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Changes in the Net Pension Liability - Board of Public Works

Increase (Decrease)

Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
Balances, beginning of year $ $1,033,623 $ (43,638,120) $ 7,395,503
Changes for the year:
Service cost 1,194,402 - 1,194,402
Interest 3,546,569 - 3,546,569
Contributions - employer - (907,292) (907,292)
Contributions - employee - (907,292) (907,292)
Net investment income - (11,103,338) (11,103,338)
Differences between expected and
actual experience (933,080) - (933,080)
Changes of assumptions 1,910,247 - 1,910,247
Benefit payments, including refunds of
employee contributions (3,179,286) 3,179,286 -
Administrative expense - 61,626 61,626
Net changes 2,538,852 (9,677,010) (7,138, 158)
Balances, end of year $ 53,572,475 $ (53,315,130) = § 257,345

Actuarial Assumptions and Other Inputs
The total pension liability in the July 1, 2020 actuarial valuation was determined using the
following actuarial assumptions:

Actuarial cost method Entry Age Normal

Salary increases Inflation of 3.00% annually, plus merit increases ranging from
2.00% to 0.00%, based on age

Investment rate of return 7.00%, per annum compounded annually, net of investment
expenses

Actuarial valuation of the ongoing System involves estimates of the reported amounts and
assumptions about probability of occurrence of events far into the future. Examples include
assumptions about future employment mortality and future salary increases. Amounts
determined regarding the net pension liability are subject to continual revision as actual
results are compared with past expectations and new estimates are made about the future.
The actuarial assumptions used in the valuation were based on the results of a limited scope
experience study for the period July 1, 2005 through June 30, 2014 completed in
conjunction with the July 1, 2014 actuarial valuation.

Mortality rates in the July 1, 2020 valuation for non-disabled individuals reflects the Pub-
2010 Public Retirement Plans Amount-Weighted Mortality Tables, projected to the
valuation date with Scale MP-2019 (previously was the RP-2014 Mortality Table, adjusted
to 2006 Blue Collar Mortality Table, projected to the valuation date with Scale MP-2018).

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Mortality rates in the July 1, 2020 valuation for disabled individuals reflects the Pub-2010
Public Retirement Plans Amount-Weighted Mortality Tables, projected to the valuation
date with Scale MP-2019, setback 10 years (previously was the RP-2014 Adjusted to 2006
Blue Collar Mortality Table projected to the valuation date with Scale MP-2018, setback 10
years).

Target Allocation

The long-term expected rate of return on pension plan investments was selected from a best
estimate range determined using the building block approach. Under this method, an expected
future real return range (expected returns, net of pension plan investment expense and inflation)
is calculated separately for each asset class. These ranges are combined to produce the long-term
expected rate of return by weighting the expected future real rates of return net of investment
expenses by the target asset allocation percentage and by adding expected inflation. The target
allocation and best estimates of arithmetic real rates of return for each major class are
summarized in the following table:

Long-term
Expected
Target Real Rate
Asset Class Allocation ofRetum Weighting
Intermediate Bond 40.00% 2.00% 0.80%
US Large Cap Equity 30.00% 6.25% 1.88%
US Small Cap Equity 10.00% 7.75% 0.78%
International Equity 20.00% 6.00% 1.20%
Total 100.00% 4.66%
Inflation 2.40%
Expected arithmetic nominal return 7.06%

Discount Rate

The discount rate used to measure the total pension liability was 7.00%. The projection of
cash flows used to determine the discount rate assumed that the plan member contributions
will be made at the current contribution rate and that employer contributions will be made
at contractually required rates, actuarially determined. Based on those assumptions, the
pension plan’s fiduciary net position was projected to be available to make all projected
future benefit payments to current active and inactive plan members. Therefore, the long-
term expected rate of return on pension plan investments was applied to all periods of
projected benefit payments to determine the total pension liability.

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Sensitivity of the Proportionate Share of the Net Pension Liability (Asset) to Changes in
the Discount Rate

The following presents the City’s proportionate share of the net pension liability (asset) cal-
culated using the discount rate of 7.00%, as well as what the City’s proportionate share of the
net pension liability (asset) would be if it were calculated using a discount rate that is
one percentage-point lower or one percentage-point higher than the current rate:

Current
1% Discount 1%
Decrease Rate Increase

$ 5,932,766 $ 257,345 $(4,603,099)

Pension Liability, Pension Expense, and Deferred Outflows of Resources and Deferred
(Inflows) of Resources Related to Pensions

At June 30, 2021, the City reported a liability of $257,345 for its net pension liability. The net
pension liability was measured as of June 30, 2021, and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of July 1, 2020.
The City’s net pension liability was based on a projection of the City’s long-term share of
contributions to the pension plan relative to the projected contributions of all participating
employers, actuarially determined.

For the year ended June 30, 2021, the City recognized pension expense (gain) of $(1,168,294).
In addition, the City reported deferred outflows of resources and deferred (inflows) of
resources related to pensions from the following sources:

Deferred Deferred
Outflows of (Inflows) of

Resources Resources
Differences between expected and actual experience $ 6,634 $ (1,359,364)
Changes of assumptions 1,659,527 (374,365)

Net difference between projected and actual

earnings on pension plan investments - (5,880,790)
Total $ 1,666,161 $ (7,614,519)

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Deferred outflows of resources and deferred (inflows) of resources related to pensions will
be recognized in pension expense as follows:

Year ended June 30:

2022 $ (1,664,312)
2023 (1,458,395)
2024 (1,429,395)
2025 (1,645,060)
2026 63,931

Thereafter 184,873
Total $ (5,948,358)

Consolidation of Net Pension Liabilities and Related Deferred Outflows and (Inflows)
The following consolidates the City’s proportionate share of the NHRS net pension liability
and related deferred outflows/{inflows), and the City’s BPW pension plan net pension
liability and related deferred outflows/(inflows) at June 30, 2021:

Total Total
Net Deferred Deferred Total
Pension Outflows of (Inflows) of Pension
Liability Resources Resources Expense
Proportionate share of NHRS $§ 320,002,458 $ 87,815,424 $ (8,695,180) $ 47,883,163
City BP'W Pension Plan 257,345 1,666,161 (7,614,519) (1,168,294)

$ 320,259,803 $ 89,481,585 $ (16,309,699) $ 46,714,869

The City reports a net pension liability in governmental activities as these respective
employees are members of the NHRS, while governmental activities and business-type
activities report a net pension liability for the City’s BPW pension plan as these respective
employees are included only in the City’s plan.

Other Post-Employment Benefits (GASB 75)

GASB Statement No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other Than Pensions, replaces the requirements of Statement No. 45, Accounting and
Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The
Statement establishes standards for recognizing and measuring liabilities, deferred outflows
of resources, deferred inflows of resources, and expense/expenditures. This Statement
identifies the methods and assumptions that are required to be used to project benefit
payments, discounted projected benefit payments to their actuarial present value, and
attribute that present value to periods of employee service.

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New Hampshire Retirement System Medical Subsidy Plan Description

General Information about the OPEB Plan

The following OPEB disclosures for the New Hampshire Retirement Medical Subsidy Plan
are based on an actuarial valuation performed as of June 30, 2019, using a measurement
date of June 30, 2020.

Plan Description
In addition to the OPEB plan discussed previously, the City participates in the New

Hampshire Retirement System (NHRS) Medical Subsidy. The NHRS administers a cost-
sharing, multiple-employer defined benefit postemployment medical subsidy healthcare
plan designated in statute by membership type. The four membership groups are Group I]
Police Officer and Firefighters, Group I Teachers, Group I Political Subdivision Employees
and Group I State Employees. Collectively, they are referred to as the OPEB Plan.

NHRS issues publicly available financial reports that can be obtained by writing to them
at 54 Regional Drive, Concord, New Hampshire 03301-8507 or from their website at
www.nhrs.org.

Benefits Provided

The OPEB Plan provides a medical insurance subsidy to qualified retired members. The
medical subsidy is a payment made by NHRS to the former employer or their insurance
administrator toward the cost of health insurance for a qualified retiree, his/her qualified
spouse, and his/her certifiably dependent children with a disability who are living in the
household and being cared for by the retiree. Under specific conditions, the qualified
beneficiaries of members who die while in service may also be eligible for the medical
subsidy. The eligibility requirements for receiving OPEB Plan benefits differ for Group I
and Group I] members. Group I benefits are based on creditable service, age, and retirement
date. Group II benefits are based on hire date, age, and creditable service.

The OPEB Pian is closed to new entrants. The monthly Medical Subsidy rates are:

1 Person - $375.56

2 Person - $751.12
1 Person Medicare Supplement - $236.84
2 Person Medicare Supplement - $473.68

Contributions

Pursuant to RSA 100-A:16, III, and the biennial actuarial valuation, funding for the
Medical Subsidy payment is via the employer contributions rates set forth by NHRS.
Employer contributions required to cover that amount of cost not met by the members’
contributions are determined by a biennial actuarial valuation by the NHRS actuary using
the entry age normal funding method and are expressed as a percentage of Earnable
Compensation. The City contributed 0.298% of earnable compensation for Group I
employees, 1.81% of earnable compensation for Group I teachers, and 3.66% of earnable
compensation for Group II (fire and police department) members. Employees are not

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required to contribute. The State Legislature has the authority to establish, amend, and
discontinue the contribution requirements of the Medical Subsidy plan.

Actuarial Assumptions and Other Inputs
Actuarial assumptions are the same as the New Hampshire Retirement System, which is

disclosed in Note 19.

Net OPEB Liability, Expense, and Deferred Outflows and (Inflows)

The City’s proportionate share of the net NHRS Medical Subsidy (net OPEB liability) as
of the measurement date of June 30, 2020 was $23,435,551.

For the year ended June 30, 2021, the City recognized an OPEB expense related to the
NHRS Medical Subsidy of $1,903,474. At June 30, 2021, the City reported deferred
outflows and (inflows) of resources related to OPEB from the following sources:

Deferred Deferred
Outflows of (Inflows) of
Resources Resources
Differences between expected and actual experience $ - $ (67,906)
Changes of assumptions 150,684 -
Net difference between projected and actual
eamings on OPEB plan investments 87,687 -
Changes in proportion and differences between
contributions and proportionate share of contributions 118,016 (155,517)
Contributions subsequent to the measurement date 2,631,411 -
Totai $ 2,987,798 $$ (223,423)

The amount reported as deferred outflows of resources related to OPEB resulting from
contributions subsequent to the measurement date will be included as a reduction of the net
OPEB liability in the year ending June 30, 2022.

Other amounts reported as deferred outflows and (inflows) of resources related to OPEB
will be recognized in OPEB expense as follows:

Fiscal Year Ended

2022 $ 51,920
2023 25,956
2024 30,944
2025 24,144
Total $ 132,964

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Sensitivity of the Net NHRS Medical Subsidy OPEB Liability to Changes in the Discount
Rate
The following presents the net OPEB liability calculated using the discount rate of 6.75%,
as well as what the net OPEB liability would be if it were calculated using a discount rate
that is one percentage-point lower or one percentage-point higher than the current discount
rate:

Current
1% Discount 1%
Decrease Rate Increase

$ 25,448,565 $ 23,435,551 $ 21,687,860

Healthcare Cost Trend Rate
Healthcare cost trend rates are not applicable given that the benefits are fixed stipends.

City OPEB Plan
The following OPEB disclosures for the City OPEB Plan are based on an actuarial
valuation performed as of June 30, 2020, using a measurement date of June 30, 2021.

General Information about the OPEB Plan

Plan Description

The City provides post-employment healthcare benefits for retired employees through the
City’s single employer defined benefit OPEB plan. The City provides health insurance
coverage through the City’s self-insured employee benefits fund. The OPEB plan is not
administered through a trust that meets the criteria in paragraph 4 of GASB 75 and does
not issue a standalone financial report.

The City indirectly provides post-employment healthcare for retired employees through an
implicit rate covered by current employees. Retirees of the City who participate in this single-
employer plan pay 100% of the healthcare premiums to participate in the City’s healthcare
program. Since they are included in the same pool as active employees, the insurance rates
are implicitly higher for current employees due to the age consideration. This increased
rate is an implicit subsidy the City pays for the retirees.

Benefits Provided

The City provides medical and prescription drug insurance to retirees and their covered
dependents. All active employees who retire from the City and meet the eligibility criteria
will receive these benefits.

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Plan Membership

At June 30, 2020, the following employees were covered by the benefit terms:

Inactive employees or beneficiaries

currently receiving benefit payments 835
Active employees 2,554
Total 3,389

Funding Policy

The City’s funding policy includes financing the implicit subsidy on a pay-as-you-go basis,

as required by statute.

Actuarial Assumptions and Other Inputs

The total OPEB liability was determined

by an actuarial valuation as of June 30, 2020, using

the following actuarial assumptions, applied to all periods included in the measurement,

unless otherwise specified:

Actuarial cost method
Inflation
Projected salary increases

Discount rate
Heaithcare trend rates

Retirees’ share of benefit-related costs
Participation rate

Entry Age Normal

2.00%. per year

2.75% for general wage inflation, plus merit and
productivity increases which are based on those used
in the New Hampshire Retirement System actuarial
valuation as of June 30, 2019

2.19% (previously was 2.66%)

7.50% for 2022, decreasing 0.50%, to an ultimate
rate of 4.50% as of 2028 and later years

100%

90% of active employees with current coverage
100% of mactive employees with no coverage

The discount rate was based on the Bond Buyer GO 20-Year Municipal Bond Index at

June 30, 2021.

Mortality rates were based on the following:

® General employees: SOA Pub-2010 General Total Dataset Headcount Weighted
Mortality Table fully generational using scale MP-2019

e Teachers: SOA Pub-2010 Teacher Total Dataset Headcount Weighted Mortality
Table fully generational using scale MP-2019

*® Police and fire: SOA Pub-2010 Public Safety Total Dataset Headcount
Weighted Mortality Table fully generational using scale MP-2019

e Surviving spouses: SOA Pub-2010 Contingent Survivors Total Dataset
Headcount Weighted Mortality Table fully generational using scale MP-2019

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The actuarial assumptions used in the valuation were based on the results of an actuarial
experience study as of June 30, 2010.

Discount Rate

The discount rate used to measure the total OPEB liability was 2.19%. The projection of
cash flows used to determine the discount rate assumed that contributions from plan
members will be made at the current contribution rate.

Changes in the Total OPEB Liability
The following summarizes the changes to the total OPEB liability for the past year.

Total OPEB
Liability
Balances, beginning of year $ 54,347,990
Changes for the year:
Service cost 3,169,049
Interest 1,504,631
Differences between expected
and actual experience (4,278,544)
Changes of assumptions 2,181,485
Benefit payments (1,916,517)
Net changes 660,104
Balances, end of year $ 55,008,094

Changes of assumptions reflect a change in the discount rate from 2.66% in 2020 to 2.19%
in 2021.

As noted previously, with the exception of one group of retirees described below, the City
does not pay a direct subsidy towards their retiree’s health insurance premiums. In
accordance with RSA 100-A:50, retired employees shall be deemed to be part of the same
group as active employees for health insurance premium purposes, thereby resulting in a
so-called “blended rate”. The blended rate decreases the cost of insurance premiums for
retirees and increases the cost for active employees, thereby resulting in the City paying an
Implicit Subsidy.

The City’s Explicit Subsidy pertains to only one group of retirees. Teachers who have
retired after June 30, 1991 who have at least 20 years of service with the Nashua School
District and who are actually receiving retirements benefits under the New Hampshire
Retirement System, will have a portion of their health insurance premiums paid according to
a set schedule based on the years of service at retirement. The subsidy ranges from 20%
for a teacher retiree with 20 years of service at retirement to 50% for a teacher with 30+
years of service at retirement. The City’s Explicit Subsidy associated with each eligible

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teacher retiree ends when the retiree is eligible for Medicare. The following table shows the
Explicit and Implicit Liability amounts:

Explicit Implicit Totals
Current Retirees $ 0.1 million $ 8.5 million $ 8.6 million
Future Retirees 4.9 million 41.5 million 46.4 million
Totals $ 5.0 million $ 50.0 millon $ 455.0 million

Sensitivity of the Total OPEB Liability to Changes in the Discount Rate

The following presents the total OPEB liability calculated using the current discount rate
of 2.19%, as well as what the total OPEB liability would be if it were calculated using a
discount rate that is one percentage-point lower or one percentage-point higher than the
current discount rate:

Current
1% Discount I%
Decrease Rate Increase

$ 59,997,794 $ 55,008,094 $ 50,485,216

Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rates
The following presents the total OPEB liability calculated using the current healthcare cost
trend rates of 7.50%, as well as what the total OPEB liability would be if it were calculated
using healthcare cost trend rates that are one percentage-point lower or one percentage-
point higher than the current healthcare cost trend rates:

Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase

$48,430,670 $55,008,094 $62,800,198

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