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16 <br />Documentation of Assumptions and Methods <br />Hanf Actuarial and Richard Johnson, FSA considered historical <br />information that was developed by City of Lino Lakes in establishing the <br />actuarial assumptions used in this report. We also solicited input from <br />the City on the reasonableness of each assumption. Since this is the <br />first valuation completed for the City's postretirement medical plan, we <br />expect that it will be appropriate to revisit the actuarial assumptions <br />in future years as experience develops, both within the City and at <br />other agencies required to conduct actuarial valuations under GASB 45. <br />Economic Assumptions <br />If there is not an irrevocable trust established to pay benefits, GASB <br />45 requires that the employer's expected return on its own invested <br />assets be used to determine the discount rate. If there is an <br />irrevocable trust into which the Annual Required Contribution (ARC) is <br />deposited, then the expected return based on the mix of investments <br />within that trust should be considered. If over time, less than the ARC <br />is contributed, then a pro -rata investment return based on both employer <br />assets and trust assets would be used. <br />A final decision regarding pre- funding of postretirement medical <br />benefits in an irrevocable trust has not yet been made by the City. We <br />have therefore performed valuations assuming an unfunded plan i.e., <br />using a 4.0% discount rate as selected by the City based on rates of <br />return on general City assets currently being recognized by the City <br />Director of Finance - and a funded plan - i.e., using a 6.0% discount <br />rate, the anticipated return on a fully funded plan. <br />A N/A salary increase rate was selected by the City based on recent <br />experience. This assumption is used to spread plan costs as a percent of <br />payroll. <br />Medical Benefit Assumptions <br />Total City Health Plan costs were based on calculations made for the <br />City for 2008 by Hanf Actuarial and Richard Johnson, FSA. The <br />calculations were based on the latest claim and enrollment information <br />available. Costs were then age- adjusted based on Hanf Actuarial and <br />Richard Johnson, FSA's national health care utilization factors. <br />Medical plan cost trend rates for the City medical plans which start at <br />9% and decline to an ultimate rate of 5% are consistent with Hanf <br />Actuarial and Richard Johnson, FSA's assumptions for other <br />postretirement medical valuations and represent both current plan <br />experience and a realistic expectation of long -term trend. <br />Medical plan participation rates and plan election preferences are based <br />on historical City experience. <br />City of Lino Lakes Minnesota, Retiree Health Benefit Plan - November 2008 <br />