2012 CAFR - Encina Wastewater Authority

ENCINA WASTEWATER AUTHORITYNOTES TO FINANCIAL STATEMENTSJUNE 30, 2012 AND 2011Note 6 - Postretirement Benefits: (Continued)Funding Status and Funding ProgressAs of July 1, 2012, the most recent actuarial valuation date, the Plan was not yet funded. The Authority’sactuarial accrued liability for benefits at June 30, 2012 was $354,564 and the covered payroll (annual payrollof active employees covered by the Plan) was $5,798,143, with a ratio of the UAAL to the covered payroll of6.12%. The normal cost payments made during the year ended June 30, 2012 of $652 funded 1.7% of theannual required contribution (ARC) leaving a net OPEB obligation of $111,639.ActuarialValuationDateActuarialValue ofAssetsActuarialAccruedLiabilityUnfundedAAL(UAAL)FundedStatusCoveredPayrollUAAL as aPercentageof CoveredPayroll(A) (B) (B-A) (A/B) (C) [(B-A)/C]July 1, 2009 N/A $ 188,983 $ 188,983 0.0% $ 5,498,944 3.44%July 1, 2012 N/A $ 354,564 $ 354,564 0.0% $ 5,798,143 6.12%Actuarial valuations of an ongoing Plan involve estimates of the value of reported amounts and assumptionsabout the probability of occurrence of events far into the future. Examples include assumptions about futureemployment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status ofthe Plan and the annual required contributions of the employer are subject to continual revision as actualresults are compared with past expectations and new estimates are made about the future. The schedule offunding progress presents multiyear trend information that shows whether the actuarial value of plan assetsis increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.Actuarial Methods and AssumptionsProjections of benefits for financial reporting purposes are based on the substantive plan (the plan asunderstood by the employer and the plan members) and include the types of benefits provided at the time ofeach valuation and the historical pattern of sharing benefits and costs between employer and plan membersto that point. The actuarial methods and assumptions used include techniques that are designed to reducethe effects of short-term volatility in actuarial accrued liabilities and the actuarial assets, consistent with thelong-term perspective of the calculations.The actuarial cost method used for determining the benefits obligations is the Projected Unit Credit CostMethod. The actuarial assumptions included a 5% investment rate of return, which is the expected long-terminvestment return on plan assets, a p rojected salary increase assumption rate of 3.25%, and an annualhealthcare cost trend rate of 5 to 8 percent. The UAAL is being amortized as a level percentage of projectedpayroll over 30 years.See accompanying independent auditors’ report.34