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<br /> <br />City of Lake Elmo Volunteer Fire Department 6 <br /> <br />Risks Associated with Measuring the Accrued Liability and <br />Actuarially Determined Contribution <br />The determination of the accrued liability and the actuarially determined contribution requires the use of <br />assumptions regarding future economic and demographic experience. Risk measures, as illustrated in this <br />report, are intended to aid in the understanding of the effects of future experience differing from the <br />assumptions used in the course of the actuarial valuation. Risk measures may also help with illustrating the <br />potential volatility in the accrued liability and the actuarially determined contribution that result from the <br />differences between actual experience and the actuarial assumptions. <br /> <br />Future actuarial measurements may differ significantly from the current measurements presented in this <br />report due to such factors as the following: plan experience differing from that anticipated by the economic or <br />demographic assumptions; changes in economic or demographic assumptions due to changing conditions; <br />increases or decreases expected as part of the natural operation of the methodology used for these <br />measurements (such as the end of an amortization period, or additional cost or contribution requirements <br />based on the Plan’s funded status); and changes in plan provisions or applicable law. The scope of an actuarial <br />valuation does not include an analysis of the potential range of such future measurements. <br /> <br />Examples of risk that may reasonably be anticipated to significantly affect the plan’s future financial condition <br />include: <br /> <br />1. Investment Risk – actual investment returns may differ from the expected returns; <br />2. Asset/Liability Mismatch – changes in asset values may not match changes in liabilities, and are highly <br />dependent on the timing of lump sum payments, thereby altering the gap between the accrued <br />liability and assets and consequently altering the funded status and contribution requirements; <br />3. Contribution Risk – actual contributions may differ from expected future contributions. For example, <br />actual contributions may not be made in accordance with the plan’s funding policy or material changes <br />may occur in the anticipated number of covered employees or other relevant contribution base; <br />4. Other Demographic Risks – members may terminate, retire or become disabled at times or with <br />benefits other than assumed resulting in actual future accrued liability and contributions differing from <br />expected. <br /> <br />The effects of certain trends in experience can generally be anticipated. For example, if the investment return <br />since the most recent actuarial valuation is less (or more) than the assumed rate, the cost of the plan can be <br />expected to increase (or decrease). <br /> <br />The required contribution shown on page 1 may be considered as a minimum contribution that complies with <br />Minnesota Statutes. The timely receipt of the actuarially determined contributions is critical to support the <br />financial health of the plan. Users of this report should be aware that contributions made at the actuarially <br />determined rate do not necessarily guarantee benefit security. <br /> <br />Additional Risk Assessment <br /> <br />Additional risk assessment is outside the scope of the annual actuarial valuation. Additional assessment may <br />include scenario tests, sensitivity tests, stochastic modeling, stress tests, and a comparison of the present <br />value of accrued benefits at low-risk discount rates with the actuarial accrued liability.