CAFR - sdcera

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