CAFR - sdcera

A C T U A R I A L /
C O S T M E T H O D S & A S S U M P T I O N S
Actual experience of the system will not coincide exactly with assumed experience, regardless of
the choice of the assumptions, the skill of the actuary and the precision of the many
calculations made. Each valuation provides a complete recalculation of assumed future
experience and takes into account all past differences between assumed and actual experience.
The latest experience study was done for the period July 1, 2000 through June 30, 2003, and
resulting assumptions are reflected in the most recent actuarial valuation. The result is a continual
series of adjustments (usually small) to the computed contribution rate. From time to time, it
becomes appropriate to modify one or more of the assumptions, to reflect experience trends
(but not random year-to-year fluctuations).
The investment return rate used for the actuarial valuation calculations was 8.25% a year, net
of administrative expenses, compounded annually. This assumption, used to equate the value
of payments due at different points in time, is adopted by the Retirement Board. The rate is
comprised of two elements:
COMPONENTS OF INVESTMENT RETURN RATE
Inflation 3.75%
Real Rate of Return 4.50%
Total 8.25%
Source: The Segal Company, Annual Actuarial Valuation, June 30, 2007.
The inflation rate used for the actuarial valuation calculations was 3.75% per year, compounded
annually. It represents the difference between the investment return rate and the assumed real
rate of return. Inflation actually experienced, as measured by the Consumer Price Index for
urban wage earners, has been as follows:
CONSUMER PRICE INDEX URBAN WAGE
EARNERS AND CLERICAL WORKERS
BEFORE 1978
ALL URBAN CONSUMERS AFTER 1977
10-YEAR MOVING AVERAGE
June 30, 1962 1.3%
June 30, 1972 3.3%
June 30, 1982 8.8%
June 30, 1992 3.8%
June 30, 2002 2.5%
50-Year Average 3.9%
66 COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007