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Mr. Ronald Neufeld <br /> June 28, 2007 <br /> Page 2 <br /> Our previous experience with these types of projects will allow us to guide the City on the <br /> appropriate cost method and assumptions to employ for their specific retiree medical plan. <br /> Project Plan for Initial Actuarial Valuation <br /> Milliman proposes the following approach for the City's project. <br /> a. Data Request and Collection. We will provide the City with a written data request and <br /> upon receipt of the data, we will review it for completeness and reasonableness. <br /> b. Pre-Study Conference Call. We will hold a conference call with City personnel to <br /> discuss the project goals, deliverables, data, assumptions, and timing. In this call, we will <br /> verify our understanding based on the information already provided about the City's (1) <br /> current retiree health plan eligibility requirements, (2) types of post-employment benefits <br /> provided, (3) employee/retiree classifications, and(4)premium and contributions rates. <br /> c. Determination of Retiree Health, Life and Other OPEB Costs and Premium Rates. <br /> We will develop age-specific health cost estimates for each plan of benefits based on the <br /> � City's current premium rates and Milliman's Health Cost Guidelines (HCGs). The <br /> HCGs are rating manuals based on Milliman's national research on health care costs. <br /> Our premium rate development will include adjustments for inflation. <br /> d. Estimation of Lifetime Costs Current and Future Retirees. Using the results of the <br /> previous steps, we will estimate the present value of future retiree benefits. In advance <br /> of preparing the valuation, we will review the assumptions with the City. We will then <br /> use an actuarial cost method to estimate the expected value of these benefits over the <br /> employees' working years. This step will consider several issues: <br /> ➢ Future benefit costs: The age-specific rates developed in Step c. will be projected <br /> into the future based on health care cost trend assumptions. The age-specific health <br /> cost estimates will be reduced by the retiree contribution rate to determine the net <br /> . cost to the City. <br /> ➢ Emnlovment assum tp ions: We will work with the City to ensure that appropriate <br /> turnover and retirement rate assumptions are used in the calculation. <br /> ➢ Economic assumptions: We will suggest economic assumptions, such as the <br /> discount rate and medical inflation rates, to the City for feedback. <br /> ➢ Actuarial cost method: GASB 45 permits the use of one of six actuarial cost <br /> methods to allocate retiree health plan costs over employees' working careers with <br /> the City. We will discuss the relative differences between the cost methods and <br /> recommend a method that is consistent with the City's cost allocation objectives. <br /> MILLIMAN <br />