Unfunded Pension DeKalb County Sep 4 2014 Task Force Mtg

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Copyright © 2014 by The Segal Group, Inc. All rights reserved.

Legacy Pension Cost Overview

September 4, 2014

DeKalb County

Eric J. Atwater, FSA, FCA, MAAA, EAVice President and Consulting Actuary



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Segal Consulting was asked in December 2013 to estimate the impact on thepension fund of DeKalb County city incorporations.

Segal worked with the County staff to understand the County’s processes and toestablish a methodology for allocating “legacy” unfunded pension liabilities to

exiting cities. An “unfunded liability” can vary depending on the actuarial cost method used to

allocate the present value of future benefits between the normal cost andactuarial accrued liability. Segal has used the methods and assumptions shownin the actuarial reports for the DeKalb County Pension Plan, as recommended

by the actuary and approved by the County’s Pension Board. There are also various ways to determine a city’s share of unfunded pension

liability. The chosen methodology for allocating “legacy” unfunded pensionliabilities and cost is based on two primary factors:

Size of tax digest; and

Unfunded pension liabilities at time cities incorporate

Background



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The methodology used for allocating impact “legacy” unfunded pension liabilitiesand cost is as follows:

1. Determine the total decline in unincorporated tax digest from an incorporatedcity, to use as a proxy for the decline due to a city exiting.

2. Apply the percentage from #1 above to the total unfunded liability in theDeKalb County Pension Plan at the time of exit to determine the city’s shareof the liability.

3. Take 1/4th of the exiting city’s share of the unfunded liability from #2, sinceexiting cities still pay ~3/4th into the Tax or General Fund.

4. Accumulate the city’s share of the unfunded liability to today using 7.75%interest.

5. Amortize the accumulated unfunded liability from #4 over 30 years todetermine the annual amount that the exiting city owes.

This method presumes that the incorporated cities’ liabilities are not adjusted forany future gains and losses that impact the Pension Plan. Essentially, theliability is treated as a mortgage, based on the cost as calculated today. Thuseach city has a cost that is predictable, once established.

Methodology



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1. Total decline in Unincorporated tax digest Change in Unincorporated tax digest between 2008 and 2009 16.15%

2. Total Unfunded liability attributable to Dunwoody Percent from #1 multiplied by total Unfunded liability of $467.9 million as of

2009$75,600,000

3. Dunwoody’s share of Unfunded at time of exit 25% of total Unfunded since County still paying 3/4th into Tax fund or about

4.0% of total Unfunded$18,900,000

4. Dunwoody’s share of Unfunded today Accumulated with interest from 2009 to today Based on assumption for investment earnings in pension plan at time of exit

$27,500,000

5. Annual amount to pay down Unfunded (i.e., “ amort ize” ) over 30 years Based on current assumption (7.50%) for investment earnings in pension plan Assumes 30 level equal payments made at end of each fiscal year

$2,300,000

Exiting City Impact - Sample

We went through the same methodology to determine the impact for Brookhaven exiting and haveestimated it will owe about $0.2 million annually.

Thus, Dunwoody and Brookhaven collectively owe the County about $2.5 million per year, or about5.0% of to tal pension cost, for legacy Unfunded pension liabilit ies.

The following is a detailed breakdown of the annual amount owed by Dunwoody for “legacy”pension cost:

Documents

Unfunded Pension DeKalb County Sep 4 2014 Task Force Mtg