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A C T U A R I A L / A S S E T V A L U A T I O N DETERMINATION OF ACTUARIAL AND VALUATION VALUE OF ASSETS FOR THE YEAR ENDED JUNE 30, 2007 (THOUSANDS OF DOLLARS) Total Actual Expected Investment Six Month Period Market Return Market Return Gain/(Loss) Deferred Factor Deferred Return From To (net) (net) 1/2003 6/2003 84,950,076 172,517,450 (87,567,374) 0.0 - 7/2003 12/2003 464,531,812 182,773,793 281,758,019 0.2 56,351,604 1/2004 6/2004 464,531,812 182,773,793 281,758,019 0.2 56,351,604 7/2004 12/2004 393,633,977 228,521,789 165,112,188 0.4 66,044,875 1/2005 6/2005 393,633,977 228,521,789 165,112,188 0.4 66,044,875 7/2005 12/2005 565,517,934 262,672,774 302,845,160 0.6 181,707,096 1/2006 6/2006 388,653,398 286,420,193 102,233,205 0.7 71,563,244 7/2006 12/2006 556,128,897 302,680,212 253,448,685 0.8 202,758,948 1/2007 6/2007 552,867,341 325,757,782 227,109,559 0.9 204,398,603 1. Total Deferred Return $ 905,220,849 2. Net Market Value of Assets 8,444,505,140 3. Actuarial Value of Assets (Item 2 - Item 1) 7,539,284,291 4. Non-valuation Reserves a. Health Benefit Reserve 164,865,161 b. 401(h) Reserve 18,865,550 c. Contingency Reserve 84,445,051 d. Undistributed Reserve 20,704,060 e. Subtotal 288,879,822 5. Valuation Value of Assets (Item 3 - Item 4e) $ 7,250,404,469 Source: The Segal Company, Annual Actuarial Valuation June 30, 2007 64 COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007
C O S T M E T H O D S & A S S U M P T I O N S / A C T U A R I A L ACTUARIAL COST METHODS 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: 1. The annual normal costs for each active member, payable from the date of entry into the system to the date of retirement, are sufficient to accumulate the value of the member’s benefit at the time of retirement; 2. Each annual normal cost is a constant percentage of the member’s year-by-year projected covered pay. Financing of Unfunded Actuarial Accrued Liability. On June 17, 2004, SDCERA’s Board adopted The Segal Company’s recommendation regarding the amortization period. The balance of unfunded actuarial accrued liabilities is funded (or credited, if negative) over 20 years on a close basis, as a level percent of pay. Active member payroll in aggregate was assumed to increase 5.0% a year for those with over 5 years of service and higher rates for those with less than 5 years, for the purpose of determining the level percent contributions although individual annual salary increase rates may be higher per year for the purpose of projecting individual pay. Deferred Member Actuarial Accrued Liability. Data provided to the actuary included date of hire, date of birth, date of termination, service credit, and highest average salary. Deferred retirement age were estimated based on the data provided. The estimates were used to compute the retirement benefit upon which the liabilities are based. ACTUARIAL ASSUMPTIONS The contribution requirements and benefit values of the fund are calculated by applying actuarial assumptions to the benefit provisions and member information furnished using the actuarial cost methods described above. The principal areas of financial risk that require assumptions about future experience are: 1. Long-term rates of investment return to be generated by the assets of the fund; 2. Patterns of pay increases to members; 3. Rates of mortality among members, retirees and beneficiaries; 4. Rates of withdrawal of active members (without entitlement to a retirement benefit); 5. Rates of disability among members; and 6. Age patterns of actual retirements. In making a valuation, the monetary effect of each assumption is calculated for as long as a present-covered person survives. That period of time can be as long as a century. COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007 65
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