferred retirement):
For members hired before January 1, 2012:
Termination of covered position employment with 10 or more years of credited service. Annuity is
calculated based on twice the member’s accumulated contributions with payments commencing at age
62. This annuity is not a retirement benefit and annuitants are not entitled to survivor benefits, benefit
increases, or the group health insurance subsidy.
For members hired on or after January 1, 2012 and before July 1, 2017:
Termination of covered position employment with 15 or more years of credited service. Pension is
payable if members leave contributions on account until reaching the age requirement. Pension is
calculated in the same way as a normal retirement benefit. This annuity is a retirement benefit and
annuitants are entitled to survivor benefits, benefit increases, and the group health insurance subsidy.
For members hired on or after July 1, 2017:
Termination of covered position employment with 15 or more years of credited service. Pension is
payable if members leave contributions on account until reaching the age requirement. Pension is
calculated in the same way as a normal retirement benefit. This annuity is a retirement benefit and
annuitants are entitled to survivor benefits, benefit increases, and the group health insurance subsidy.
Refunds:
For members hired before January 1, 2012:
Member will receive a lump-sum payment of accumulated contribution. Benefit is forfeited if
accumulated contributions are refunded. The following schedule shows additional money which would
be payable to members who receive a refund of their accumulated member contributions.
Years of Credited Service
Additional Monies
(% of Contributions)
0-4 0%
5-6 25-40
7-8 55-70
9-10 85-100
For members hired on or after January 1, 2012:
Member will receive a lump-sum payment of ONLY their accumulated contribution with interest at rate
set by Board. Benefit is forfeited if accumulated contributions are refunded.
Oro Valley Police Dept. F-4
Summary of Plan Provisions Valued and/or Considered
Ordinary Disability Retirement (not duty-related): Physical condition which totally and permanently
prevents performance of a reasonable range of duties or a mental condition which totally and
permanently prevents any substantial gainful employment. The amount of pension is a percentage of
normal pension on employee’s credited service (maximum of 20 years divided by 20).
Accidental Disability Retirement (duty-related): Total and presumably permanent disability, incurred in
performance of duty, preventing performance of a reasonable range of duties within the employee’s job
classification. No credited service requirement. Pension is computed in the same manner as normal
pension based on credited service and average monthly compensation at time of termination of
employment. Pension is 50% of average monthly compensation, or normal pension amount, whichever is
greater.
Temporary Disability: Termination of employment prior to normal retirement eligibility by reason of
temporary disability. Pension is 1/12 of 50% of compensation during the year preceding the date
disability was incurred. Payments terminate after 12 months of prior recovery.
Catastrophic Disability: Pension is 90% of average monthly compensation. After 60 months, the pension
is the greater of 62.5% of average monthly compensation or the member’s accrued normal pension.
Survivor Pension: Death while a member is employed by an employer, or death after retirement. No
credited service requirement.
Spouse Pension: 80% of pension deceased active member would have been paid for accidental disability
retirement or, in the case of retired member, 80% of the retired member’s pension. Requires two years
of marriage*. Terminates upon death. For member killed in line of duty, 100% of average compensation,
reduced by child’s pension.
* If retired.
Child’s Pension: 20% of the pension each month based on the calculation for an accidental disability
retirement. Payable to a dependent child under age 18 or until age 23 if a full-time student.
Guardian’s Pension: Same amount as spouse’s pension. Payable only during periods no spouse is being
paid and there is at least one child under age 18 or until age 23 if a full-time student. 80% of the
member’s pension and the child’s pension will be paid to the guardian.
Other Termination of Employment: Member is paid his/her accumulated contributions.
Cost-of-Living Adjustment:
For members hired before July 1, 2017:
Each retired member or survivor of a retired member is eligible to receive a compounding cost -of-living
adjustment in the base benefit. The first payment shall be made on July 1, 2018 and every July 1
thereafter.
Oro Valley Police Dept. F-5
Summary of Plan Provisions Valued and/or Considered
The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan
Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of
Statistics. The cost-of-living adjustment will not exceed 2% per year.
For members hired on or after July 1, 2017:
Each retired member or survivor of a retired member is eligible to receive a compounding cost-of-living
adjustment in the base benefit, beginning at the earlier of the first calendar year after the 7th anniversary
of the retired member’s retirement or when the retired member is or would have been six ty years of age.
A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members hired on or
after July 1, 2017 is 70% or more. The cost-of-living adjustment will be based on the average annual
percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United
States Department of Labor, Bureau of Statistics. The cost-of-living adjustment will not exceed:
2%, if funded ratio for members who are hired on or after July 1, 2017 is 90% or more;
1.5%, if funded ratio for members who are hired on or after July 1, 2017 is 80 -90%; and
1%, if funded ratio for members who are hired on or after July 1, 2017 is 70-80%.
Post-Retirement Health Insurance Subsidy: Payable on behalf of retired members and survivors who
elect coverage provided by the state or participating employer. The monthly amounts cannot exceed:
Member Only With Dependents
Not Medicare
Eligible
Medicare
Eligible
All Not
Medicare
Eligible
All
Medicare
Eligible
One with
Medicare
$150 $100 $260 $170 $215
Deferred Retirement Option Plan (DROP): A member hired before January 1, 2012 with 20 or more years
of credited service under the System may enter into the DROP program with his employer. Under the
DROP program, the member must voluntarily and irrevocably elect to enter into the program with his
employer for a period of up to 60 months. During the DROP period, the member remains in the employ of
the employer as a full-time paid Firefighter or full-time paid certified Peace Officer, but no member or
employer contributions are made to the System, therefore no additional years of credited service are
accrued on the member’s behalf. The member’s monthly pension is calculated based upon the years of
credited service and average monthly compensation at the beginning of the DROP period. This monthly
pension amount is credited to a DROP participation account with interest credited monthly to the
account. The interest rate credited to the DROP account is 8.0% for the fiscal year beginning July 1, 2011,
7.85% for the fiscal years beginning July 1, 2012, July 1, 2013 and July 1, 2014, 7.50% for the fiscal year
beginning July 1, 2015, 7.40% for the fiscal years beginning July 1, 2016 a nd July 1, 2017, and 7.30% for
the fiscal year beginning July 1, 2018.
Oro Valley Police Dept. F-6
Summary of Plan Provisions Valued and/or Considered
At the end of the DROP period or prior to that time if the member terminates employment, the monies in
the DROP participation account will be paid in a lump-sum distribution to the Public Safety Personnel
Defined Contribution Retirement Plan. The member will then begin receiving the monthly pension
amount directly from the System in the same amount as was being credited to the DROP participation
account.
For members with less than 20 years of credited service on January 1, 2012, the monthly pension amount
is credited to a DROP participation account with interest calculated as the average return on the actuarial
value of assets, with a minimum of 2% and maximum equal to the actuarial assumed rate. The interest
credited to the DROP account is 4.40% for the fiscal year beginning July 1, 2012, 3.20% for the fiscal year
beginning July 1, 2013, 3.40% for the fiscal year beginning July 1, 2014, 3.1% for the fiscal year beginning
July 1, 2015, 4.50% for the fiscal year beginning July 1, 2016 and 6.6% for the fiscal year beginning July 1,
2017.
For members with less than 20 years of credited service on January 1, 2012, during the DROP pe riod, the
member remains in the employ of the employer as a full-time paid Firefighter or full-time paid certified
Peace Officer and refundable member contributions are made to the System.
A member hired on or after January 1, 2012 may NOT enter into the DROP.
Employer Contributions:
For members hired before July 1, 2017:
Percent-of-payroll normal cost plus 30-year (20 years remaining as of June 30, 2016) amortization of
unfunded actuarial accrued liability (20-year amortization for credit). The statutory minimum is 8% of
payroll (5% of payroll if the actual employer contribution rate is less than 5% for the 2006/2007 fiscal
year). Employer will contribute to the System when members return to work.
For members hired on or after July 1, 2017:
50% of both the Normal Cost and Actuarially determined amount required to amortize the total unfunded
liability for those hired after July 1, 2017. Each year a new amortization base for gains or losses,
smoothed over a period not more than 5 years, will be created on a level dollar basis over a period equal
to the average expected remaining service lives, but not more than 10 years.
Member Contributions:
For members hired before July 20, 2011: 7.65%
For members hired on or after July 20, 2011, but before January 1, 2012: 11.65%
For members hired on or after January 1, 2012, but before July 1, 2017: 11.65%
SECTION G
FUNDING POLICY
Oro Valley Police Dept. G-1
Actuarial Funding Policy
Introduction
The purpose of this Actuarial Funding Policy is to record the funding objectives and policy set by the Board
for the Arizona Public Safety Personnel Retirement System (PSPRS). The Board establishes this Funding
Policy to help ensure the systematic funding of future benefit payments for members of the Retirement
System.
In 2012, the Governmental Accounting Standards Board (GASB) approved two new financial reporting
standards. GASB Statement No. 67, “Financial Reporting for Pension Plans” replaces the requirements of
Statement No. 25. GASB Statement No. 68, “Accounting and Financial Reporting for Pensions” replaces
the requirements of Statements No. 27 and No. 50. Prior to the changes, the Annual Required
Contribution (ARC) rate was used as a basis for funding decisions. The new GASB statements separate
accounting cost (expense) from funding cost (contributions), necessitating the creation of this funding
policy.
This funding policy shall be reviewed by the Board annually for several years following initial adoption
until the next experience study. Subsequently, it shall be reviewed every five years in conjunction with
the experience study.
Funding Objectives
1. Maintain adequate assets so that current plan assets plus future contributions and investment
earnings are sufficient to fund all benefits expected to be paid to members and their beneficiaries.
2. Maintain stability of employer contribution rates, consistent with other funding objectives.
3. Maintain public policy goals of accountability and transparency. Each policy element is clear in intent
and effect, and each should allow an assessment of whether, how and when the funding
requirements of the plan will be met.
4. Promote intergenerational equity. Each generation of members and employers should incur the cost
of benefits for the employees who provide services to them, rather than deferring those costs to
future members and employers.
5. Provide a reasonable margin for adverse experience to help offset risks.
6. Continue progress of systematic reduction of the Unfunded Actuarial Accrued Liabilities (UAAL).
Oro Valley Police Dept. G-2
Actuarial Funding Policy
Elements of Actuarial Funding Policy
1. Actuarial Cost Method
a. The Individual Entry Age Normal level percent of pay actuarial cost method of valuation shall be
used in determining Actuarial Accrued Liability (AAL) and Normal Cost. Differences in the past
between assumed experience and actual experience (“actuarial gains and losses”) shall become
part of the AAL. The Normal Cost shall be determined on an individual basis for each active
member.
2. Asset Smoothing Method
a. The investment gains or losses of each valuation period, resulting from the difference between
actual investment return and assumed investment return, shall be recognized annually in level
amounts over 7 years in calculating the Funding Value of Assets .
b. The Funding Value of Assets so determined shall be subject to a 20% corridor relative to Market
Value of Assets.
3. Amortization Method
a. The Funding Value of Assets are subtracted from the computed AAL. Any unfunded amount is
amortized as a level percent of payroll over a closed period. If the Funding Value of Assets
exceeds the AAL, the excess is amortized over an open period of 20 years and applied as a credit
to reduce the Normal Cost otherwise payable.
4. Funding Target
a. The targeted funded ratio shall be 100%.
b. The maximum amortization period shall be 30 years.
c. If the funded ratio is between 100% and 120%, a minimum contribution equal to the Normal Cost
will be made.
Oro Valley Police Dept. G-3
Actuarial Funding Policy
Elements of Actuarial Funding Policy (Concluded)
5. Risk Management
a. Assumption Changes
The actuarial assumptions used shall be those last adopted by the PSPRS Board based on the
most recent experience study and upon the advice and recommendation of the actuary. In
accordance with best practices, the actuary shall conduct an experience study every five years.
The results of the study shall be the basis for the actuarial assumption changes recommended
to the PSPRS Board.
The actuarial assumptions can be updated during the five-year period if significant plan design
changes or other significant events occur, as advised by the actuary.
b. Amortization Method
The amortization method, Level Percent Closed, will ensure full payment of the UAAL over a
finite, systematically decreasing period not to exceed 30 years. The amortization period will
be reviewed once the period reaches 15 years.
c. Risk Measures
The following risk measures will be annually determined to provide quantifiable
measurements of risk and their movement over time.
(i) Classic measures currently determined
Funded ratio (assets / liability)
(ii) UAAL / Total Payroll
Measures the risk associated with contribution decreases relative impact on the ability
to fund the UAAL. An increase in this measure indicates a increase in contribution risk.
(iii) Total Liability / Total Payroll
Measures the risk associated with the ability to respond to liability experience through
adjustments in contributions. An increase in this measure indicates an increase in
experience risk.
Oro Valley Police Dept. G-4
Actuarial Funding Policy
Glossary
1. Actuarial Accrued Liability (AAL): The difference between (i) the actuarial present value of future plan
benefits, and (ii) the actuarial present value of future normal cost. Sometimes referred to as “accrued
liability” or “past service liability”.
2. Actuarial Assumptions: Estimates of future plan experience with respect to rates of mortality,
disability, turnover, retirement, rate or rates of investment income and salary increases. Decrement
assumptions (rates of mortality, disability, turnover and retirement) are generally based on past
experience, often modified for projected changes in conditions. Economic assumptions (salary
increases and investment income) consist of an underlying rate in an inflation -free environment plus a
provision for a long-term average rate of inflation.
3. Actuarial Cost Method: A mathematical budgeting procedure for allocating the dollar amount of the
“actuarial present value of future plan benefits” between the actuarial present value of future normal
cost and the actuarial accrued liability. Sometimes referred to as the “actuarial funding method”.
4. Actuarial Gain (Loss): A measure of the difference between actual experience and that expected
based upon a set of actuarial assumptions during the period between two actuarial valuation dates, in
accordance with the actuarial cost method being used. For example, if during a given year the assets
earn more than the investment return assumption, the amount of earnings above the assumption will
cause an unexpected reduction in UAAL, or “actuarial gain” as of the next valuation. These include
contribution gains and losses that result from actual contributions made being greater or less than the
level determined under the policy.
5. Actuary: A person who is trained in the applications of probability and compound interest to
problems in business and finance that involve payment of money in the future, contingent upon the
occurrence of future events. Most actuaries in the United States are Members of the American
Academy of Actuaries (MAAA). The Society of Actuaries (SOA) is an international research, education
and membership organization for actuaries in the life and health insurance, employee benefits, and
pension fields. The SOA administers a series of examinations leading initially to Associateship and the
designation ASA and ultimately to Fellowship with the designation FSA.
6. Amortization: Paying off an interest-bearing liability by means of periodic payments of interest and
principal, as opposed to paying it off with a lump sum payment.
7. Entry Age Normal Actuarial Cost Method: A funding method that calculates the Normal Cost as a
level percentage of pay over the working lifetime of the plan’s members.
8. Experience Study: An actuarial investigation of demographic and economic experiences of the system
during the period studied. The investigation is made for the purpose of updating the actuarial
assumptions used in valuing the actuarial liabilities.
Oro Valley Police Dept. G-5
Actuarial Funding Policy
Glossary (Concluded)
9. Funding Value of Assets: The value of current plan assets recognized for valuation purposes.
Generally based on a phased-in recognition of all or a portion of market related investment return.
Sometimes referred to as Actuarial Value of Assets.
10. Market Value of Assets: The fair value of plan assets as reported in the plan’s audited financial
statements.
11. Normal Cost (NC): The annual cost assigned, under the actuarial funding method, to current and
subsequent plan years. Sometimes referred to as “current service cost”. Any payment toward the
unfunded actuarial accrued liability is not part of the normal cost.
12. Unfunded Actuarial Accrued Liability (UAAL): The positive difference, if any, between the actuarial
accrued liability and valuation assets. Sometimes referred to as “unfunded accrued liability”.
APPENDIX A
ACCOUNTING DISCLOSURES
This information is presented in draft form for review by the System’s auditor. Please let us know if
there are any items that the auditor changes so that we may maintain consistency with the System’s
financial statements.
Please note that Employer Reporting Information under GASB Statement No. 27 is being replaced by
GASB Statement No. 68. Employers will receive a separate report for accounting disclosures under
GASB Statement No. 68.
Please note that Employer Reporting Information under GASB Statement No. 45 is being replaced by
GASB Statement No. 75. Employers will receive a separate report for accounting disclosures under
GASB Statement No. 75.
Oro Valley Police Dept. Appendix A-1
Schedule of Funding Progress
Actuarial
Actuarial Accrued Unfunded
Year Value Liability (AAL)AAL Covered
Ended of Assets Entry Age (UAAL)Payroll*
June 30 (a)(b)(b)-(a)(c)
2009 $ 15,727,624 $ 20,322,658 $ 4,595,034 77.4 %$ 5,951,423 77.2 %341.5 %
2010 17,152,906 21,796,927 4,644,021 78.7 5,994,879 77.5 363.6
2011 19,281,518 25,262,364 5,980,846 76.3 5,728,605 104.4 441.0
2012 21,539,446 29,146,126 7,606,680 73.9 5,994,297 126.9 486.2
2013 23,173,423 30,759,243 7,585,820 75.3 6,048,143 125.4 508.6
2014 23,567,852 36,122,643 12,554,791 65.2 6,446,142 194.8 560.4
2015 26,200,389 40,452,911 14,252,522 64.8 7,024,821 202.9 575.9
2016 29,296,195 48,414,270 19,118,075 60.5 7,011,663 272.7 690.5
2017 31,882,797 53,037,566 21,154,769 60.1 7,045,295 300.3 752.8
2018 34,172,618 57,022,056 22,849,438 59.9 6,905,322 330.9 825.8
AAL as a
Percent of
Covered
Payroll
(b)/(c)
Funded
Ratio
(a)/(b)
UAAL as a
Percent of
Covered
Payroll
[(b)-(a)]/(c)
* Tier 1 & 2 defined benefit plan payroll only.
Oro Valley Police Dept. Appendix A-2
Schedule of Employer Contributions
Fiscal
Year Ended
June 30
2011 $ 957,858 (est.)
2012 1,002,202 (est.)
2013 1,097,684 (est.)
2014 1,268,212 (est.)
2015 1,277,353 (est.)
2016*1,722,120 (est.)
2017*1,923,825 (est.)
2018 2,614,141 (est.)
2019 2,770,539 (est.)
2020 2,760,558 (est.)
Annual
Required
Contribution
* This is the estimated Annual Required Contribution before the phase-in plan.
Beginning with the 2011 fiscal year, this schedule shows the estimated annual required contribution
(calculated based on the recommended contribution rate and the projected payroll for the fiscal year).
Actual amounts reported in the employer’s financial statements may be different, due to differences
between the projected payroll and the actual payroll during the fiscal year.
Oro Valley Police Dept. Appendix A-3
Supplementary Information
Summary of Actuarial Methods and Assumptions
The information presented in the required supplementary schedules was determined as part of the
actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation
follows:
Valuation date June 30, 2018
Actuarial cost method Entry Age Normal
Amortization method Level percent of pay closed for Tier 1 & 2
Level dollar closed for Tier 3
Remaining amortization period 18 years for underfunded / 20 years for overfunded
for Tier 1 & 2
10 years for Tier 3
Asset valuation method 7-year smoothed market; 80%/120% market for Tier
1 & 2
5-year smoothed market; 80%/120% market for Tier
3
Actuarial assumptions:
Investment rate of return 7.40% for Tier 1 & 2
7.00% for Tier 3
Projected salary increases 3.50% - 7.50%
Payroll growth 3.50%
Permanent Benefit Increases The cost-of-living adjustment will be based on the
average annual percentage change in the
Metropolitan Phoenix-Mesa Consumer Price Index
published by the United States Department of Labor,
Bureau of Statistics. We have assumed that to be
1.75% for this valuation.
Oro Valley Police Dept. Appendix A-4
Health Insurance Subsidy Supplementary Information
Schedule of Funding Progress
Actuarial Actuarial Unfunded Annual
Valuation Value of Accrued AAL Covered
Date Assets Liability (AAL)(UAAL)Payroll*
June 30 (a)(b)(b-a)(c)
2009 $ 0 $ 628,965 $ 628,965 0.0 %$ 5,951,423 10.57 %
2010 0 715,698 715,698 0.0 5,994,879 11.94
2011 0 942,374 942,374 0.0 5,728,605 16.45
2012 0 870,374 870,374 0.0 5,994,297 14.52
2013 0 896,558 896,558 0.0 6,048,143 14.82
2014 920,139 937,923 17,784 98.1 6,446,142 0.28
2015 1,062,519 1,029,811 (32,708)103.2 7,024,821 0.00
2016 1,147,164 1,108,855 (38,309)103.5 7,011,663 0.00
2017 1,227,952 1,056,886 (171,066)116.2 7,045,295 0.00
2018 1,281,346 1,105,975 (175,371)115.9 6,905,322 0.00
((b-a)/c)
Payroll
Covered
% of
UAAL as a
Funded
Ratio
(a/b)
* Tier 1 & 2 defined benefit plan payroll only.
Oro Valley Police Dept. Appendix A-5
Annual Required Contribution
Valuation Fiscal Year
Date Ended Dollar
June 30 June 30 Amount
2009 2011 0.65 %0.52 %1.17 %$ 77,502
2010 2012 0.69 0.60 1.29 86,075
2011 2013 0.45 0.89 1.34 84,632
2012 2014 0.38 0.76 1.14 75,339
2013 2015 0.41 0.85 1.26 83,220
2014 2016 0.41 (0.04)0.37 25,797
2015 2017 0.36 (0.03)0.33 25,074
2016 2018 0.38 0.00 0.38 28,818
2017 2019 0.33 0.00 0.33 24,905
2018 2020 0.33 0.00 0.33 22,788
Actuarial
Accrued
Liability
(b)
Total
(a+b)
Normal
Cost
(a)
Health Insurance Subsidy Payment Reported for FY 2018: $29,984
APPENDIX B
CONTRIBUTION RATES
Oro Valley Police Dept. Appendix B-1
Contribution Rates
07/01/1968 07/20/2011
n/a n/a Yes No Yes No n/a
DB only DB only DB only Hybrid6 DB only Hybrid6 DC only
7.65%11.65%11.65%11.65%9.94%1 9.94%1
3.00%3.00%9.00%
1.51%
7.65%11.65%11.65%14.65%9.94%12.94%10.51%
14.48%2 14.48%2 14.48%2 14.48%2 9.94%1 9.94%1
24.11%3 24.11%3 24.11%3 24.11%3 24.11%4 24.11%4 24.11%4
4.00%5 3.00%9.00%
1.51%
38.59%38.59%38.59%42.59%34.05%37.05%34.62%
1 At the November 28, 2018 Board of Trustees meeting, the PSPRS Board of Trustees decided not to change the Tier 3 Pension and Health Rates for Employers and
Employees, calculated with the June 30, 2017 valuation, for the fiscal year beginning July 1, 2019. Tier 3 total DB rate of 9.94% equals 9.68% for Pension plus 0.26%
for Health.
2 Tiers 1 and 2 total DB Normal Cost of 14.48% equals 14.15% for Pension plus 0.33% for Health.
3 Tiers 1 and 2 total DB Unfunded of of 24.11% equals 24.11% for Pension plus 0.00% for Health.
4 Per statute, any positive unfunded liability for Tiers 1 and 2 is to be applied to all Tier 3 (DB and DC) payrolls (ARS § 38-843(B)), where the total
of 24.11% equals 24.11% for Pension plus 0.00% for Health.
5 The 4.00% employer match for Tier 2 Hybrid members is for a short period of time depending on the membership date of the employee at which
point the rate will change to 3%. (ARS § 38-868(C))
6 Employers that pay into Social Security on behalf of their members do not participate in the Hybrid Plan.
PSPRS DC Rate
PSPDCRP Disability Program Rate
Total ER Contribution Rate
PSPRS DC Rate
PSPDCRP Disability Program Rate
Total EE Contribution Rate
Employer Contribution Rate
PSPRS DB Normal Cost
PSPRS DB Tier 1 & 2 Unfunded
PSPRS DB Rate
Tier 1 Tier 2 Tier 3
01/01/2012 07/01/2017
122 ORO VALLEY POLICE DEPT.
Membership Date on or after
Participates in Social Security
Available Retirement Plan
Employee Contribution Rate
APPENDIX C
DETERMINATION OF TIER 3 AMORTIZATION PAYMENT
Oro Valley Police Dept. Appendix C-1
Determination of Tier 3 Amortization Payment
Pension
Original Remaining Annual
Date Original Amortization Outstanding Amortization Amortization
Type Established Balance Period UAL Balance Period Rate
Initial 6/30/2018 196,366$ 10 196,366$ 10 0.14%
Total $ 196,366 0.14%
Amounts for Fiscal Year Ending 6/30/2020
Health
Original Remaining Annual
Date Original Amortization Outstanding Amortization Amortization
Type Established Balance Period UAL Balance Period Rate
Initial 6/30/2018 (4,163)$ 10 (4,163)$ 10 0.00%
Total $ (4,163)0.00%
Amounts for Fiscal Year Ending 6/30/2020
By Statute, negative amortization rates are not subtracted in Tier 3 rate calculations.
Town of Oro Valley Dispatchers
(556)
Arizona Corrections Officer Retirement Plan
June 30, 2018
December 12, 2018
Board of Trustees
Arizona Corrections Officer Retirement Plan
Phoenix, Arizona
Re: Town of Oro Valley Dispatchers
Ladies and Gentlemen:
The results of the June 30, 2018 annual actuarial valuation of members covered by the Arizona
Corrections Officer Retirement Plan (CORP) are presented in this report.
This report was prepared at the request of the Board and is intended for use by the Retirement Plan and
those designated or approved by the Board. This report may be distributed to parties other than the
Retirement Plan only in its entirety and only with the permission of the Board. GRS is not responsible for
unauthorized use of this report.
The purpose of this valuation is to measure the Retirement Plan’s funding progress and to determine the
employer contribution for the 2019-2020 fiscal year. The funding objective is stated in Article 4, Chapter
5, Title 38, Section 891A of the Arizona Revised Statutes. In addition, this consolidated report provides
summary information for CORP participating employers. This report should not be relied on for any
purpose other than the purposes described herein. Determinations of financial results, associated with
the benefits described in this report, for purposes other than those identified above may be significantly
different.
The computed contribution rate shown on page A-2 may be considered as a minimum contribution rate
that complies with the Board’s funding policy. Users of this report should be aware that contributions
made at that rate do not guarantee benefit security. Given the importance of benefit security to any
retirement system, we suggest that contributions to the System in excess of the Statutory requirements
presented in this report be considered (as shown in Appendix B-1).
The findings in this report are based on data and other information through June 30, 2018. 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. The scope of an actuarial valuation do es not
include an analysis of the potential range of such future measurements.
Board of Trustees
Arizona Corrections Officer Retirement Plan
December 12, 2018
Page 2
This valuation assumes the continuing ability of the participating employers to make the contributions
necessary to fund this plan. A determination regarding whether or not the participating employers are
actually able to do so is outside our scope of expertise. Consequently, we did not perform such an
analysis.
The valuation was based upon information furnished by the Retirement Plan, concerning Retirement Plan
benefits, financial transactions, plan provisions and active members, terminated members, retirees and
beneficiaries. We checked for internal reasonability and year-to-year consistency, but did not audit the
data. We are not responsible for the accuracy or completeness of the information provided by the
Retirement Plan.
In addition, this report was prepared using certain assumptions approved by the Board as described in the
section of this report entitled Methods and Assumptions.
This report has been prepared by actuaries who have substantial experience valuing public employee
retirement plans. To the best of our knowledge, the information contained in this report is accurate and
fairly presents the actuarial position of the Arizona Corrections Officer Retirement Plan as of the valuation
date. All calculations have been made in conformity with generally accepted actuarial principles and
practices, with the Actuarial Standards of Practice issued by the Actuarial Standards Board, and with
applicable statutes.
Mark Buis, James D. Anderson and Francois Pieterse are Members of the American Academy of Actuaries
(MAAA). These actuaries meet the Academy’s Qualification Standards to render the actuarial opinions
contained herein.
The signing actuaries are independent of the plan sponsor.
Gabriel, Roeder, Smith & Company will be pleased to review this valuation report with the Board of
Trustees and to answer any questions pertaining to the valuation.
Respectfully submitted,
Mark Buis James D. Anderson Francois Pieterse
FSA, EA, FCA, MAAA FSA, EA, FCA, MAAA ASA, FCA, MAAA
MB/JDA/FP:rmn
Town of Oro Valley Dispatchers
Table of Contents
Page
Executive Summary/Board Summary ......................................................................................................... 1
Section A Introduction
Funding Objective ......................................................................................................... 1
Contribution Requirements .......................................................................................... 2
Impact of Extra Contributions....................................................................................... 4
Historical Summary of Employer Rates ........................................................................ 5
Section B Funding Results
Present Value of Future Benefits and Accrued Liability ............................................... 1
Derivation of Experience Gain/(Loss) ........................................................................... 2
Pension Contribution Projection .................................................................................. 3
Section C Fund Assets
Development of Pension Funding Value of Assets (7-Year Smoothing) ....................... 1
Development of Health Funding Value of Assets (7-Year Smoothing) ......................... 2
Section D Census Data
June 30, 2018 Valuation Data Summary ....................................................................... 1
Active Members ............................................................................................................ 2
Terminated Members ................................................................................................... 3
Retirees and Beneficiaries ............................................................................................ 4
Pension Being Paid – Historical Schedule ..................................................................... 5
Section E Methods and Assumptions ................................................................................................. 1
Section F Plan Provisions .................................................................................................................... 1
Section G Funding Policy ..................................................................................................................... 1
Appendix A Accounting Disclosures
Schedule of Funding Progress ....................................................................................... 1
Schedule of Employer Contributions ............................................................................ 2
Summary of Actuarial Methods and Assumptions ....................................................... 3
GASB Statement No. 45 Supplementary Information .................................................. 4
Annual Required Contribution ...................................................................................... 5
Appendix B Closed Pension Plan Contribution Recommendation – Tier 1/2 ........................................ 1
Town of Oro Valley Dispatchers - 1 -
Executive Summary/Board Summary
1. Required Employer Contributions to Support Retirement Benefits
The funded status as of June 30, 2018 and the computed employer contribution for the fiscal year
beginning July 1, 2019 are shown below:
Tier 1 & Tier 2 Members:
Averages Pension Health Total
Employer Contribution Rate 59.94%0.00%59.94%
Funded Status 45.4%137.1%47.0%
Tier 3 members (hired on or after July 1, 2018) – pension only:
• Employer contribution for Tier 3 Defined Benefit benefits*:0.00%
• Employer contribution for Tier 1 and Tier 2 unfunded liability:53.52%
• Total employer contribution as a percentage of Tier 3 payroll:53.52%
* Administrative Office of the Courts Probation and Surveillance only.
2. Contribution Rate Comparison
The chart below compares the results for this valuation of the Retirement Plan with the results of the
prior year’s valuation:
Valuation Date Pension Health Total
6/30/2017 61.36%0.00%61.36%
6/30/2018 59.94%0.00%59.94%
Please note that the pension contribution rate shown above decreased from the June 30, 2017 valuation
for most employers. The contribution rate decreased in the current valuation primarily due to the prior
Permanent Benefit Increase (PBI) being replaced with a CPI-based Cost of Living Adjustment (COLA) for all
retirees. In addition, benefit structure changes impact those hired on or after July 1, 2018 (Tier 3). This
Tier has a different level of benefit promise, which is financed on a 1/3 – 2/3 basis between
Employer/Employee. Existing unfunded accrued liabilities are financed over all employer payroll.
The reasons for the change in contribution rate and funded status are described in more detail on pages
2-4 of this report.
Town of Oro Valley Dispatchers - 2 -
Executive Summary/Board Summary
3. Reasons for Change
Changes in the contribution rate are illustrated on the following chart. The impact of each change will be
different for each employer.
Contribution Rate Pension Health Total
Contribution Rate Last Valuation 61.36% 0.00% 61.36%
Asset Losses 0.58% 0.03% 0.61%
Tier 2 (0.03)% 0.00% (0.03)%
Payroll Base 4.31% 0.00% 4.31%
PBI (1.35)% 0.00% (1.35)%
Benefit Changes (6.45)% 0.00% (6.45)%
Other 1.52% (0.03)% 1.49%
Contribution Rate This Valuation 59.94% 0.00% 59.94%
Funded Status Pension Health Total
Funded Status Last Valuation 42.2% 136.8% 43.8%
Asset Losses (0.3)% (2.4)% (0.3)%
Tier 2 0.0% 0.0% 0.0%
Payroll Base 0.8% 0.0% 0.8%
PBI 0.6% 0.0% 0.6%
Benefit Changes 2.5% 0.0% 2.6%
Other (0.4)% 2.7% (0.5)%
Funded Status This Valuation 45.4% 137.1% 47.0%
Asset Losses – Asset losses are based on 7-year smoothing of assets. The return on market value was
7.0% for the year ending June 30, 2018. However, based on funding value, the average return for the
last 7 years is approximately 6.0%.
Town of Oro Valley Dispatchers - 3 -
Executive Summary/Board Summary
Tier 2 – The decrease in the contribution rate is due to the fact that as current members retire, they are
replaced by new members who have a less costly Tier of Benefits (for members hired on or after January
1, 2012). This will typically result in a declining normal cost rate that will occur gradually over time as the
population mix (Tier 1 / Tier 2) changes. Occasionally, the normal cost rate may increase if there has been
a shift in demographics during the year.
Payroll Base – Under the current amortization policy, the contribution rate is developed based on a
percentage of payroll. To the extent that overall payroll is lower/greater than last year’s payroll projected
payroll growth, the contribution rate will increase/decrease as a result. For example, if there were 2
active members in the Plan last year and one of the members retired, the existing unfunded liability
would now be spread over the payroll of one member instead of 2 members and the resulting
contribution rate would be much higher. Therefore, it is important to consider the overall dollar level of
the contribution along with the contribution rate. The dollar contributions are also shown on Page A-2.
The change in the funded status is primarily due to gains or losses relative to the overall salary
assumption, which includes both the wage base assumption and the merit and longevity components of
the salary assumption. To the extent that payroll is lower/greater than last year’s payroll projected
payroll growth, the funded status rate will increase/decrease as a result.
PBI Gain/(Loss) – Under the current structure, retired members will receive a Permanent Benefit
increase (PBI) under certain conditions based on the current year excess asset return. The valuation
assumes a resulting average PBI of approximately 2.25% per year. Since there were no PBI for CORP
members this year, this resulted in a gain for the Plan with a corresponding decrease in the contribution
rate and increase in the funded status.
Benefit Changes – Changes to the benefit structure of CORP are summarized in section F of this
report. Some of the key benefit changes follow:
Replace the prior Permanent Benefit Increase with a CPI-based Cost of Living Adjustment
(COLA) for all retirees.
Pension reform changed the benefit formula for Tier 3 DB members (Administrative Office of the
Courts - Probation & Surveillance Officers hired on or after July 1, 2018 only).
Effective June 30, 2018, the plan is essentially closed to new hires. Other than Administrative
Office of the Courts - Probation & Surveillance Officers, those hired on or after July 1, 2018 do not
enter this plan, but instead enter a Defined Contribution Plan. A Statutory contribution is
developed as a level percent of payroll for all employees of the employer (meaning members of
this Retirement Plan and the Defined Contribution plan). In addition, this valuation develops a
contribution in accordance with funding standards for a Closed pension plan, under which
unfunded accrued liabilities are amortized on a level dollar basis, which increases the contribution
rate in the short term.
For newly hired Administrative Office of the Courts - Probation & Surveillance Officers during the
year ending June 30, 2019, a 1/3-2/3 split of Tier 3 plan Normal cost between employees and
employers applies.
Town of Oro Valley Dispatchers - 4 -
Executive Summary/Board Summary
Other – This is the combination of all factors other than those listed above and primarily reflects
demographic gains and losses (i.e., retirement, turnover, disability, etc. experience that differs from the
actuarial assumptions). While this number is small on a combined plan basis, it will vary considerably
from employer to employer, especially for employers with a small number of members.
4. Amortization Period
Unfunded liabilities were amortized as level percent-of-payroll over a closed period of 18 years. If the
actuarial value of assets exceeded the actuarial accrued liability, the excess was amortized over an open
period of 20 years and applied as a credit to reduce the normal cost which otherwise would be payable.
5. Looking Ahead
The continuing effect of prior asset losses was dampened by the 7-year smoothing period. There remain
unrecognized investment losses that will, in the absence of other gains, put upward pressure on the
contribution rate next year.
If the June 30, 2018 pension valuation results were based on market value instead of smoothed funding
value, the pension funded percent of the plan would be 44.5% (instead of 45.4%), and the pension
employer contribution requirement would be 60.94% of payroll (instead of 59.94%).
6. Conclusion
Despite changes in benefit structure that decreased contribution rates for most employers and after
accounting for active member contributions, for most plans, the retired lives are less than fully funded on
a funding value of assets basis, it remains most important that this Plan receive contributions at least
equal to the rates shown in this report. Given the importance of benefit security to any retirement
system, we suggest that contributions to the System in excess of the Statutory requirements presented in
this report be considered (as shown in Appendix B-1).
SECTION A
INTRODUCTION
Town of Oro Valley Dispatchers A-1
Funding Objective
The purpose of the annual actuarial valuation of the Arizona Corrections Officer Retirement Plan as of
June 30, 2018 is to:
Compute the liabilities associated with benefits likely to be paid on behalf of current retired
and active members. This information is contained in Section B.
Compare accrued assets with accrued liabilities to assess the funded condition. This
information is contained in Section B.
Compute the employers’ recommended contribution rates for the Fiscal Year beginning July
1, 2019. This information is contained in Section A.
This objective is stated in Article 4, Chapter 5, Title 38, Section 891A of the Arizona Revised Statutes.
Contribution Rates
The Retirement Plan is supported by member contributions, employer contributions and investment
income from Retirement Plan assets.
Contributions which satisfy the funding objective are determined by the annual actuarial valuation and
are sufficient to:
(1) Cover the actuarial present value of benefits allocated to the current year by the actuarial cost
method described in Section E (the normal cost); and
(2) Finance over a period of future years the actuarial present value of benefits not covered by
valuation assets and anticipated future normal costs (the unfunded actuarial accrued liability).
Computed contribution rates for the fiscal year beginning July 1, 2019 are shown on page A-2.
Town of Oro Valley Dispatchers A-2
Contribution Requirements
Development of Employer Contributions for the Indicated Valuation Date
Valuation Date
Contribution for Fiscal Year ending
Tiers 1 & 2 Members
Pension Rate Dollar Rate Dollar
Normal Cost
Service Pension Normal Cost 10.93%27,215$ 10.40%24,013$
Disability Pension Normal Cost 0.34%847$ 0.32%739$
Survivors of Active Members Normal Cost 0.66%1,643$ 0.62%1,432$
Refund of Member Accumulated Contributions 3.03%7,544$ 3.04%7,019$
Total Normal Cost 14.96%37,249$ 14.38%33,203$
Total Employee Cost (7.96%)(19,820)$ (7.96%)(18,379)$
Employer Normal Cost 7.00%17,429$ 6.42%14,823$
Employer Amortization of Unfunded Liabilities 54.36%135,352$ 53.52%123,575$
Total Employer Cost (Pension)61.36%152,781$ 59.94%138,398$
Health Rate Dollar Rate Dollar
Total Normal Cost 0.11%274$ 0.11%254$
Employer Amortization of Unfunded Liabilities (0.11%)(274)$ (0.11%)(254)$
Total Employer Cost (Health)0.00%-$ 0.00%-$
Tiers 1 & 2 Required Total Employer Cost (Pension + Health)61.36%152,781$ 59.94%138,398$
Total Minimum Contribution Requirement (if applicable)0.00%0.00%
Alternate Contribution Rate (ACR)**54.36%53.52%
**The Alternate Contribution Rate is the sum of the positive amortization payments for Tiers 1 & 2 Pension and Health, required for when retirees return to
active status.
June 30, 2017 June 30, 2018
2019 2020
The results above are shown both prior to and after the application of the statutory minimum
contribution requirement of 6% of payroll. Please see the Executive Summary for important comments
regarding the contribution.
Town of Oro Valley Dispatchers A-3
Contribution Requirements
Development of Employer Contributions for the Indicated Valuation Date
Valuation Date
Contribution for Fiscal Year ending
TIER 3 MEMBERS - DEFINED BENEFIT (DB) PLAN - (AOC Probation and Surveillance Only)
Pension Rate Rate
Total Normal Cost 0.00%0.00%
Amortization of Unfunded Liabilities 0.00%0.00%
Total Pension Cost 0.00%0.00%
Employee (EE) Pension Cost 0.00%0.00%
Employer (ER) Pension Cost 0.00%0.00%
Health Rate Rate
Total Normal Cost 0.00%0.00%
Amortization of Unfunded Liabilities 0.00%0.00%
Total Health Cost 0.00%0.00%
Employee (EE) Health Cost 0.00%0.00%
Employer (ER) Health Cost 0.00%0.00%
Total Calculated Tier 3 Required EE Individual Cost (before Legacy)0.00%0.00%
Total Calculated Tier 3 Required ER Individual Cost (before Legacy)0.00%0.00%
ER Legacy Cost of Tier 1 & 2 Amort of Unfunded Liabilities*0.00%0.00%
Total Calculated Tier 3 Required Employer Defined Benefit Cost 0.00%0.00%
Defined Contribution (DC) Retirement Plan Rate Rate
Tier 3 DC Only - Employee**7.00%7.00%
Tier 3 DC Only - Employee Disability Program***0.70%0.70%
Tier 3 DC Only - Total Employee 7.70%7.70%
Tier 3 DC Only - Employer**5.00%5.00%
Tier 3 DC Only - Employer Disability Program***0.70%0.70%
Tier 3 DC Only - Total Employer (before Legacy)5.70%5.70%
Tier 3 DC Only - Employer Tier 1 & 2 Legacy Cost*54.36%53.52%
Tier 3 DC Only - Total Employer Cost 60.06%59.22%
*** Paid directly to PSPRS along with the legacy cost.
** While the default contribution rate is 7%, members can elect a rate as low as 5% when they are first hired. Paid directly to third-party administrator,
currently Nationwide.
June 30, 2017 June 30, 2018
2019 2020
Note:Due to Tier 3 beginning July 1,2018,equivalent dollar amounts are not available until actual payroll data is experienced in order to provide
accurate projections.
* Pursuant to A.R.S. 38-891, subsection A, the amortization of unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent
basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that
unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3
before application of those legacy costs.
Town of Oro Valley Dispatchers A-4
Impact of Extra Contributions
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100
Impact on:
45.4%45.8%46.1%46.5%46.8%47.1%47.5%47.8%48.2%48.5%48.9%
59.94%59.57%59.20%58.84%58.47%58.10%57.73%57.37%57.00%56.63%56.26%
Extra Contribution in
$(000)
- FYE 2020
Contribution Rate
- June 30, 2018
Funded Status
Based on the June 30, 2018 actuarial valuation, the table above shows the hypothetical change in funded status and contribution rate due to
each additional $10,000 in market value.
Town of Oro Valley Dispatchers A-5
Historical Summary of Employer Pension Rates
Unfunded
Fiscal Year Actuarial
Ending June 30 Normal Cost Accrued Liability Total
2011 2013 4.76 % 6.52 % 11.28 %
2012 2014 6.80 9.49 16.29
2013 2015 6.46 11.52 17.98
2014* (before phase-in)2016 6.06 15.99 22.05
2014* (after phase-in)2016 6.06 12.51 18.57
2015 (before phase-in)2017 6.10 27.17 33.27
2015 (after phase-in)2017 6.10 21.69 27.79
2016 2018 6.04 37.59 43.63
2017 2019 7.00 54.36 61.36
2018 2020 6.42 53.52 59.94
Valuation Date
June 30
* Beginning with the June 30, 2014 valuation the rates are for pension only.
Historical Summary of Employer Health Rates
Unfunded
Valuation Date Fiscal Year Actuarial
June 30 Ending June 30 Normal Cost Accrued Liability Total
2014 2016 0.20 % (0.20)% 0.00 %
2015 2017 0.20 (0.20) 0.00
2016 2018 0.16 (0.16) 0.00
2017 2019 0.11 (0.11) 0.00
2018 2020 0.11 (0.11) 0.00
SECTION B
FUNDING RESULTS
Town of Oro Valley Dispatchers B-1
Present Value of Future Benefits and Accrued Liability
June 30, 2017 June 30, 2018
Pension
A.Accrued Liability
1. For retirees and beneficiaries 1,820,303$ 1,674,847$
2. For terminated members 82,009 82,009
3. For present active members
a. Value of expected future benefit payments 1,398,237 1,391,806
b. Value of future normal costs (222,900) (203,355)
c. Active member accrued liability: (a) - (b)1,175,337 1,188,451
4. Total accrued liability 3,077,649 2,945,307
B.Present Assets (Funding Value)1,299,676 1,337,558
C.Unfunded Accrued Liability: (A.4) - (B)1,777,973 1,607,749
D.Stabilization Reserve - -
E.Net Unfunded Accrued Liability: (C) + (D)1,777,973$ 1,607,749$
F.Funding Ratio: (B) / (A.4)42.2%45.4%
Health
A.Accrued Liability
1. For retirees and beneficiaries 29,795$ 29,117$
2. For present active members
a. Value of expected future benefit payments 22,461 23,326
b. Value of future normal costs (1,700) (1,635)
c. Active member accrued liability: (a) - (b)20,761 21,691
3. Total accrued liability 50,556 50,808
B.Present Assets (Funding Value)69,146 69,668
C.Net Unfunded Accrued Liability: (A.3) - (B)(18,590)$ (18,860)$
D.Funding Ratio: (B) / (A.3)136.8%137.1%
Town of Oro Valley Dispatchers B-2
Present Value of Future Benefits and Accrued Liability
Actual experience will never (except by coincidence) exactly match assumed experience. Gains and losses
often cancel each other over a period of years, but sizable year-to-year fluctuations are common. Detail
on the derivation of the experience gain/(loss) is shown below, along with a year-by-year comparative
schedule.
2018
(1)UAAL* at start of year $1,777,973
(2)Normal cost from last valuation 34,542
(3)Actual contributions 103,542
(4)Interest accrual 129,017
(5)Expected UAAL before changes: (1) + (2) - (3) + (4)1,837,990
(6)Changes from benefit increases, methods and assumptions (175,686)
(7)Change in reserve for future pension increases -
(8)Expected UAAL after changes: (5) + (6) + (7)1,662,304
(9)Actual UAAL at end of year 1,607,749
(10)Experience Gain/(Loss): (8) - (9)54,555
Town of Oro Valley Dispatchers B-3
Pension Contribution Projection
Fiscal Year
Ending Contribution
June 30 Amount (Estimate)
2020 59.94 %$ 138,398
2021 59.73 142,740
2022 59.63 147,488
2023 59.74 152,932
2024 59.60 157,914
2025 59.01 161,823
2026 58.63 166,408
2027 58.17 170,881
2028 57.66 175,311
2029 57.11 179,717
2030 56.48 183,955
Contribution
Rate
Contribution Amount estimated based on June 30, 2018 valuation data, methods, and assumptions,
including 7.40% investment return and 3.50% payroll growth.
The contribution rates shown above should be applied to the payroll of Defined Benefit and Defined
Contribution Plan members.
SECTION C
FUND ASSETS
Town of Oro Valley Dispatchers C-1
Development of Pension Funding Value of Assets (7-Year Smoothing)
2018 2019 2020 2021 2022 2023 2024
A.Funding Value Beginning of Year 1,795,711,132$
B.Market Value End of Year 1,857,422,954
C.Market Value Beginning of Year 1,741,995,663
D.Non Investment Net Cash Flow (6,627,329)
E.Investment Income
E1. Total: B-C-D 122,054,620
E2. Amount for Immediate Recognition: (7.50%)132,637,413
E3. Amount for Phased-in Recognition: E1-E2 (10,582,793)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 (1,511,828)
F2. First Prior Year 8,429,734 (1,511,828)$
F3. Second Prior Year (16,290,498) 8,429,734 (1,511,828)$
F4. Third Prior Year (9,194,258) (16,290,498) 8,429,734 (1,511,828)$
F5. Fourth Prior Year 8,714,006 (9,194,258) (16,290,498) 8,429,734 (1,511,828)$
F6. Fifth Prior Year 2,691,222 8,714,006 (9,194,258) (16,290,498) 8,429,734 (1,511,828)$
F7. Sixth Prior Year (17,588,811) 2,691,224 8,714,004 (9,194,260) (16,290,497) 8,429,733 (1,511,825)$
F8. Total Recognized Investment Gain (24,750,433) (7,161,620) (9,852,846) (18,566,852) (9,372,591) 6,917,905 (1,511,825)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F7)1,896,970,783
G2. Upper Corridor: (120% x B)2,228,907,545
G3. Lower Corridor: (80% x B)1,485,938,363
G4. End of Year: (G1 subject to max of G2 and min of G3)1,896,970,783
H.Difference Between Market Value & Funding Value: (B-G4)(39,547,829) (32,386,209) (22,533,363) (3,966,511) 5,406,080 (1,511,825) 0
I.Market Rate of Return 7.0%
J.Recognized Rate of Return 6.0%
K.Ratio of Funding Value to Market Value 102.1%
L.Market Value of Assets for Division 1,309,672
M.Funding Value of Assets for Division 1,337,558
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 7-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investment return are exactly equal for 7 consecutive
years, the funding value will become equal to market value.
Town of Oro Valley Dispatchers C-2
Development of Health Funding Value of Assets (7-Year Smoothing)
2018 2019 2020 2021 2022 2023 2024
A.Funding Value Beginning of Year 121,134,026$
B.Market Value End of Year 123,525,328
C.Market Value Beginning of Year 117,351,146
D.Non Investment Net Cash Flow (2,139,760)
E.Investment Income
E1. Total: B-C-D 8,313,942
E2. Amount for Immediate Recognition: (7.50%)8,884,747
E3. Amount for Phased-in Recognition: E1-E2 (570,805)
F.Phased-in Recognition of Investment Income
F1. Current Year: E3 / 7 (81,544)
F2. First Prior Year 574,691 (81,544)$
F3. Second Prior Year (1,140,445) 574,691 (81,544)$
F4. Third Prior Year (623,076) (1,140,445) 574,691 (81,544)$
F5. Fourth Prior Year 584,150 (623,076) (1,140,445) 574,691 (81,544)$
F6. Fifth Prior Year 173,946 584,150 (623,076) (1,140,445) 574,691 (81,544)$
F7. Sixth Prior Year (1,136,847) 173,947 584,154 (623,078) (1,140,442) 574,693 (81,541)$
F8. Total Recognized Investment Gain (1,649,125) (512,277) (686,220) (1,270,376) (647,295) 493,149 (81,541)
G.Funding Value End of Year
G1. Preliminary Funding Value End of Year: (A+D+E2+F1:F7)126,229,888
G2. Upper Corridor: (120% x B)148,230,394
G3. Lower Corridor: (80% x B)98,820,262
G4. End of Year: (G1 subject to max of G2 and min of G3)126,229,888
H.Difference Between Market Value & Funding Value: (B-G4)(2,704,560) (2,192,283) (1,506,063) (235,687) 411,608 (81,541) 0
I.Market Rate of Return 7.1%
J.Recognized Rate of Return 6.0%
K.Ratio of Funding Value to Market Value 102.2%
L.Market Value of Assets for Division 68,175
M.Funding Value of Assets for Division 69,668
Year Ended June 30:
The funding value of assets recognizes assumed investment return (line E2) fully each year. Differences between actual and assumed
investment return (line E3) are phased-in over a closed 7-year period. During periods when investment performance exceeds the assumed rate,
funding value of assets will tend to be less than market value. During periods when investment performance is less than the assumed rate,
funding value of assets will tend to be greater than market value. The funding value of assets is unbiased with respect to market value. At any
time it may be either greater or less than market value. If actual and assumed rates of investmen t return are exactly equal for 7 consecutive
years, the funding value will become equal to market value.
SECTION D
CENSUS DATA
Town of Oro Valley Dispatchers D-1
June 30, 2018 Valuation Data Summary
For purposes of the June 30, 2018 valuation, information on covered persons was furnished by the Board
of Trustees. These people may be briefly described as follows.
Annual Pay or
No.Age Service Retirement Allowance
Actives 4 49.1 17.1 $57,724
Retirees & Beneficiaries 5 27,345
Inactive/Vested 3
12
Averages
Town of Oro Valley Dispatchers D-2
Active Members
Members in Active Service as of June 30, 2018
by Years of Service
Total Total Average
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 30 & Up Count Pay Pay
Under 25 - $ 0 $ 0
25 - 29 - 0 0
30 - 34 - 0 0
35 - 39 1 1 33,917 33,917
40 - 44 - 0 0
45 - 49 1 1 2 135,703 67,852
50 - 54 - 0 0
55 - 59 - 0 0
60 - 64 1 1 61,274 61,274
65 and over - 0 0
Total - 1 1 - 1 - 1 4 $ 230,894 $ 57,724
Years of Service
Town of Oro Valley Dispatchers D-3
Inactive/Vested Members
Inactive/Vested Members as of June 30, 2018
by Years of Service
Total
Age 0 - 4 5 - 9 10 - 14 15 - 19 20 & Up Count
Under 30 0
30 - 39 1 1 2
40 - 44 0
45 - 49 0
50 - 54 0
55 - 59 1 1
60 - 69 0
70 and over 0
Total 2 0 1 0 0 3
Years of Service
Town of Oro Valley Dispatchers D-4
Retirees and Beneficiaries
All Retirants and Beneficiaries June 30, 2018
by Attained Ages
Attained Annual Annual Annual
Ages No.Benefits No.Benefits No.Benefits
Under 25 0 $ 0 0 $ 0 0 $ 0
25-29 0 0 0 0 0 0
30-34 0 0 0 0 0 0
35-39 0 0 0 0 0 0
40-44 0 0 0 0 0 0
45-49 1 4,426 0 0 1 4,426
50-54 0 0 1 42,240 1 42,240
55-59 0 0 0 0 0 0
60-64 1 34,223 0 0 1 34,223
65-69 0 0 1 23,739 1 23,739
70-74 0 0 1 32,096 1 32,096
75-79 0 0 0 0 0 0
80-84 0 0 0 0 0 0
85-89 0 0 0 0 0 0
90-94 0 0 0 0 0 0
95-99 0 0 0 0 0 0
100 and Over 0 0 0 0 0 0
Totals 2 $ 38,649 3 $ 98,075 5 $ 136,724
Males Females Total
Pension Being Paid Number Annual Pensions Average Pensions
Retired Members Service Pensions 3 $98,075 $32,692
Disability Pensions 1 4,426 4,426
Totals 4 102,501 25,625
Survivors of Members Spouses 1 34,223 34,223
Children with Guardians 0 0 0
Total 1 34,223 34,223
Total Pension being Paid 5 $136,724 $27,345
Average Average Average Age
Age Service at Retirement
Normal retired members 62.9 21.2 57.4
Disability retired members 47.0 4.9 36.8
Spouse beneficiaries 64.0 25.3 51.2
Town of Oro Valley Dispatchers D-5
Pension Being Paid
Historical Schedule
Valuation
Date Annual Average
June 30 No.Pensions Pension Total Average
2009 3 83,921$ 0.0 %27,974$ 796,895$ 265,632$
2010 2 58,814 (29.9)29,407 556,522 278,261
2011 3 64,891 10.3 21,630 625,371 208,457
2012 3 64,891 0.0 21,630 642,561 214,187
2013 3 64,891 0.0 21,630 638,608 212,869
2014 3 67,950 4.7 22,650 786,191 262,064
2015 4 109,459 61.1 27,365 1,301,738 325,435
2016 5 132,788 21.3 26,558 1,558,954 311,791
2017 5 136,717 3.0 27,343 1,820,303 364,061
2018 5 136,724 0.0 27,345 1,674,847 334,969
Present Value of Pensions
% Incr. in
Annual
Pensions
SECTION E
METHODS AND ASSUMPTIONS
Town of Oro Valley Dispatchers E-1
Valuation Methods
Actuarial Cost Method – Normal cost and the allocation of benefit values between service rendered
before and after the valuation date were determined using an individual entry-age actuarial cost method
having the following characteristics:
(i) the annual normal costs for each individual active member, payable from the date of
hire to the date of retirement, are sufficient to accumulate to the value of the
member’s benefits.
(ii) each annual normal cost is a constant percentage of the member’s year-by-year
projected covered pay.
The entry-age actuarial cost method allocates the actuarial present value of each member's projected
benefits on a level basis over the member's compensation between the entry age of the member and the
assumed exit ages.
Actuarial Accrued Liability – The actuarial accrued liability is the portion of actuarial present value
allocated to service rendered prior to the valuation date, including experience gains and losses. The
actuarial accrued liability was computed using the assumptions summarized in this report.
Actuarial Value of System Assets – The actuarial value of assets recognizes assumed investment income
fully each year. Differences between actual and assumed investment income are phased-in over a closed
7-year period subject to a 20% corridor. During periods when investment performance exceeds the
assumed rate, actuarial value of assets will tend to be less than market value. During periods when
investment performance is less than the assumed rate, the actuarial value of assets will tend to be greater
than market value.
Financing of Unfunded Actuarial Accrued Liabilities – The actuarial value of assets were subtracted from
the computed actuarial accrued liability. Any unfunded amount would be amortized as level percent-of-
payroll over a closed period of 18 years. If the actuarial value of assets exceeded the actuarial accrued
liability, the excess was amortized over an open period of 20 years and applied as a credit to reduce the
normal cost which otherwise would be payable.
Active member payroll was assumed to increase 3.50% annually for the purpose of computing the
amortization payment (credit) as a level percent-of-payroll for both Defined Benefit and Defined
Contribution Plan members.
Town of Oro Valley Dispatchers E-2
Valuation Assumptions
Funded Ratio – Unless otherwise indicated, a funded ratio measurement presented in this report is based
upon the actuarial accrued liability and the actuarial value of assets. Unless otherwise indicated, with
regard to any funded status measurements presented in this report:
1. The measurement is inappropriate for assessing the sufficiency of plan assets to cover the
estimated cost of settling the plan’s benefit obligations, in other words, of transferring the
obligations to an unrelated third party in an arm’s length market value type transaction.
2. The measurement is dependent upon the actuarial cost method which, in combination with the
plan’s amortization policy, affects the timing and amounts of future contributions. The amount of
future contributions will most certainly differ from those assumed in this report due to future
actual experience differing from assumed experience based upon actuarial assumptions. A funded
ratio measurement in this report of 100% is not synonymous with no required future
contributions. If the funded ratio were 100%, the plan would still require future normal cost
contributions (i.e., contributions to cover the cost of the active membership accruing an additional
year of service credit).
3. The measurement would produce a different result if the market value of assets were used
instead of the actuarial value of assets, unless the market value of assets is used in the
measurement.
Stabilization Reserve – Beginning with the June 30, 2007 valuation and with each subsequent valuation,
if the actuarial value of assets exceeds the actuarial accrued liabilities, one half of this excess in each year
is allocated to a Stabilization Reserve. The Stabilization Reserve is excluded from the calculation of the
employer contribution rates. The Stabilization Reserve continues to accumulate as long as the plan is
over-funded. Once the plan becomes under-funded, the Stabilization Reserve will be used to dampen
increases in the employer contribution rates. With the June 30, 2018 valuation, the Plan is underfunded
and the Stabilization Reserve is zero.
Town of Oro Valley Dispatchers E-3
Valuation Assumptions
Assumptions for this valuation are based on the most recent experience study performed in 2017.
The rate of investment return was 7.40% a year, compounded annually net of investment and
administrative expenses.
The assumed real return is the rate of return in excess of wage growth. Considering other assumptions
used in the valuation, the 7.40% nominal rate translates to a net real return over wage growth of 3.90% a
year.
The rates of pay increase used for individual members are shown below. This assumption is used to
project a member’s current pay to the pay upon which Plan benefits will be based. This assumption was
first used for the June 30, 2017 valuation of the Plan.
Active member payroll is assumed to grow at 3.50% per year.
The price inflation component of the investment return rate and the wage inflation rate is assumed to be
2.50%.
Sample Merit &Base Increase
Ages Seniority (Economy)Next Year
20 3.0% 3.5% 6.5%
25 2.6% 3.5% 6.1%
30 1.9% 3.5% 5.4%
35 1.2% 3.5% 4.7%
40 0.7% 3.5% 4.2%
45 0.5% 3.5% 4.0%
50 0.4% 3.5% 3.9%
55 0.2% 3.5% 3.7%
60 0.0% 3.5% 3.5%
Salary Increase Assumptions
For an Individual Member
Town of Oro Valley Dispatchers E-4
Valuation Assumptions
Mortality Tables. The mortality rates utilized are based upon the RP-2014 tables, as extended, and
include a margin for future mortality improvements projected using a fully generational improvement
scale. The tables used were as follows:
Healthy Pre-Retirement: The RP-2014 Employee Mortality Tables, extended via cubic spline,
adjusted backward to 2006 using scale MP-2014, setting it as the 2017 base year, with future
mortality improvements assumed each year using 75% of scale MP-2016.
Healthy Post-Retirement: The RP-2014 Healthy Annuitant Mortality Tables, extended via cubic
spline, adjusted backward to 2006 using scale MP-2014, setting it as the 2017 base year, with
future mortality improvements assumed each year using 75% of scale MP-2016.
Disability Retirement: The RP-2014 Disabled Mortality Table, extended via cubic spline, extended
via cubic spline, adjusted backward to 2006 using scale MP-2014, setting it as the 2017 base year,
with future mortality improvements assumed each year using 75% of scale MP-2016.
This assumption was first used for the June 30, 2017 valuation of the Plan.
Sample Ages
in 2018
40
45
50
55
60
65
70
75
80 5.4547% 4.1117% 9.3448% 7.2024%
2.0186% 1.5507% 4.8567% 3.3988%
3.2847% 2.4837% 6.6472% 4.8689%
0.8178% 0.5934% 2.7997% 1.9434%
1.2590% 0.9726% 3.6222% 2.5212%
0.3378% 0.2427% 2.0694% 1.0560%
0.4720% 0.2870% 2.3684% 1.2346%
0.2170% 0.1812% 1.5148% 0.7828%
% Dying Next Year
0.6050% 0.3738% 2.4655% 1.4943%
Healthy Post-Retirement Disability Retirement
Males Females Males Females
Sample
Ages
in 2018
50
55
60
65 0.7570% 0.4913%
0.3947% 0.3071%
0.2353% 0.1900%
0.1566% 0.1257%
Males Females
% Dying Next Year
Healthy Pre-Retirement
Town of Oro Valley Dispatchers E-5
Valuation Assumptions
Mortality Tables (continued)
* Based on retirements in 2018. Retirements in future years will reflect improvements in life expectancy.
Retirement Rates: Age-related rates for members hired before January 1, 2012 are shown below, and
were first used for the June 30, 2017 valuation of the Plan:
These retirement rates are applicable to employees attaining age 62 before attaining 20 (25 for
dispatchers) years of service.
Sample
Attained
Ages Men Women Men Women Men Women
55 28.09 30.61 31.65 33.44 19.83 23.49
60 23.63 25.92 26.74 28.53 16.83 19.94
65 19.38 21.50 22.08 23.77 13.94 16.63
70 15.46 17.38 17.77 19.19 11.32 13.51
75 11.91 13.58 13.84 14.85 8.94 10.64
80 8.81 10.16 10.32 10.76 6.84 8.15
Expectancy (Years)*Expectancy (Years)*Expectancy (Years)*
Healthy Post-Retirement Healthy Pre-Retirement Disabled Retirement
Future Life Future Life Future Life
Age at
Retirement Rates
60 45%
61 45%
62 45%
63 45%
64 45%
65 45%
66 45%
67 45%
68 45%
69 45%
70 45%
71 45%
72 45%
73 45%
74 45%
75 100%
Town of Oro Valley Dispatchers E-6
Valuation Assumptions
Service-related rates for members hired before January 1, 2012 are shown below:
These retirement rates are applicable to employees attaining 20 (25 for dispatchers) years of service
before attaining age 62.
Age-related rates for members hired after January 1, 2012 are shown below:
Service at
Retirement CORP
20 30%
21 28%
22 19%
23 17%
24 13%
25 26%
26 26%
27 19%
28 19%
29 19%
30 27%
31 27%
32 40%
33 40%
34 50%
35 50%
36 60%
37 100%
Age at
Retirement CORP
53 40%
54 40%
55 30%
56 15%
57 15%
58 30%
59 30%
60 65%
61 65%
62 100%
Town of Oro Valley Dispatchers E-7
Valuation Assumptions
Rates of separation from active membership used in the valuation are shown below (rates do not apply
to members eligible to retire and do not include separation on account of death or disability). This
assumption measures the probabilities of members remaining in employment. This assumption was first
used for the June 30, 2017 valuation of the Plan.
Rates of disability among active members used in the valuation are shown below, and were first used for
the June 30, 2017 valuation of the Plan.
Sample Years of % of Active Members
Ages Service Separating within Next Year
All 0 23.00%
1 20.00%
2 16.50%
3 14.50%
4 13.00%
5 10.50%
6 9.50%
7 9.00%
8 8.50%
9 8.50%
10 8.50%
11 6.00%
12 5.00%
13 4.50%
14 3.00%
15 3.00%
16 3.00%
17 2.00%
18 2.00%
19 2.00%
Sample % of Active Members Becoming
Ages Disabled within Next Year
20 0.03%
25 0.03%
30 0.03%
35 0.04%
40 0.05%
45 0.06%
50 0.08%
55 0.08%
Town of Oro Valley Dispatchers E-8
Summary of Assumptions Used
June 30, 2018
Miscellaneous and Technical Assumptions
Marriage Assumption: 75% of males and 50% of females are assumed to be married for
purposes of death-in-service benefits. Male spouses are assumed
to be three years older than female spouses for active member
valuation purposes.
Pay Increase Timing: Six months after the valuation date. This means that the pays
received are assumed to be annual rates of pay on the valuation
date as opposed to W-2 type earnings for the prior 12 months.
Decrement Timing: Decrements of all types are assumed to occur mid-year.
Eligibility Testing: Eligibility for benefits is determined based upon the age nearest
birthday and service nearest whole year on the date the
decrement is assumed to occur.
Decrement Relativity: Decrement rates are used directly from the experience study,
without adjustment for multiple decrement table effects.
Decrement Operation: Disability and turnover decrements do not operate during
retirement eligibility.
Service Credit Accruals: It is assumed that members accrue one year of service credit per
year.
Incidence of Contributions: Contributions are assumed to be received continuously
throughout the year based upon the computed percent of payroll
shown in this report, and the actual payroll payable at the time
contributions are made.
Normal Form of Benefit: A straight life payment is the assumed normal form of benefit for
members who are not married, and the 80% Joint and Survivor
form of payment with no reduction, for married members. 75% of
males and 50% of females are assumed to be married at the time
of retirement.
Benefit Service: Exact fractional service is used to determine the amount of
benefit payable.
Health Care Utilization: 60% of future retirees are expected to utilize retiree health care.
75% of males and 50% of females are assumed to be married.
Town of Oro Valley Dispatchers E-9
Summary of Assumptions Used
June 30, 2018
Miscellaneous and Technical Assumptions
Assumed Future Cost-of-Living
Adjustments (COLA):
The cost-of-living adjustment will be based on the average annual
percentage change in the Metropolitan Phoenix-Mesa Consumer
Price Index published by the United States Department of Labor,
Bureau of Statistics. We have assumed that to be 1.75% for this
valuation.
Interest on Reverse DROP: The lump sum distribution is credited as though it accrued monthly
from the Reverse DROP date to the date the member elected to
participate in the Reverse DROP (plus interest equal to the yield on
a five (5) year Treasury note as of the first day of the month as
published by the Federal Reserve Board). For purposes of this
valuation we used an interest rate of 2%.
Financing of Unfunded
Actuarial Accrued Liabilities
(Money in the Pipes):
The rate-setting valuation projects the unfunded actuarial accrued
liability to the beginning of the applicable fiscal year to determine
the applicable unfunded amortization rate.
SECTION F
PLAN PROVISIONS
Town of Oro Valley Dispatchers F-1
Summary of Plan Provisions
Valued and/or Considered
Membership: Designated positions for the following employers that elect to join the Plan are eligible to
participate in the CORP if the employee’s customary employment is for at least forty (40) hours per week,
or as defined by statute. A.R.S. § 38-881(13):
For a County: A county detention officer and non-uniformed employees of a sheriff's department
hired before July 1, 2018 whose primary duties require direct inmate contact.
For the State Department of Corrections and the Department of Juvenile Correction: Specific
positions are eligible to participate. Refer to the statute for specific positions.
For a City or Town: A City or Town Detention Officer.
For an employer of an eligible group as defined in A.R.S. § 38-842: Full-time dispatchers.
For the judiciary: Probation and surveillance officers and those positions designated by the Local
Board. Also includes juvenile detention officers hired before July 1, 2018.
For the Department of Public Safety: State detention officers.
Dispatchers hired after November 24, 2009 must participate in the Arizona State Retirement System.
A.R.S. § 38-902(C).
Average Monthly Compensation
For members hired before January 1, 2012:
One-thirty-sixth of total compensation paid to member during the three years, out of the last 10 years of
credited service, in which the amount paid was highest. Compensation is the amount including base
salary, overtime pay, shift differential pay and holiday pay, paid to an employee on a regular payroll basis
and longevity pay paid at least every six months for which contributions are made to the System.
For members hired after January 1, 2012:
One-sixtieth of total compensation paid to member during the five years, out of the last 10 years of
credited service, in which the amount paid was highest. Com pensation is the amount including base
salary, overtime pay, shift differential pay and holiday pay, paid to an employee on a regular payroll basis
and longevity pay paid at least every six months for which contributions are made to the System. For
members hired on or after July 1, 2018, pensionable compensation is capped at $70,000 annually.
Normal Retirement (no reduction for age)
For members hired before January 1, 2012:
A corrections officer may retire upon meeting one of the following age and service requirements:
a) Any age with 20 (25 for dispatchers) or more years of credited service
(effective August 9, 2001);
b) Age 62 years with 10 or more years of credited service; or
c) A combination of age and credited service equal to 80 (effective July 1, 1995).
The amount of normal pension at 20 years of credited service is 50% of average monthly salary with 2%
increments for every year over 20 years of credited service up to 25 years of credited service. With 25 or
more years of credited service the accrual rate is 2.5% for each year. The normal pension for someone
with less than 20 years of credited service is 2.5% for each year of credited service.
Town of Oro Valley Dispatchers F-2
Summary of Plan Provisions
Valued and/or Considered
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
For members hired after January 1, 2012 and before July 1, 2018:
First day of month following the attainment of age 52.5 and completion of 25 years of service or the
attainment of age 62 and completion of 10 years of service.
The amount of monthly normal pension is based on credited service and average monthly compensation
as follows:
Age 62 and 10 years of service, 2.5% of average monthly compensation per year of credited
service.
Age 52.5 with 25 or more years of credited service, 62.5% of average monthly compensation, plus
2.5% of average monthly compensation for each year of credited service over 25.
Age 52.5 with 25 years of service, but less than 25 years of credited service, 2.5% of average
monthly compensation multiplied total credited service.
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
For members hired after July 1, 2018 (AOC Probation and Surveillance Only):
First day of month following the attainment of age 55 and completion of 10 years of credited service.
The amount of monthly normal pension is equal to the member’s average monthly compensation
multiplied by the number of whole and fractional years of credited service multiplied by the following:
At least 10 but less than 15 years of credited service: 1.25%
At least 15 but less than 20 years of credited service: 1.50%
At least 20 but less than 22 years of credited service: 1.75%
At least 22 but less than 25 years of credited service: 2.00%
At least 25 years of credited service: 2.25%
The maximum amount payable as a normal retirement pension is 80% of the average monthly
compensation.
Early Retirement (reduction for age): Members who are hired on or after July 1, 2018 and who have
earned at least 10 years of credited service may retire at 52.5 of age and will receive an actuarially
equivalent retirement benefit to the benefit listed above.
Vested Termination (deferred annuity): Only available for members hired before January 1, 2012.
Termination of covered position employment with 10 or more years of credited service. Pension is
calculated based on twice the member’s accumulated contributions with payments commencing at age
62. Benefit is forfeited if accumulated contributions are refunded.
Town of Oro Valley Dispatchers F-3
Summary of Plan Provisions
Valued and/or Considered
Disability Retirement. A member who is injured in the performance of his duties which totally and
permanently prevent him from performing a reasonable range of duties in his department and was the
result of either physical contact with an inmate, responding to a confrontational situation with an inmate
or a job-related motor vehicle accident may be retired under accidental disability. A corrections officer
who becomes incapacitated for any gainful employment, as the direct and proximate result of
performance of duty as a corrections officer, may be retired by the Board of Trustees under total and
permanent disability. The amount of pension for both types of disability is 50 percent of average monthly
salary.
A member who has a total and permanent disability that prevents the performance of a reasonable range
of duties in his department may be retired by the Board of Trustees under an ordinary disability (non-duty
related). The amount of the pension is a percentage of normal retirement benefit. The percentage based
on credited service divided by 20 (25 for dispatchers).
DROP. Beginning July 1, 2006, the CORP shall offer the Reverse Deferred Retirement Option Plan
(Reverse DROP) to members that are eligible for a normal pension (based on service and age) applicable
to a membership date that is either prior to, or after January 1, 2012 (who is not awarded an accidental,
ordinary or total and permanent disability pension). Under the Reverse DROP, the member must
voluntarily and irrevocably elect to terminate employment and receive a normal retirement upon
participation in the Reverse DROP. The Reverse DROP date is the first day of the mo nth immediately
following completion of required credited service, or a date not more than sixty (60) consecutive months
before the date the member elects to participate in the Reverse DROP, whichever is later.
The member’s pension will be calculated using the factors of credited service and average monthly
benefit compensation in effect on the Reverse DROP Date. The lump sum distribution is credited as
though it accrued monthly from the Reverse DROP date to the date the member elected to participate in
the Reverse DROP (plus interest equal to the yield on a five (5) year Treasury note as of the first day of the
month as published by the Federal Reserve Board).
Survivor Pensions. Payable to the eligible beneficiary of a retired corrections officer or an active
corrections officer. An eligible beneficiary is a surviving spouse who was married to the retired or active
corrections officer for at least two years. A surviving spouse’s pension terminates upon death. The
amount of a surviving spouse’s pension is 80% of the pension being paid the deceased retired corrections
officer and 40% (100% if duty-related) of the average monthly salary of the deceased active corrections
officer. Eligible surviving children are paid equal shares of the pension which would have been payable to
a surviving spouse if a surviving spouse pension is not being paid. If no pension is payable because of the
death of an active member, a refund of twice the member’s accumulated contributions is paid to the
beneficiary.
Other Terminations. The member is paid a refund of accumulated member contributions. Members
hired before January 1, 2012 also receive an additional amount if the member has at least five years of
service credited. The additional amount is a percent, based on service credit, of the member contribution
amount, ranging from 25% (with five years of service credited) to 100% (with 10 or more years of service
credited). Members hired on or after January 1, 2012 receive interest.
Town of Oro Valley Dispatchers F-4
Summary of Plan Provisions
Valued and/or Considered
Post-Retirement Adjustments
For members hired before July 1, 2018:
Each retired member or survivor of a retired member is eligible to receive a compounding cost -of-living
adjustment in the base benefit. The first payment shall be made on July 1, 2018 and every July 1
thereafter.
The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan
Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of
Statistics. The cost-of-living adjustment will not exceed 2% per year.
For members hired on or after July 1, 2018:
Eligible benefit recipients may receive a cost-of-living adjustment (COLA) beginning the earlier of the first
calendar year after the seventh anniversary of the retiree’s retirement or when the retiree is or would
have been 60 years of age. The COLA is based on the Phoenix-Mesa CPI and the funded status of the pool
that includes members hired on or after July 1, 2018.
Post-Retirement Health Insurance Subsidy. Payable on behalf of retired members and survivors who
elect coverage provided by the state or participating employer. The monthly amounts cannot exceed:
Member Only With Dependents
Not Medicare
Eligible
Medicare
Eligible
All Not
Medicare
Eligible
All
Medicare
Eligible
One With
Medicare
$150 $100 $260 $170 $215
Member Contributions.
For members hired before July 1, 2018:
For fiscal years 2007/2008 and 2008/2009, the member contribution rate is 7.96% pursuant to legislation
adopted in 2005. Effective after 9/26/2008, non-dispatcher members contribute 8.41%, or a 50/50 split
between employer and employee, whichever is lower, until the Plan is 100% funded. Minimum employee
contribution rate of 7.65%, minimum employer contribution rate of 6%. Dispatcher contribution rate is
.45% less than the non-dispatcher rate until the plan is 100% funded then rates are equal thereafter.
For members hired on or after July 1, 2018:
The member contribution is actuarially calculated annually, and is equal to 66.7% of the normal cost plus
50% of the actuarially determined amount required to amortize the total unfunded accrued liability for
members hired on or after July 1, 2018.
Town of Oro Valley Dispatchers F-5
Summary of Plan Provisions
Valued and/or Considered
Employer Contributions.
For members hired before July 1, 2018:
Percent of payroll normal cost plus 30-year (18 years remaining as of June 30, 2018) amortization of
unfunded actuarial accrued liability (20-year amortization for credit). The minimum employer
contribution rate is 6% for fiscal years beginning with FY 2007/2008 (5% for units under 5% as of June 30,
2005 valuation).
For members hired on or after July 1, 2018:
33.3% of the payroll normal cost plus 50% of the actuarially determined amount required to amortize the
total unfunded accrued liability for members hired on or after July 1, 2018 over a layered 10 year period,
plus a legacy cost to help pay off the employers unfunded liability for members hired before July 1, 2018.
SECTION G
FUNDING POLICY
Town of Oro Valley Dispatchers G-1
Actuarial Funding Policy
Introduction
The purpose of this Actuarial Funding Policy is to record the funding objectives and policy set by the Board
for the Arizona Public Safety Personnel Retirement System (PSPRS). The Board establishes this Funding
Policy to help ensure the systematic funding of future benefit payments for members of the Retirement
System.
In 2012, the Governmental Accounting Standards Board (GASB) approved two new financial reporting
standards. GASB Statement No. 67, “Financial Reporting for Pension Plans” replaces the requirements of
Statement No. 25. GASB Statement No. 68, “Accounting and Financial Reporting for Pensions” replaces
the requirements of Statements No. 27 and No. 50. Prior to the changes, the Annual Required
Contribution (ARC) rate was used as a basis for funding decisions. The new GASB statements separate
accounting cost (expense) from funding cost (contributions), necessitating the creation of this funding
policy.
This funding policy shall be reviewed by the Board annually for several years following initial adoption
until the next experience study. Subsequently, it shall be reviewed every five years in conjunction with
the experience study.
Funding Objectives
1. Maintain adequate assets so that current plan assets plus future contributions and investment
earnings are sufficient to fund all benefits expected to be paid to members and their beneficiaries.
2. Maintain stability of employer contribution rates, consistent with other funding objectives.
3. Maintain public policy goals of accountability and transparency. Each policy element is clear in intent
and effect, and each should allow an assessment of whether, how and when the funding
requirements of the plan will be met.
4. Promote intergenerational equity. Each generation of members and employers should incur the cost
of benefits for the employees who provide services to them, rather than deferring those costs to
future members and employers.
5. Provide a reasonable margin for adverse experience to help offset risks.
6. Continue progress of systematic reduction of the Unfunded Actuarial Accrued Liabilities (UAAL).
Town of Oro Valley Dispatchers G-2
Actuarial Funding Policy
Elements of Actuarial Funding Policy
1. Actuarial Cost Method
a. The Individual Entry Age Normal level percent-of-pay actuarial cost method of valuation shall be
used in determining Actuarial Accrued Liability (AAL) and Normal Cost. Differences in the past
between assumed experience and actual experience (“actuarial gains and losses”) shall become
part of the AAL. The Normal Cost shall be determined on an individual basis for each active
member.
2. Asset Smoothing Method
a. The investment gains or losses of each valuation period, resulting from the difference between
actual investment return and assumed investment return, shall be recognized annually in level
amounts over 7 years in calculating the Funding Value of Assets.
b. The Funding Value of Assets so determined shall be subject to a 20% corridor relative to Market
Value of Assets.
3. Amortization Method
a. The Funding Value of Assets are subtracted from the computed AAL. Any unfunded amount is
amortized as a level percent-of-payroll over a closed period. If the Funding Value of Assets
exceeds the AAL, the excess is amortized over an open period of 20 years and applied as a credit
to reduce the Normal Cost otherwise payable.
4. Funding Target
a. The targeted funded ratio shall be 100%.
b. The maximum amortization period shall be 30 years.
c. If the funded ratio is between 100% and 120%, a minimum contribution equal to the Normal Cost
will be made.
Town of Oro Valley Dispatchers G-3
Actuarial Funding Policy
Elements of Actuarial Funding Policy
5. Risk Management
a. Assumption Changes
The actuarial assumptions used shall be those last adopted by the PSPRS Board based on the
most recent experience study and upon the advice and recommendation of the actuary. In
accordance with best practices, the actuary shall conduct an experience study every five years.
The results of the study shall be the basis for the actuarial assumption changes recommended
to the PSPRS Board.
The actuarial assumptions can be updated during the 5-year period if significant plan design
changes or other significant events occur, as advised by the actuary.
b. Amortization Method
The amortization method, Level Percent Closed, will ensure full payment of the UAAL over a
finite, systematically decreasing period not to exceed 30 years. The amortization period will
be reviewed once the period reaches 15 years.
c. Risk Measures
The following risk measures will be annually determined to provide quantifiable
measurements of risk and their movement over time.
(i) Classic measures currently determined
Funded ratio (assets/liability)
(ii) UAAL/Total Payroll
Measures the risk associated with contribution decreases relative impact on the
ability to fund the UAAL. An increase in this measure indicates a increase in
contribution risk.
(iii) Total Liability/Total Payroll
Measures the risk associated with the ability to respond to liability experience
through adjustments in contributions. An increase in this measure indicates an
increase in experience risk.
Town of Oro Valley Dispatchers G-4
Actuarial Funding Policy
Glossary
1. Actuarial Accrued Liability (AAL): The difference between (i) the actuarial present value of future plan
benefits, and (ii) the actuarial present value of future normal cost. Sometimes referred to as “accrued
liability” or “past service liability.”
2. Actuarial Assumptions: Estimates of future plan experience with respect to rates of mortality,
disability, turnover, retirement, rate or rates of investment income and salary increases. Decrement
assumptions (rates of mortality, disability, turnover and retirement) are generally based on past
experience, often modified for projected changes in conditions. Economic assumptions (salary
increases and investment income) consist of an underlying rate in an inflation -free environment plus a
provision for a long-term average rate of inflation.
3. Actuarial Cost Method: A mathematical budgeting procedure for allocating the dollar amount of the
“actuarial present value of future plan benefits” between the actuarial present value of future normal
cost and the actuarial accrued liability. Sometimes referred to as the “actuarial funding method.”
4. Actuarial Gain (Loss): A measure of the difference between actual experience and that expected
based upon a set of actuarial assumptions during the period between two actuarial valuation dates, in
accordance with the actuarial cost method being used. For example, if during a given year the assets
earn more than the investment return assumption, the amount of earnings above the assumption will
cause an unexpected reduction in UAAL, or “actuarial gain” as of the next valuation. These include
contribution gains and losses that result from actual contributions made being greater or less than the
level determined under the policy.
5. Actuary: A person who is trained in the applications of probability and compound interest to
problems in business and finance that involve payment of money in the future, contingent upon the
occurrence of future events. Most actuaries in the United States are Members of the American
Academy of Actuaries (MAAA). The Society of Actuaries (SOA) is an international research, education
and membership organization for actuaries in the life and health insurance, employee benefits, and
pension fields. The SOA administers a series of examinations leading initially to Associateship and the
designation ASA and ultimately to Fellowship with the designation FSA.
6. Amortization: Paying off an interest-bearing liability by means of periodic payments of interest and
principal, as opposed to paying it off with a lump sum payment.
7. Entry Age Normal Actuarial Cost Method: A funding method that calculates the Normal Cost as a
level percentage-of-pay over the working lifetime of the plan’s members.
8. Experience Study: An actuarial investigation of demographic and economic experiences of the system
during the period studied. The investigation is made for the purpose of updating the actuarial
assumptions used in valuing the actuarial liabilities.
Town of Oro Valley Dispatchers G-5
Actuarial Funding Policy
9. Funding Value of Assets: The value of current plan assets recognized for valuation purposes.
Generally based on a phased-in recognition of all or a portion of market related investment return.
Sometimes referred to as Actuarial Value of Assets.
10. Market Value of Assets: The fair value of plan assets as reported in the plan’s audited financial
statements.
11. Normal Cost (NC): The annual cost assigned, under the actuarial funding method, to current and
subsequent plan years. Sometimes referred to as “current service cost.” Any payment toward the
unfunded actuarial accrued liability is not part of the normal cost.
12. Unfunded Actuarial Accrued Liability (UAAL): The positive difference, if any, between the actuarial
accrued liability and valuation assets. Sometimes referred to as “unfunded accrued liability.”
APPENDIX A
ACCOUNTING DISCLOSURES
This information is presented in draft form for review by the Plan’s auditor. Please let us know if there
are any items the auditor changes so that we may maintain consistency with the Plan’s financial
statements.
Please note that Employer Reporting Information under GASB Statement No. 27 is being replaced by
GASB Statement No. 68. In future years, Employers will receive a separate report for accounting
disclosures under GASB Statement No. 68.
Please note that Employer Reporting Information under GASB Statement No. 45 is being replaced by
GASB Statement No. 75. In future years, Employers will receive a separate report for accounting
disclosures under GASB Statement No. 75.
Town of Oro Valley Dispatchers Appendix A-1
Schedule of Funding Progress
Actuarial
Actuarial Accrued Unfunded
Year Value Liability (AAL)AAL Covered
Ended of Assets Entry Age (UAAL)Payroll
June 30 (a)(b)(b)-(a)(c)
2009 $ 1,082,181 $ 1,581,254 $ 499,073 68.4 %$ 604,184 82.6 %261.7 %
2010 1,057,358 1,349,198 291,840 78.4 513,337 56.9 262.8
2011 1,160,778 1,670,411 509,633 69.5 477,701 106.7 349.7
2012 1,173,314 1,904,329 731,015 61.6 451,808 161.8 421.5
2013 1,229,237 1,974,876 745,639 62.2 405,564 183.9 486.9
2014 1,228,308 2,269,744 1,041,436 54.1 410,789 253.5 552.5
2015 1,229,767 2,362,604 1,132,837 52.1 272,189 416.2 868.0
2016 1,257,682 2,524,360 1,266,678 49.8 222,308 569.8 1135.5
2017 1,299,676 3,077,649 1,777,973 42.2 232,436 764.9 1324.1
2018 1,337,558 2,945,307 1,607,749 45.4 230,894 696.3 1275.6
AAL as a
Percent of
Covered
Payroll
(b)/(c)
Funded
Ratio
(a)/(b)
UAAL as a
Percent of
Covered
Payroll
[(b)-(a)]/(c)
Town of Oro Valley Dispatchers Appendix A-2
Schedule of Employer Contributions
Fiscal
Year Ended
June 30
2011 $ 59,648 (est.)
2012 47,080 (est.)
2013 54,721 (est.)
2014 76,611 (est.)
2015 74,538 (est.)
2016*97,970 (est.)
2017*97,947 (est.)
2018 104,908 (est.)
2019 152,781 (est.)
2020 138,398 (est.)
Annual
Required
Contribution
* This is the estimated Annual Required Contribution before the phase -in plan.
Beginning with the 2011 fiscal year, this schedule shows the estimated annual required contribution
(calculated based on recommended contribution rate and the projected payroll for the fiscal year). Actual
amounts reported in the employer’s financial statements may be different, due to differences between
the projected payroll and the actual payroll during the fiscal year.
Town of Oro Valley Dispatchers Appendix A-3
Summary of Actuarial Methods and Assumptions
The information presented in the required supplementary schedules was determined as part of the
actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation
follows:
Valuation date June 30, 2018
Actuarial cost method Entry Age Normal
Amortization method Level percent-of-pay closed
Remaining amortization period 18 years for underfunded
20 years for overfunded
Asset valuation method 7-year smoothed market
80%/120% market
Actuarial assumptions:
Investment rate of return 7.40%
Projected salary increases 3.50% - 6.50%
Payroll growth 3.50%
Cost-of-living adjustments The cost-of-living adjustment will be
based on the average annual
percentage change in the Metropolitan
Phoenix-Mesa Consumer Price Index
published by the United States
Department of Labor, Bureau of
Statistics. We have assumed that to be
1.75% for this valuation.
Town of Oro Valley Dispatchers Appendix A-4
Health Insurance Subsidy Supplementary Information
The following information is presented concerning the post-retirement health insurance subsidy. The
liabilities and computed contribution for the post-retirement health insurance subsidy were based on
the same assumptions and actuarial cost methods as indicated for GASB Statement No. 27.
Schedule of Funding Progress
Actuarial Actuarial Unfunded Annual
Valuation Value of Accrued AAL Covered
Date Assets Liability (AAL)(UAAL)Payroll
June 30 (a)(b)(b-a)(c)
2009 $ 0 $ 54,580 $ 54,580 0.0 %$ 604,184 9.0 %
2010 0 45,521 45,521 0.0 513,337 8.9
2011 0 61,474 61,474 0.0 477,701 12.9
2012 0 62,245 62,245 0.0 451,808 13.8
2013 0 66,776 66,776 0.0 405,564 16.5
2014 78,501 67,692 ($10,809)116.0 410,789 0.0
2015 85,050 48,723 ($36,327)174.6 272,189 0.0
2016 68,438 48,337 ($20,101)141.6 222,308 0.0
2017 69,146 50,556 ($18,590)136.8 232,436 0.0
2018 69,668 50,808 ($18,860)137.1 230,894 0.0
Funded
Ratio
(a/b)
UAAL as a
% of
Covered
Payroll
((b-a)/c)
Town of Oro Valley Dispatchers Appendix A-5
Annual Required Contribution
Valuation Fiscal Year
Date Ended Dollar
June 30 June 30 Amount
2009 2011 0.37 %0.44 %0.81 %$ 5,447
2010 2012 0.44 0.45 0.89 5,085
2011 2013 0.19 0.70 0.89 4,687
2012 2014 0.18 0.73 0.91 4,533
2013 2015 0.20 0.95 1.15 5,093
2014 2016 0.20 (0.20)0.00 0
2015 2017 0.20 (0.20)0.00 0
2016 2018 0.16 (0.16)0.00 0
2017 2019 0.11 (0.11)0.00 0
2018 2020 0.11 (0.11)0.00 0
Normal
Cost
(a)
Actuarial
Accrued
Liability
(b)
Total
(a+b)
Health Insurance Subsidy Payment Reported for FY 2018: $3,464
APPENDIX B
CLOSED PENSION PLAN CONTRIBUTION RECOMMENDATION –
TIER 1/2
Town of Oro Valley Dispatchers Appendix B-1
Closed Pension Plan Contribution Recommendation – Tier 1/2
The CORP Statutory contribution rate is developed using not only payroll of the members receiving
Defined Benefits (DB) from this Plan, but also factors in payroll for future members who receive no
Defined Benefits from this plan, but rather receive Defined Contribution (DC) plan benefits from a
different plan. In this way, the statutory contribution is based on a level-percent of payroll approach that
considers both DB and DC pay.
When considering the Defined Benefit Plan on its own, level percent financing cannot apply due to the
ever decreasing payroll for members covered by the Plan. In this case, unfunded liabilities are amortized
on a level-dollar basis shown in the development that follows below.
The CORP statutory contribution rates for Tiers 1 & 2 are shown on page A-2. The information below is
informational only.
Valuation Date
Contribution for Fiscal Year ending
Tiers 1 & 2 Members
Pension Rate Dollar
Service Pension Normal Cost 10.40%24,013$
Disability Pension Normal Cost 0.32%739$
Survivors of Active Members Normal Cost 0.62%1,432$
Refund of Member Accum Contribs Normal Cost 3.04%7,019$
Total Normal Cost 14.38%33,203$
Total Employee Cost (7.96%)(18,379)$
Employer Normal Cost 6.42%14,823$
Employer Amortization of Unfunded Liabilities 68.25%157,585$
Total Employer Cost (Pension)74.67%172,409$
June 30, 2018
2020
1
Town of Oro Valley
Public Safety Personnel Retirement System (PSPRS)
Pension Funding Policy
The intent of this policy is to clearly communicate the Town Council’s pension funding objectives,
its commitment to employees and the sound financial management of the Town of Oro Valley,
and maintain compliance with new statutory requirements of A.R.S. 38-863.01. The Council shall
annually assess the status of the Town’s PSPRS trust fund annually, and take formal action to
update this policy in concert with the final annual budget approval. This policy shall also apply to
the Town’s participation in the Correction Officer Retirement Plan (CORP).
Several terms are used throughout this policy and are defined as follows:
Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets and
the estimated future cost of pensions earned by employees. This UAAL results from actual
results (interest earnings, member mortality, disability rates, etc.) being different from the
assumptions used in previous actuarial valuations.
Annual Required Contribution (ARC) – Is the annual amount required to pay into the
pension funds, as determined through annual actuarial valuations. It is comprised of two
primary components: normal pension cost – which is the estimated cost of pension benefits
earned by employees in the current year; and, amortization of UAAL – which is the cost
needed to cover the unfunded portion of pensions earned by employees in previous years.
The UAAL is collected over a period of time referred to as the amortization period. The ARC is
a percentage of the current payroll.
Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the ratio the
better funded the pension is with 100% being fully funded.
Intergenerational equity –Is a concept used to describe the policy expectation that no
generation is burdened by substantially more or less pension costs than past or future
generations.
The Town’s sworn police employees who are regularly assigned hazardous duty participate in the
Public Safety Personnel Retirement System (PSPRS). Selected individuals who serve as
dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also
administered by the Public Safety Personnel Retirement System.
Public Safety Personnel Retirement System (PSPRS)
PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer
plan has two main functions: 1) to comingle assets of all plans under its administration, thus
achieving economy of scale for more cost efficient investments, and invest those assets for the
benefit of all members under its administration and 2) serve as the statewide uniform
administrator for the distribution of benefits.
2
Under an agent multiple-employer plan, each agency participating in the plan has an individual
trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are
deposited to and distributions are made from that fund’s assets, each fund has its own funded
ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of
Oro Valley has one trust fund for police employees. The Town also contributes to the Correction
Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement
System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police
Department. CORP maintains one trust fund for dispatchers.
Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS
and CORP trust funds from the June 30, 2018 actuarial valuations specified below.
Trust Fund Assets
Accrued
Liability
Unfunded
Actuarial Accrued
Liability
Funded
Ratio
Oro Valley Police $34,172,618 $57,022,056 $22,849,438 59.9%
Oro Valley Dispatchers $ 1,337,558 $ 2,945,307 $ 1,607,749 45.4%
PSPRS and CORP Funding Goal
Pensions that are less than fully funded place the cost of service provided in earlier periods
(amortization of UAAL) on the current taxpayers. Fully funded pension plans are the best way to
achieve taxpayer and member intergenerational equity.
The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) by June 30,
2036. Council establishes this goal for the following reasons:
∑The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability
∑The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s
ability to provide services
∑A fully funded pension is the best way to achieve taxpayer and member intergenerational
equity
Council has determined that in order to achieve the 100% funding ratio goal, the following actions
will be taken:
∑Maintain ARC payment from operating revenues – Council is committed to maintaining the
full ARC payment (normal cost and UAAL amortization) from operating funds. The
estimated combined ARC for FY19/20 is estimated at $3.0 million for PSPRS and at
$119,000 for CORP and shall be paid from operating funds.
∑Retain 20-year amortization of unfunded liability rather than extend to 30 years as allowed
by statute.
∑Review Local board practices annually.
∑Apply adopted financial policies dedicating surplus funds at year-end toward reducing the
unfunded liability.
3
∑Project additional payments toward unfunded liability debt, on top of the employer
contribution, based on funding availability. For FY19/20, this shall include a lump sum of
$500,000 for PSPRS.
It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in
accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2018
Actuarial Valuation.