Request for Proposal - Mississippi for Proposals/2018 Actuarial... · Request for Proposal . ......

Request for Proposal Seeking an actuarial firm to serve as PERS’ retained actuary to perform annual pension fund valuations and related pension consulting services October 2, 2017

Section Page

I. Letter of Proposal ........................................... 3

II. General Information of PERS ............................... 4

III. Eligibility Requirements and 2018 RFP Process .......... 6

a. Actuarial Services RFP Committee ...................... 6

b. Contact Person ............................................ 6

c. 2018 RFP Timeline ........................................ 7

d. Written Questions and Answers ......................... 7

e. Rules Regarding Contract ................................ 7

f. Proposals ................................................... 7

g. Confidentiality Agreement ............................... 8

h. Evaluation of Proposals and Finalist Interviews with

Presentations .............................................. 8

i. Selection Criteria ......................................... 9

j. Contract Negotiation ..................................... 9

k. Contract Award ............................................ 9

IV. Actuarial Services: Scope of Consulting Services ...... 10

a. Retainer Services ........................................ 10

b. Non-routine Services .................................... 13

c. Additional Background Information ................... 14

V. Actuarial Services: Questions for Respondents ........ 15

a. Section A: Background on the Consulting Firm...... 15

b. Section B: Subcontracting.............................. 15

c. Section C: Fees .......................................... 15

d. Section D: Clients ....................................... 15

e. Section E: Consultants .................................. 15

f. Section F: Actuarial Valuations and Services ........ 16

g. Section G: Standards of Conduct...................... 16

h. Section H: Insurance and Liability .................... 17

i. Section I: Other Information ........................... 17

Attachment Page

A. Actuarial Services Agreement ............................ 18

B. Confidentiality Agreement ............................... 29

Table of Contents

Public Employees’ Retirement System of MS

429 Mississippi Street

Jackson, MS 39201-1005

800.444.7377

601.359.3589

www.pers.ms.gov

Section I - Letter of Proposal To: Interested Vendors Date: October 2, 2017 Re: Letter of Proposal The Public Employees’ Retirement System of Mississippi (PERS) is seeking an actuarial firm to serve as PERS’ retained actuary to perform annual pension fund valuations and related pension consulting services. These services will include a projection report for at least thirty (30) years and up to fifty (50) years based on PERS request in the first year of implementation. In addition, 2018 services will also include an experience investigation for each of the defined benefit plans for the four (4)-year period July 1, 2014, through June 30, 2018. The schedule of events for this solicitation is:

RFP Issuance October 2, 2017 Deadline for receipt of written questions October 23, 2017 Posting of answers to written questions November 3, 2017 Proposals due (by 4 p.m. CST) December 1, 2017 Top three (3) firms recommended to the Board February 28, 2018 Finalists presentations Week of March 26, 2018 Board approves finalist selection April 24, 2018 Contract negotiations complete May 31, 2018 Contract begins July 1, 2018

If your firm would like to be considered for performance of the specified services, your proposal must be submitted to PERS no later than 4 p.m. (Central Standard Time) Friday, December 1, 2017. Please provide at least five (5) paper copies and one electronic copy of your proposal. PERS reserves the right to reject any and all proposals. If you have any questions, please contact me at (601) 359-2217 or at [email protected]. Sincerely,

Greg A. Gregory, CPA, CGMA Deputy Administrator, Administrative Services

mailto:[email protected]

Section II - General Information Brief History of PERS PERS, as a System, administers four defined benefit retirement plans that provide benefits for all state and public education employees, officers of the Mississippi Highway Safety Patrol, elected members of the state Legislature, the President of the Senate, and other public employees of participating employers. Plans administered by the System include the Public Employees’ Retirement System of Mississippi (PERS), which was established by legislation in 1952; the Mississippi Highway Safety Patrol Retirement System (MHSPRS), established in 1958; the Supplemental Legislative Retirement Plan (SLRP), established in 1989; and the Municipal Retirement Systems (MRS), which came under PERS administration in 1987. All four are funded on an entry age actuarial cost method, but only three of the plans (PERS, SLRP, and MHSPRS) are open systems. While MHSPRS and SLRP are single-employer plans, PERS is a cost-sharing multiple-employer plan. MRS is considered an agent multiple-employer plan and consists of 19 distinct municipal retirement plans that have been closed to new members since 1987 or earlier. Statistical Information of the System As of June 30, 2016, the System’s defined benefit plans served a total 399,757 members, including 102,212 retirees and beneficiaries. We have 881 participating employers from across the state. Primary sources of funding for the System include employer contributions, member contributions, and investment income. Retirement benefits paid during the fiscal year totaled $2.4 billion. Employers contributed $1.1 billion during the fiscal year, while members of the System contributed a total of $575 million. As of June 30, 2016, net position restricted for benefits totaled $24.6 billion. Statistics of this Proposal This request for proposal (RFP) for actuarial consulting services includes annual valuations and associated required GASB resources, annual projection reports and biennial experience studies for the three open defined benefit pension plans, MRS as a combined agent plan, and valuations for each of the individual municipalities. It also includes consulting services for the voluntary retiree medical insurance program administered by the System. This does not include consulting services for the Optional Retirement Plan (ORP), a governmental defined contribution plan qualified under Section 401(a) of the Internal Revenue Code, or the Mississippi Government Employees’ Deferred Compensation Plan and Trust (MDC) qualified under Section 457 of the Internal Revenue Code. However, as the System administers these plans, expertise in these areas would be considered a plus. The following information on the PERS website may help form your proposal:

• RFP and the proposed RFP timeline • PERS Comprehensive Annual Financial Reports (CAFR) • PERS GASB 67 Resources, Cavanaugh Macdonald Consulting, LLC (CMC) • PERS, MHSPRS, MRS, and SLRP GASB 68 Resources for Employers, CMC • PERS, MHSPRS, MRS, and SLRP GASB 68 Resources, External Auditors • Investment Reports, Callan Associates, Inc. • PERS, MHSPRS, MRS, and SLRP Actuarial Valuation Reports, CMC • PERS Experience Study, CMC • PERS, MHSPRS, and SLRP Projection Reports, CMC • PERS Board Regulations

Once every six (6) years, or as otherwise determined by the PERS Board of Trustees (Board), another independent actuarial firm will review and audit the work of the actuary based on the identified scope of the specific planned audit. This independent review is conducted to assure that the services provided by the actuary are being measured as accurately as possible, using reasonable assumptions.

Proposals will be evaluated based on responsiveness, clarity, and by demonstrating that your firm meets the following criteria listed below:

• Experience with public sector pension benefit plans; • Ability to demonstrate involvement on the national level; • Membership in the American Academy of Actuaries or the Society of Actuaries; • Number and experience of accredited actuaries available for services; • Client references; • Experience working directly with plan boards and testifying before state legislatures; and • Anticipated costs/fee structures and adherence to contract provisions.

Section III - Eligibility Requirements and 2018 Request for Proposal Process Eligibility Requirements The responding actuarial consulting firm must be established in the industry of providing actuarial consulting services to public pension plans and have experienced personnel able to provide the required services. The firm also must have experience providing actuarial consulting services to other public retirement plans that are approximately the size and complexity of PERS. The individual(s) assigned to PERS as principal actuary(s) must have a minimum of seven (7) years of professional experience in the actuarial consulting field. All actuaries shall be enrolled actuaries and shall be members of the American Academy of Actuaries or the Society of Actuaries. The firm must be able to maintain a data processing interface with PERS and vendors that support PERS operations (i.e., third-party auditors, auditing actuaries, etc.), by electronic or online connection. The firm must maintain in full force and effect during the term of the Contract Errors and Omissions/Professional Liability, inclusive of cyber liability, insurance with minimum limits of $5,000,000 per claim and annual aggregate. PERS may request information substantiating the above requirements. A. Actuarial Services RFP Committee An Actuarial Services RFP Committee made up of five (5) senior staff of the PERS team will evaluate each proposal. The committee will first evaluate the technical components of each proposal without consideration of cost. After the technical scoring, the cost proposal will be open, reviewed and scored. The top three (3) finalists will be recommended to the PERS Board of Trustees for further consideration. Finalists presentations will be scheduled with the PERS Board, and the Board will make the final selection of the external actuarial service provider. B. Contact Person The following individual is the designated PERS staff contact:

Greg A. Gregory Deputy Administrator PERS of MS 429 Mississippi Street Jackson, MS 39201-1005 Telephone: 601-359-2217 Fax: 601-359-1025 Email: [email protected]

mailto:[email protected]

C. 2018 RFP Timeline The following schedule has been approved by the PERS Board of Trustees and may be changed by them if necessary. If the schedule changes, firms who express interest in submitting a proposal will be notified by e-mail and the change will be posted on the PERS website. RFP Issuance October 2, 2017

Deadline for receipt of written questions October 23, 2017

Posting of answers to written questions November 3, 2017

Proposals due (by 4 p.m. CST) December 1, 2017

Top three firms recommended to the Board February 28, 2018

Finalists presentations Week of March 26, 2018

Board approves finalist selection April 24, 2018

Contract negotiations complete May 31, 2018

Contract begins July 1, 2018

D. Written Questions and Answers In an effort to clarify any issues in the RFP, PERS will respond only to questions that are presented in writing and received via U.S. mail, e-mail, or facsimile. Questions should be addressed to the contact person as noted earlier in this RFP. All questions will be consolidated into a single Questions and Answers document. The source of the questions will not be disclosed, and the document will be distributed to all firms participating and placed on the PERS website. The deadline for submitting written questions is October 23, 2017. E. Rules Regarding Contact The proposal period begins October 2, 2017, and ends December 1, 2017. PERS reserves the right to request additional information from any or all respondents to assist in the evaluation process. However, no respondent may contact any Board or staff member, other than the designated contact person, during this process. Current service providers who are responding to this RFP are expected to limit their contact for business transactions to PERS employees with whom they ordinarily interact and to avoid direct contact with the Board or other staff members during this proposal period, other than that which might occur at regularly scheduled meetings. F. Proposals All interested firms should submit five (5) bound copies and one electronic copy of the technical proposal to the contact person identified in this RFP. Responding firms should also provide their cost proposal to the contact person in a separate, sealed envelope that is clearly marked on the outside of the envelope “Cost Proposal”. Proposals received after the due date and time will not be considered.

Required by 4:00 p.m. CST on December 1, 2017: Five (5) Bound copies of the technical proposal One (1) Electronic copy of the technical proposal One (1) Sealed envelope containing cost proposal Proposals may either be mailed or hand delivered, but must be in the possession of PERS by 4:00 p.m. CST on December 1, 2017. Proposals are to address all the questions posed by PERS in the order in which they appear in the List of Questions section of this RFP. Answers are to be succinct and page-length-response limitations are to be followed. All proposals should be considered property of PERS, and the cost of preparing the proposals shall be borne by the respondents. All proposals, except as noted below, are considered to be public records and shall be available for viewing and reproduction as the law provides. Respondent acknowledges and agrees that the response to the RFP and any other related materials submitted to PERS are not considered confidential information. Firms that wish to protect portions of their proposals from public disclosure must make a written request that those records be kept confidential at the time of submission. In addition, the firms must specifically and conspicuously identify any portion of the proposals that are deemed by them to constitute confidential or proprietary information or trade secrets. Those portions must be readily separable from other portions of the proposal. Firms’ identification of material as being exempt from disclosure is not conclusive, and firms submitting such requests acknowledge the possibility that such materials may be determined pursuant to law to not be protected from disclosure under the laws governing PERS and the resulting contract. PERS will provide firms with notice as soon as possible of any request for disclosure of confidential information. The burden is solely on firms to take such actions as they deem necessary and appropriate to shield such materials from disclosure. Each respondent agrees to reimburse PERS for, and to indemnify, defend, and hold harmless PERS, its officers, fiduciaries, employees, and agents from and against: (1) any and all claims, damages, losses, liabilities, suits, judgments, fines, penalties, costs, and expenses, including without limitation, attorneys’ fees, expenses, and court costs of any nature whatsoever (collectively, "Claims") arising from or relating to PERS’ non-disclosure of any such designated portions of the response or other materials submitted by the respondent related to this RFP; and (2) any and all Claims arising from or relating to PERS’ public disclosure of any such designated portions of a response or other materials submitted by the respondent related to this RFP if disclosure is deemed required by law, or if disclosure is ordered by a court of competent jurisdiction. G. Confidentiality Agreement Bidders must execute and submit with their proposals a confidentiality agreement that guarantees the safeguarded confidentiality of all PERS-related data and information. The agreement is included in Attachment B. H. Evaluation of Proposals and Finalist Interviews with Presentations Proposals shall be evaluated by a group of selected staff (evaluation committee) consisting of at least five (5) members. This evaluation committee will present their recommendation to the PERS Board of Trustees regarding their selection of the top three actuarial consulting firms.

Based on the PERS Board of Trustees selection of semi-finalists, oral presentations will be scheduled. Such presentations will provide firms and the PERS Board with an opportunity to ask or answer questions about a firm’s proposal or the actuarial services to be provided. Not all firms responding to the RFP may be asked to make such a presentation. The semi-finalist presentations will take place the week of March 26, 2018. I. Selection Criteria The selection of the firm to provide actuarial services will be based on the criteria below, in no particular order of relevance:

• Experience with public sector pension benefit plans; • Ability to demonstrate involvement on the national level; • Membership in the American Academy of Actuaries or the Society of Actuaries; • Number and experience of accredited actuaries available for services; • Client references; • Experience working directly with plan boards and testifying before state legislatures; and • Anticipated costs/fee structures and adherence to contract provisions.

J. Contract Negotiation A written contract with the firm will be required. The terms of the contract are expected to be substantially similar to the Actuarial Services Agreement attached to this RFP. By submitting a response to the RFP, the firm accepts the terms of the attached contract; however, PERS reserves the right, in its discretion, to further negotiate the terms and conditions of the contract with the selected firm. K. Contract Award PERS reserves the right to award all, part, or none of this contract and may award contracts to more than one actuarial consulting firm, if deemed appropriate or desirable.

Section IV - Actuarial Services: Scope of Consulting Services A. Retainer Services

A. The PERS actuary selected will be expected to prepare annual actuarial valuations of the assets and liabilities of each of the defined benefit plans, PERS, MHSPRS, SLRP, and MRS, which consists of 19 distinct municipal retirement plans, beginning with the June 30, 2018, valuations. These valuations must include disclosure information required by the authoritative standards established by GASB.

i. Reports for these valuations will be delivered to the System prior to the fourth Tuesday of October following completion of the fiscal year. The results of these reports must be presented to the Board of Trustees for PERS of Mississippi (the Board) at its board meeting on the fourth Tuesday of October following completion of the fiscal year. The System will provide complete data for the valuation at least 60 days prior to the deliverable date.

ii. Measurement of funding progress and testing of the adequacy of contribution rates will be demonstrated in the valuation reports and include a recommendation as to the required contribution rates and such supplemental calculations as are required for compliance with applicable statutes, regulations, and actuarial and financial reporting standards.

iii. Will include the necessary financial information required to complete the actuarial portions of the financial statements, note disclosures, and actuarial section of the Systems’ CAFR. This includes the Annual Actuarial Certification Letter, data exhibits, and other necessary material for the Actuarial, Financial, and Statistical sections of the PERS’ CAFR. Review of Management’s Discussion and Analysis (MD&A) and the Actuarial Section as requested by PERS.

iv. Will prepare disclosure information for each plan as required by authoritative standards established by GASB, including statements 67 and 68, or any successor accounting and financial reporting standards. Such information shall include, but not be limited to, calculations, note disclosures and schedules as requested by the System with respect to applicable pension accounting standards. The GASB 67 and 68 reports should be provided at the same time as the valuation report for each plan unless otherwise agreed to by PERS. These reports must include the necessary information to demonstrate the cross-over test as required by GASB to estimate the appropriate discount rate.

B. As part of the valuations, the actuary will provide an analysis of the annual gain/loss to determine the cause and magnitude of changes in the UAAL due to variances.

C. Following the annual actuarial valuations, the actuary will prepare annual projection reports for at least 30 years and up to 50 years based on PERS’ request. Projection reports should be prepared for each of the open defined benefit plans administered by the Board to provide a picture of the funding progress over time. The actuary will provide funding ratio and amortization period projections, including a gain/loss analysis to determine the cause and magnitude of changes in the funding period due to variance on each major actuarial assumption and population growth assumption (not included in actuarial valuation). These reports should include corresponding cash flow projections. These reports will be delivered to the System prior to the third Tuesday of December following completion of the fiscal year. The results of these reports must be presented to the Board at its board meeting on the third Tuesday of December following completion of the fiscal year.

D. In conjunction with the projection report, the actuary will evaluate and review PERS’ funding policy and make necessary recommendations.

E. Valuation reports will contain a glossary of terms and sufficient explanatory text to permit a reasonable understanding of the actuarial assumptions, cost methods, and conclusions by competent actuaries and by persons knowledgeable in the public pension field. This shall include, but not be limited to, a summary of the benefits description of actuarial assumptions and cost methods, display of age groups and service matrices for active members and display of retired lives by age groups and types of benefits.

F. Prepare biennial investigations, beginning with the June 30, 2018, and incorporating at least four years of actual plan experience (covering July 1, 2014, through June 30, 2018), into the actual and expected experience of each defined benefit plan on the actuarial assumptions used for valuation purposes. Reports of the results of these investigations will include a comparison of actual and expected experience shown separately for each actuarial assumption and an analysis of the liability change attributable to each risk area, as well as recommendations for changes for Board consideration. These reports will review and make recommendations on both the demographic and economic assumptions used by the Plan. They will be delivered to the System no later than the fourth Tuesday of April following the end of the fiscal year. The results of these reports must be presented to the Board at its board meeting on the fourth Tuesday of April following completion of the fiscal year.

G. The actuary will prepare actuarial impact statements for proposed legislation upon request. Statements will normally be delivered within two weeks (10 working days) of request and receipt of any additional information required, but not previously submitted.

H. The actuary will review the financial experience, requested premium rate increases, and proposed plan design changes, if any, of the PERS retiree medical insurance plan(s). The actuary will also make recommendations regarding the adequacy of the current premium rate structure, the necessity for and magnitude of any premium rate increases requested by the insurance carrier, and proposed plan design changes.

I. The actuary will keep the Board and System staff advised on developments in state and federal legislation and/or regulations regarding financing, benefits, vesting, fiduciary responsibility, disclosure, or other compliance requirements.

J. The actuary will provide actuarial consultation and advisory services on any technical, policy, or administrative problems arising during the course of operations via meetings, routine telephone calls, and written correspondence.

K. The actuary will make recommendations to the Board from time to time relative to possible improvements in the financing and benefit structure of the System and the voluntary retiree medical insurance program, and to give effect to new developments in the retirement industry. The actuary will keep the trustees apprised of current trends and progress within the actuarial profession.

L. The actuary will give consultation and advisory services on policy and administrative problems of implementing legislative changes, including assisting in the preparation of proposed retirement legislation. They will develop and provide various tables and factors needed by the System. These include, but are not limited to, mortality tables, present value factors and survivor factors.

M. Attendance by the lead consultant(s) at no less than 10 meeting days per year will be included in the annual fixed fee. These meetings will include but will not be limited to the following:

i. Annual presentation to the Board during the third week of October regarding the actuarial valuation results must be provided. Also, a presentation to the MHSPRS Administrative Board is held on the following day. In December of each year, presentations based on the actuarial valuation results are provided to the representatives of the municipal plans.

ii. Annual presentation to the Board in December regarding the 30-year projections.

Also, a presentation to the MHSPRS Administrative Board the following day. iii. Appear at selected meetings and hearings (one meeting day) for discussion of the

financial experience and premium rate history of the voluntary retiree medical insurance program and such other medical insurance matters as may arise from time to time.

iv. Performance of periodic actuarial education for the Board and staff. v. Appear at selected meetings and hearings regarding (up to four meeting days will

be included in the annual fixed fee) for discussion of actuarial standards and/or the principles used in the determination of the funding requirement and in pricing of legislation, and such other pension plan matters as arise from time to time.

vi. Biennial presentation to the Board in April regarding the experience investigation results. Also, a presentation to the MHSPRS Administrative Board the following day.

N. The actuary will provide technical assistance in reviewing System data file specifications to maintain the database, so as to provide all data necessary for System needs.

O. The actuary will annually provide copies of the final data including active members, inactive members, retirees, and beneficiaries as used in the annual actuarial valuation, as well as exceptions lists regarding questionable records and/or inconsistent and missing data.

P. The actuary will provide modeling software for PERS’ use following the annual projection report that allows for “what-if” scenarios. The software model should allow PERS to change inputs and view online and printable results. This software should include annual projections of PERS’ assets, liabilities, cash flows, funding ratios, and funding periods using a model based upon the current plan provisions, contribution rate structure, and actuarial assumptions and methods that will produce estimated results based on adjustments to the following variables including, but not limited to:

i. Must allow for the selection of the appropriate plan - PERS, MHSPRS, and SLRP.

ii. As a minimum, it should allow for the following inputs: a. Assumed long-term investment rate of return/discount rate – allow for any

specified rate input in increments of .25 percent; b. Employee contribution rate – allow for any specified rate input for a

specified period of time; c. Employer contribution rate – allow for any specified rate input for a

specified period of time; d. Active employee growth - allow for a percentage increase or decrease by

.25 percent increments; e. Payroll growth assumption is a percent of payroll – allow for any specified

rate of payroll growth; f. Salary assumption – provide the ability to change the payroll assumed

growth rate for a defined period of years and then resume to the specified rate;

g. Assumed inflation rate - allow the rate to be modified for any input; h. Provision for an additional contribution at the beginning of the year:

Allow for an additional dollar amount or percent of payroll increase; Also, allow these changes per year or for an identified number of

years; i. Allow override of the long-term expected rate and provide a short-term

investment return for a specified number of years and then resume the long-term rate for the remaining years;

j. Provide for changes to be made to the funding policy:

Rolling number of years (i.e., 30 years) amortization, Closed number of year (i.e., 30 years) amortization, Fixed contribution amount as a percent of payroll, Allow for an input of a funded ratio to be achieved by a specified

year; k. Modifications to the cost-of-living adjustment (COLA):

Affects all retirees, Affects just future retirees, Simple interest only, Simple to a specified year and then compounded, Simple to a specified age and then compounded, Delay COLA for new retirees for a specified number of years, COLA holiday (no increase in COLA over previous year) for a

specified period; l. Setting the amortization goal to either level percent of payroll or level

dollar; iii. The software model should display both the market and actuarial value of assets on

the input screen. Note: The model must be kept up to date at all times with changes in assumptions and actual experience determined through the issuance of valuation reports. This may require multiple releases of the software model each year. PERS understands that this software may be proprietary, and, as such may not be distributed or shared and is for the exclusive use of PERS, its Board, and staff.

Q. The actuary will prepare and/or revise actuarial factors, as necessary, (e.g., following a change in mortality assumptions, the assumed long-term rate of return, or plan provisions that would affect some or all of the actuarial factors) for calculation purposes of all benefit options for service retirement, disability retirement, survivor benefits, service purchase, etc. These option factors must be provided to the System no later than six months following the adoption of the change by the Board.

R. The actuary will annually calculate and test IRS Section 415 limits and excess benefit arrangements for PERS retirees and beneficiaries.

S. The actuary will respond to accounting and financial reporting audits and actuarial audits, as requested and/or necessary.

T. The actuary will provide requested actuarial data to PERS’ investment consultant to facilitate asset-liability modeling activities related to asset allocation studies.

U. The actuary will provide general consulting by phone, email, and letter with the executive director and PERS staff regarding technical problems and matters of general interest to a public-sector retirement plan on issues related to the retainer services (approximately 500 hours per year).

V. The actuary will provide PERS a recap and explanation of all PERS data issues encountered and the steps taken to normalize the data for usability.

B. Non-Routine Services

A. The actuary will prepare cost studies for legislative proposals and fiscal notes. B. The actuary will provide advice and consulting regarding defined benefit and defined

contribution plans. C. The actuary will conduct studies and services as requested through PERS for specific MRS

plans. D. Other than specifically noted in Retainer Services listed in Section IV A, the actuary will

provide assistance, as needed, to other PERS service providers including, but not limited to,

investment consultants, attorneys (both internal and external), administrators, and auditors. E. The actuary will review actuarially-related work performed by PERS staff. F. The actuary will perform other special studies, assessments, consulting services,

projections, presentations, or meetings of a non-routine nature for pension and health care plans not otherwise included under the Retainer Services.

C. Additional Background Information

PERS of Mississippi is currently out to bid for actuarial service as a practice of the Board’s governance. The incumbent actuarial firm, Cavanaugh Macdonald Consulting, LLC, was last awarded a three-year contract in 2015 that will end June 30, 2018. PERS will ensure a timely transfer of all historic experience and otherwise necessary member data to the chosen respondent, as appropriate. PERS will provide annual valuation data to the chosen actuarial firm in the same or similar format to what has been and is being provided to the current actuarial firm.

Section V. Actuarial Services: Questions for Respondents Section A: Background of the Consulting Firm (two-page response maximum)

A. Briefly describe your firm’s background, history, and ownership structure including any parent, affiliated, or subsidiary company or partnerships.

B. Briefly describe the services your firm provides and the percentage of revenue derived from public pension-related actuarial services.

C. Please give the addresses of your corporate office and indicate which office(s) will be providing services to PERS.

D. Within the past three years, have there been any significant developments in your firm such as changes in ownership, restructuring, or personnel reorganization/departures? Do you anticipate any significant future changes within your firm?

E. Identify any services you are unable to perform under this RFP. Section B: Subcontracting (one-page response maximum)

A. If your firm uses the services of a subcontractor, please identify the subcontractor and describe the skills and qualifications of the subcontractor and its individual employees.

B. Describe what portions of the project will be assigned to the subcontractor. C. Describe the contractual arrangement contemplated with each subcontractor, and

generally describe the control, delegation, and communication responsibilities anticipated under that arrangement.

Section C: Fees

A. Please provide the proposed fee structure for the Retainer Services, assuming a five-year contract.

B. Please provide the proposed fee structure for the Non-Routine Services. C. Describe how your firm controls the costs of services rendered for a client. D. Please provide a sample of the billing notification that PERS would likely

receive. E. Does your firm have a policy concerning the reduction in fees for

performance of untimely services?

Section D: Clients A. Please list clients who have terminated their actuarial consulting relationship with

your firm during the past five years and their reasons for doing so. Please include contact information for such former clients.

B. Please list the top ten (by assets managed) clients in the public pension plan arena (by plan population, if no assets).

Section E: Consultants (two-page response maximum)

A. How many actuarial consultants does your firm have? Please provide the contact information for each actuarial consultant that would be assigned to PERS including name, address (if different), titles, phone numbers, fax numbers, and email addresses.

B. Please describe the role of each of the actuarial consultants for this assignment.

C. Please include biographies for all consultants for this assignment. The biographies should include the following (no page limit applies):

i. Description of their position ii. Current responsibilities; including current clients iii. Date of hire iv. Areas of expertise v. Relevant experience vi. Education vii. Professional designations and memberships viii. Relevant publications, studies, or presentations

D. Describe your firm’s procedures for replacing key personnel on a permanent and temporary basis.

E. Describe the resources your firm has that specifically address the needs of public sector pension clients.

Section F: Actuarial Valuations and Services (four-page response maximum) A. Describe your approach to measuring funding status and funding progress in

order to facilitate the assessment of trends over several actuarial valuations with respect to the overall solvency of PERS’ pension trust funds.

B. Discuss the theory and methodology your firm employs for the determination of appropriate economic actuarial assumptions.

C. Describe your approach to the development, maintenance, and presentation of valuation software. Include a description of hardware and software capabilities.

D. Describe the tools, resources, and training you can make available to PERS staff so that they can model various scenarios.

E. Describe how your actuarial consulting work is distinguished from that of your competitors.

F. Describe any services of your organization that may not be offered by other consultants.

G. Describe your plan to transition from PERS’ current actuary, include recognition of the following in your response:

i. Reconciling differences in calculations and methodologies; ii. Method for transitioning information from the current actuary; and iii. Testing the initial year’s calculations for accuracy and precision.

H. Describe any perceived limitations for your firm in providing the requested services.

I. Provide an example of an innovative solution your firm provided to help solve a client’s issue or problem.

Section G: Standards of Conduct (three-page response maximum) A. How are your consultants’ recommendations and work products for clients

reviewed and monitored by your firm? Does your firm adhere to a specific level of review and consistency in your consultants’ recommendations?

B. Have you ever had to inform a client they were not in compliance with a law? If so, give an example of the role the firm took to notify the client and assistance provided to bring the client into compliance.

C. Within the last five years, has your firm, an officer, or a principal been involved in litigation or other legal proceedings related to your actuarial services? Has your firm ever been censured by any regulatory body? If so, please explain and indicate the current status or disposition.

D. List and describe any professional relationship you have had with PERS, its legislative oversight bodies, or any other State of Mississippi entity during the past five years.

E. List and describe any professional relationships you currently have or had with any PERS employer (listed in the 2017 CAFR) during the past five years. Please describe what measures you would take to separate such relationships from your PERS relationship.

F. Has your firm, or anyone in your firm, provided any gifts, travel and room expenses, entertainment, or meals to any PERS board member or staff during the past 24 months? If yes, describe the expenses and their purpose.

G. Has your firm, or anyone in your firm, provided any other payments (salary, political contributions, service fees, etc.) to any current or former PERS board member or staff during the past five years? If yes, describe the payments and their purpose.

H. Does your firm and/or any members of the team that would be working on the PERS account have any other relationship that could be considered in conflict with the services you would be expected to provide to PERS under this RFP? If so, disclose the nature of the relationship and describe measures you would take to separate such relationships from your PERS relationship. Please provide detail regarding the structure of any financial arrangements.

I. Are there any other potential conflict of interest issues your firm would have or foresees in providing services to PERS? If so, please explain.

J. How does your firm identify and manage conflicts of interest?

Section H: Insurance and Liability (two-page response maximum) A. Describe the levels of coverage for errors and omissions, fiduciary and

professional liability, and fidelity insurance, both per claim and on an aggregate basis. Please list the insurance carriers.

B. Describe your firm’s disaster recovery plan as it relates to equipment, software, data, and personnel in relation to providing services to PERS.

C. Would your firm contractually agree to no limits on liability, as to form or amount as reflected in the provisions of the Actuarial Services Agreement in this RFP?

D. Would your firm be willing to contractually indemnify PERS for your firm’s acts or omissions as reflected in the provisions of the Actuarial Services Agreement in this RFP?

Section I: Other Information (two-page response maximum) A. Describe areas or processes not included in the scope of this engagement that

your firm may examine to provide more complete and efficient services to PERS.

B. Provide any additional information that you believe to be relevant to the RFP and your firm’s abilities to provide the requested services.

Attachment A

Actuarial Services Agreement

STATE OF MISSISSIPPI

PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF MISSISSIPPI PROFESSIONAL SERVICE CONTRACT

This Contract (Contract) is made by and between the Public Employees’ Retirement System of Mississippi (PERS) whose address is 429 Mississippi Street, Jackson, Mississippi 39201 and __________________________________________________ (Contractor), whose address is _______________________________ on the __________ day of ___________________ 2018, under the following terms and conditions: I. Scope of Services

During the term of this Contract, the Contractor shall satisfactorily perform the normal actuarial and consulting services hereinafter set forth: Retainer Services

A. Prepare annual actuarial valuations of the assets and liabilities of each of the defined benefit plans, the Public Employees’ Retirement System of Mississippi (PERS), the Mississippi Highway Safety Patrol Retirement System (MHSPRS), the Supplemental Legislative Retirement Plan (SLRP), and the Municipal Retirement Systems (MRS), which consists of 19 distinct municipal retirement plans, beginning with the June 30, 2018, valuations. These valuations must include disclosure information required by the authoritative standards established by the Governmental Accounting Standards Board (GASB).

i. Reports for these valuations will be delivered to the Board of Trustees for PERS of Mississippi (the Board) no later than sixty (60) days after receipt of complete data for the valuation.

ii. Measurement of funding progress and testing of the adequacy of contribution rates will be demonstrated in the valuation reports and include a recommendation as to the required contribution rates, cash flow projections and such supplemental calculations as are required for compliance with applicable statutes, regulations and financial reporting standards.

iii. Will include the necessary financial information required to complete the actuarial portions of the financial statements, note disclosures, and actuarial section of the Systems’ Comprehensive Annual Financial Report (CAFR). This includes the Annual Actuarial Certification Letter, data exhibits and other necessary material for the Actuarial, Financial, and Statistical section of the PERS’ CAFR. Review of Management’s Discussion and Analysis (MD&A) and the Actuarial Section as requested by PERS.

iv. Prepare disclosure information for each plan as required by authoritative standards established by GASB, including statements 67 and 68, or any successor accounting and financial reporting standards. Such information shall include, but not be limited to, calculations, note disclosures and schedules as requested by the System with respect to applicable pension accounting standards. The

GASB 67 and 68 reports should be provided at the same time as the valuation report for each plan unless otherwise agreed to by PERS. These reports must include the necessary information to demonstrate the cross-over test as required by GASB to estimate the appropriate discount rate.

B. As part of the valuations, provide an analysis of the annual gain/loss to determine the cause and magnitude of changes in the UAAL due to variances.

C. Following the annual actuarial valuations, prepare a projection report for at least thirty (30) years and up to fifty (50) years based on PERS’ request for the open defined benefit plans administered by the Board to provide a picture of the funding progress over time. Provide funding ratio and amortization period projections, including a gain/loss analysis to determine the cause and magnitude of changes in the funding period due to variance on each major actuarial assumption and population growth assumption (not included in actuarial valuation).

D. Valuation reports will contain a glossary of terms and sufficient explanatory text to permit a reasonable understanding of the actuarial assumptions, cost methods and conclusions by competent actuaries and by persons knowledgeable in the public pension field. This shall include, but not be limited to, a summary of the benefits description of actuarial assumptions and cost methods, display of age groups and service matrices for active members and display of retired lives by age groups and types of benefits.

E. Prepare biennial investigations, beginning with the June 30, 2018, and incorporating four (4) years of actual plan experience (covering July 1, 2014, through June 30, 2018), into the actual and expected experience of each defined benefit plan on the actuarial assumptions used for valuation purposes. Reports of the results of these investigations will include a comparison of actual and expected experience shown separately for each actuarial assumption and an analysis of the liability change attributable to each risk area, as well as recommendations for changes for the Board’s consideration.

F. Preparation of actuarial impact statements for proposed legislation upon request. Statements will normally be delivered within two (2) weeks (10 working days) of request and receipt of any additional information required but not previously submitted.

G. Review the financial experience, requested premium rate increases, and proposed plan design changes, if any, of the PERS retiree medical insurance plan(s). Make recommendations regarding the adequacy of the current premium rate structure, the necessity for and magnitude of any premium rate increases requested by the insurance carrier, and proposed plan design changes.

H. Keep the Board and System staff advised on developments in state and federal legislation, and/or regulations regarding financing, benefits, vesting, fiduciary responsibility, disclosure, or other compliance requirements.

I. Provide actuarial consultation and advisory services on any technical, policy or administrative problems arising during the course of operations - by meetings, routine telephone calls, and written correspondence.

J. Make recommendations to the Board from time to time relative to possible improvements in the financing and benefit structure of the System and the voluntary retiree medical insurance program and to give effect to new developments in the retirement industry. Keep the trustees apprised of current trends and progress within the actuarial profession.

K. Give consultation and advisory services in the policy and administrative problems of implementing legislative changes, including assistance in the preparation of

proposed retirement legislation. Develop and provide various tables and factors needed by the System. These include, but are not limited to, mortality tables, present value factors, and survivor factors.

L. Attendance by the lead consultant(s) at up to eight (8) meeting days per year are included in the annual fixed fee. These include but are not limited to the following:

v. Annual presentation to the Board in October regarding the actuarial valuation results.

vi. Annual presentation to the Board in December regarding the 30-year projections.

vii. Appear at selected meetings and hearings (one meeting day) for discussion of the financial experience and premium rate history of the voluntary retiree medical insurance program and such other medical insurance matters as may arise from time to time.

viii. Performance of periodic actuarial education for New Trustee Orientation and the Board in general, including an actuarial assumptions workshop.

ix. Appear at selected meetings and hearings regarding (up to four [4] meeting days are included in the annual fixed fee) for discussion of actuarial standards and/or the principles used in the determination of the funding requirement and in pricing of legislation and such other pension plan matters as arise from time to time.

M. Provide technical assistance in reviewing System data file specifications to maintain the database, so as to provide all data necessary for System needs.

N. Annually provide copies of the final data including active members, inactive members, retirees, and beneficiaries as used in the annual actuarial valuation, as well as exceptions lists regarding questionable records and/or inconsistent and missing data.

O. Provide modeling software for PERS’ use following the annual projection report that allows for “what-if” scenarios. The software model should allow PERS to change inputs and view online and printable results. This software should include annual projections of PERS’ assets, liabilities, cash flows, funding ratios, and funding periods using a model based upon the current plan provisions, contribution rate structure, and actuarial assumptions and methods, that will produce estimated results based on adjustments to the following variables including, but not limited to:

i. Must allow for the selection of the appropriate plan - PERS, MHSPRS, and SLRP;

ii. As a minimum, it should allow for the following inputs: a. Assumed long-term investment rate of return/discount rate –

allow for any specified rate input in increments of .25 percent; b. Employee contribution rate – allow for any specified rate input

for a specified period of time; c. Employer contribution rate – allow for any specified rate input

for a specified period of time; d. Active employee growth - allow for a percentage increase or

decrease by .25 percent increments; e. Payroll growth assumption is a percent of payroll – allow for

any specified rate of payroll growth; f. Salary assumption – provide the ability to change the payroll

assumed growth rate for a defined period of years and then resume to the specified rate;

g. Assumed inflation rate - allow the rate to be modified for any input;

h. Provision for an additional contribution at the beginning of the year:

i. Allow for an additional dollar amount or percent of payroll increase;

ii. Also, allow these changes per year or for an identified number of years;

i. Allow override of the long-term expected rate and provide a short-term investment return for a specified number of years and then resume the long-term rate for the remaining years;

j. Provide for changes to be made to the funding policy: i. Rolling number of years (i.e., 30 years) amortization, ii. Closed number of year (i.e., 30 years) amortization, iii. Fixed contribution amount as a percent of payroll, iv. Allow for an input of a funded ratio to be achieved by

a specified year; k. Modifications to the cost-of-living (COLA):

i. Affects all retirees, ii. Affects just future retirees, iii. Simple interest only, iv. Simple to a specified year and then compounded, v. Simple to a specified age and then compounded; vi. Delay COLA for new retirees for a specified number

of years, vii. COLA holiday (no increase in COLA over previous

year) for a specified period; l. Setting the amortization goal to either level percent of payroll

or level dollar; iii. The software model should display both the market and actuarial

value of assets on the input screen. Note: The model must be kept up to date at all times with changes in assumptions and actual experience determined through the issuance of valuation reports. This may require multiple releases of the software model each year. PERS understands that this software may be proprietary, and, as such may not be distributed or shared and is for the exclusive use of PERS, its Board, and staff.

P. Prepare and/or revise actuarial factors, as necessary, (e.g., following a change in mortality assumptions, the assumed long-term rate of return, or plan provisions that would affect some or all of the actuarial factors) for calculation purposes of all benefit options for service retirement, disability retirement, survivor benefits, service purchase, etc.

Q. Annually calculate and test section 415 limits and excess benefit arrangements. R. Prepare responses to accounting and financial reporting audits and actuarial

audits, as requested and/or necessary. S. Provide general consulting by phone, email, and letter with the executive director

and PERS staff regarding technical problems and matters of general interest to a public-sector retirement plan on issues related to the retainer services (approximately 500 hours per year).

T. Provide requested actuarial data to PERS’ investment consultant to facilitate asset-liability modeling activities related to asset allocation studies.

U. The actuary will provide PERS a recap and explanation of all PERS data issues encountered and the steps taken to normalize the data for usability.

Non-Routine Services A. Prepare cost studies for legislative proposals and fiscal notes. B. Give advice and consulting regarding defined benefit and defined contribution

plans. C. Provide studies and services requested through PERS for specific MRS plans. D. Other than specifically noted in Retainer Services above, provide assistance, as

needed, to other PERS service providers including, but not limited to, investment consultants, attorneys (both internal and external), administrators, and auditors.

E. Review of actuarially-related work performed by PERS staff. F. Other special studies, assessments, consulting services, projections, presentations

or meetings of a non-routine nature for pension and health care plans not otherwise included under the Retainer Services.

II. Contract Term The Contract period is for a five (5)-year term from July 1, 2018, through June 30, 2023. This Contract may be extended for one (1) additional three (3)-year period upon mutual agreement by both parties. III. Consideration As consideration for the performance of this Contract, the Contractor shall be paid a fee not to exceed $___________________ in accordance with the terms of this Contract. (additional terms to be determined). The Contractor shall invoice PERS as outlined under paragraph V of this Contract. IV. E-Payment The Contractor agrees to accept all payments in United States currency via the State of Mississippi’s electronic payment and remittance vehicle. The Mississippi Department of Finance and Administration agrees to make payment in accordance with Mississippi law on “Timely Payments for Purchases by Public Bodies”, Miss. Code Ann. § 31-7-301, et seq. (1972, as amended), which generally provides for payment of undisputed amounts by the agency within forty-five (45) days of receipt of the invoice. V. Pay Mode Payments by state agencies using the State’s automated accounting system shall be made and remittance information provided electronically as directed by the State. These payments shall be deposited into the bank account of the Contractor’s choice. The State may, at its sole discretion, require the Contractor to submit invoices and supporting documentation electronically at any time during the term of this Contract. The Contractor understands and agrees that the State is exempt from the payment of taxes. All payments shall be in United States currency. VI. Payment of Taxes The Contractor shall be liable for all taxes. PERS will not be responsible for paying any taxes, including but not limited to use, excise, personal property, or sales tax. VII. Availability of Funds It is expressly understood and agreed that the obligation of PERS to proceed under this Contract is conditioned upon the appropriation of funds by the Mississippi State Legislature and the receipt of state and/or federal funds. If the funds anticipated for the continuing fulfillment of the agreement are, at any time, not forthcoming or insufficient, either through the failure of the federal government to provide funds or of the State of Mississippi to appropriate funds or the discontinuance or material alteration of the program under which funds were provided or if funds are not otherwise available to PERS, PERS shall have the right upon ten (10) working days written notice to the Contractor, to terminate this Contract without damage, penalty, cost, or expenses to PERS of any kind whatsoever. The effective date of termination shall be as specified in the notice of termination. See Miss. Code Ann. § 27-104-25(3) (1972, as amended). PERS shall have the sole right to determine whether funds are available for the payments or performances due under this Contract.

VIII. Standard of Care The Contractor warrants to PERS that the services to be performed under this Contract will be performed in accordance with the standard of care, skill, prudence, diligence, and loyalty as a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, and in accordance with the generally recognized and accepted actuarial principles and practices that are consistent with Actuarial Standards of Practice, the Code of Professional Conduct, and Qualification Standards for Public Statements of Actuarial Opinion of the American Academy of Actuaries. IX. Representation Regarding Contingent Fees The Contractor represents that it has not retained a person to solicit or secure a state contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, except as disclosed in the Contractor’s bid proposal. X. Representation Regarding Gratuities The bidder, offeror, or Contractor represents that it has not violated, is not violating, and promises that it will not violate the prohibition against gratuities set forth in § 6-204 (Gratuities) of the Mississippi Personal Service Contract Procurement Regulations. XI. Applicable Law The Contract shall be governed by and construed in accordance with the laws of the State of Mississippi, excluding its conflicts of law’s provisions, and venue for resolution of any dispute shall be Jackson, Hinds County, Mississippi. The Contractor shall comply with applicable federal, state, and local laws and regulations. Contractor expressly agrees that, under no circumstances, shall PERS be obligated to pay an attorney’s fee, prejudgment interest or the cost of legal action to Contractor. Further, nothing in this Contract shall affect any statutory rights that PERS may have and such rights cannot be waived or limited by contract. XII. Assignment The Contractor shall not assign, subcontract, or otherwise transfer in whole or in part, its rights or obligations under this Contract without prior written consent of PERS. Any attempted assignment or transfer without said consent shall be void and of no effect. XIII. Compliance with Laws The Contractor understands that PERS is an equal-opportunity employer and, therefore, maintains a policy that prohibits unlawful discrimination based on race, color, sex, age, national origin, disability, or any other consideration made unlawful by federal, state, or local laws. All such discrimination is unlawful and the Contractor agrees during the term of the agreement that the Contractor will strictly adhere to this policy in its employment practices and provision of services. The Contractor shall comply with, and all activities under this Contract shall be subject to, all applicable federal, State of Mississippi, and local laws and regulations, as now existing and as may be amended or modified. XIV. Transparency This Contract, including any accompanying exhibits, attachments, and appendices, is subject to the “Mississippi Public Records Act of 1983,” and its exceptions. See Miss. Code Ann. § 25-61-1 et seq., (1972, as amended) and Miss. Code Ann. § 79-23-1 (1972, as amended). In addition, this Contract is subject to the provisions of the Mississippi Accountability and Transparency Act of 2008. Miss. Code Ann. § 27-104-151, et seq. (1972, as amended). Unless exempted from disclosure due to a court-issued protective order, a copy of this executed Contract is required to be posted to the Department of Finance and Administration’s independent Agency contract website for public access at www.transparency.mississippi.gov. Information identified by the Contractor as trade secrets, or other proprietary information including confidential vendor information or any other

information that is required confidential by state or federal law or outside the applicable freedom of information statutes, will be redacted. XV. Employee Status Verification System If applicable, the Contractor represents and warrants that it will ensure its compliance with the Mississippi Employment Protection Act of 2008 and will register and participate in the status verification system for all newly hired employees. Miss. Code Ann. §§ 71-11-1, et seq. (1972, as amended). The term “employee” as used herein means any person who is hired to perform work within the State of Mississippi. As used herein, “status verification system” means the Illegal Immigration Reform and Immigration Responsibility Act of 1996 that is operated by the United States Department of Homeland Security, also known as the E-Verify Program, or any other successor electronic verification system replacing the E-Verify Program. The Contractor agrees to maintain records of such compliance. Upon request of the State and after approval of the Social Security Administration or Department of Homeland Security when required, the Contractor agrees to provide a copy of each such verification. The Contractor further represents and warrants that any person assigned to perform services hereafter meets the employment eligibility requirements of all immigration laws. The breach of which may subject the Contractor to the following:

A. termination of this Contract and ineligibility for any state or public contract in Mississippi for up to three (3) years with notice of such cancellation/termination being made public;

B. the loss of any license, permit, certification, or other document granted to the Contractor by an Agency, department or governmental entity for the right to do business in Mississippi for up to one (1) year; or,

C. both A and B. In the event of such termination/cancellation, the Contractor shall also be liable for any additional costs incurred by the State or PERS due to contract cancellation or loss of license or permit to do business in the State. XVI. Independent Contractor The Contractor shall perform all services as an independent contractor and shall at no time act as an agent for PERS. No act performed or representation made, whether oral or written, by the Contractor with respect to third parties shall be binding on PERS. Neither the Contractor nor its employees shall, under any circumstances, be considered servants, agents, or employees of PERS; and PERS shall, at no time, be legally responsible for any negligence or other wrongdoing by the Contractor, its servants, agents, or employees. It is expressly understood and agreed that PERS enters into this Contract with the Contractor based on the procurement of professional services and not based on an employer-employee relationship. For all purposes under this Contract, it is understood that the consideration expressed herein constitutes full and complete compensation for all services and performances hereunder, and that any sum due and payable to the Contractor shall be paid as a gross sum with no withholdings or deductions being made by PERS for any purpose from said contract sum. The Contractor accepts exclusive responsibility for the payment of federal income tax, state tax, Social Security, and any other withholdings that may be required. The Contractor represents that it is qualified to perform the duties to be performed under this Contract and that it has, or will secure, if needed, at its own expense, applicable personnel who shall be qualified to perform the duties required under this Contract. Such personnel shall not be deemed in any way, directly or indirectly, expressly or by implication, to be employees of PERS. Any person assigned by the Contractor to perform the services hereunder shall be the employee of the Contractor, who shall have the sole right to hire and discharge its employee. PERS may, however, direct the Contractor to replace any of its employees under this Contract. The Contractor will be responsible for the behavior of all its employees and subcontractors while on the premises of PERS. Any employee or subcontractor of the Contractor acting in a manner determined by the administration of that location to be detrimental, abusive, or offensive to any of the staff will be asked to leave the premises and may be suspended from further work on the premises. All

employees and subcontractors of the Contractor who will be working at such locations shall be covered by the Contractor’s comprehensive general liability insurance policy. The Contractor shall pay when due, all salaries and wages of its employees and it accepts exclusive responsibility for the payment of federal income tax, state income tax, Social Security, unemployment compensation, and any other withholdings that may be required. Neither the Contractor nor its employees are entitled to state retirement or leave benefits. XVII. Termination for Convenience

A. Termination. The Agency Head or designee may, when the interests of the State so require, terminate this Contract in whole or in part, for the convenience of the State. The Agency Head or designee shall give written notice of the termination to Contractor specifying the part of the Contract terminated and when termination becomes effective.

B. Contractor’s Obligations. Contractor shall incur no further obligations in connection with the terminated work, and, on the date set in the notice of termination, Contractor will stop work to the extent specified. Contractor shall also terminate outstanding orders and subcontracts as they relate to the terminated work. Contractor shall settle the liabilities and claims arising out of the termination of subcontracts and orders connected with the terminated work. The Agency Head or designee may direct Contractor to assign Contractor’s right, title, and interest under terminated orders or subcontracts to the State. Contractor must still complete the work not terminated by the notice of termination and may incur obligations as are necessary to do so.

C. Compensation. In the event of such termination, Contractor shall be entitled to recover just and equitable compensation for satisfactory work performed under this Contract, but, in no case, shall said compensation exceed the total contract price.

XVIII. Termination for Default A. Default. If Contractor refuses or fails to perform any of the provisions of this Contract with

such diligence as will ensure its completion within the time specified in this Contract or any extension thereof, or otherwise fails to timely satisfy the contract provisions, or commits any other substantial breach of this Contract, the Agency Head or designee may notify Contractor in writing of the delay or nonperformance and if not cured in ten (10) days or any longer time specified in writing by the Agency Head or designee, such officer may terminate Contractor’s right to proceed with the Contract or such part of the Contract as to which there has been delay or a failure to properly perform. In the event of termination in whole or in part, the Agency Head or designee may procure similar supplies or services in a manner and upon terms deemed appropriate by the Agency Head or designee. Contractor shall continue performance of the Contract to the extent it is not terminated and shall be liable for excess costs incurred in procuring similar goods or services.

B. Contractor’s Duties. Notwithstanding termination of the Contract and subject to any directions from the procurement officer, Contractor shall take timely, reasonable, and necessary action to protect and preserve property in the possession of Contractor in which the State has an interest.

C. Compensation. Payment for completed services delivered and accepted by the State shall be at the contract price. The State may withhold from amounts due Contractor such sums as the Agency Head or designee deems to be necessary to protect the State against loss because of outstanding liens or claims of former lien holders and to reimburse the State for the excess costs incurred in procuring similar goods and services.

D. Excuse for Nonperformance or Delayed Performance. Except with respect to defaults of subcontractors, Contractor shall not be in default by reason of any failure in performance of this Contract in accordance with its terms (including any failure by Contractor to make progress in the prosecution of the work hereunder which endangers such performance), if Contractor has notified the Agency Head or designee within fifteen (15) days after the cause

of the delay, and the failure arises out of causes such as: acts of God; acts of the public enemy; acts of the State and any other governmental entity in its sovereign or contractual capacity; fires; floods; epidemics; quarantine restrictions; strikes or other labor disputes; freight embargoes; or unusually severe weather. If the failure to perform is caused by the failure of a subcontractor to perform or to make progress, and if such failure arises out of causes similar to those set forth above, Contractor shall not be deemed to be in default, unless the services to be furnished by the subcontractor were reasonably obtainable from other sources in sufficient time to permit Contractor to meet the contract requirements. Upon request of Contractor, the Agency Head or designee shall ascertain the facts and extent of such failure, and, if such officer determines that any failure to perform was occasioned by any one or more of the excusable causes, and that, but for the excusable cause, Contractor’s progress and performance would have met the terms of the Contract, the delivery schedule shall be revised accordingly, subject to the rights of the State under the clause entitled “Termination for Convenience.”

E. Erroneous Termination for Default. If, after notice of termination of Contractor’s right to proceed under the provisions of this clause, it is determined for any reason that the Contract was not in default under the provisions of this clause, or that the delay was excusable under the provisions of Paragraph D (Excuse for Nonperformance or Delayed Performance) of this clause, the rights and obligations of the parties shall, if the Contract contains a clause providing for termination for convenience of the State, be the same as if the notice of termination had been issued pursuant to such clause.

F. Additional Rights and Remedies. The rights and remedies provided in this clause are in addition to any other rights and remedies provided by law or under this Contract.

XIX. Termination upon Bankruptcy This Contract may be terminated in whole or in part by PERS upon written notice to Contractor, if Contractor should become the subject of bankruptcy or receivership proceedings, whether voluntary or involuntary, or upon the execution by Contractor of an assignment for the benefit of its creditors. In the event of such termination, Contractor shall be entitled to recover just and equitable compensation for satisfactory work performed under this Contract, but in no case shall said compensation exceed the total contract price. XX. Modification or Renegotiation This Contract may be modified, altered, or changed only by written agreement signed by the parties hereto. The parties agree to renegotiate the agreement if federal or state revisions of any applicable laws or regulations make changes in this Contract necessary. XXI. Procurement Regulations The Contract shall be governed by the applicable provisions of the Personal Service Contract Review Board Regulations, a copy of which is available at 210 East Capitol Street, Suite 800, Jackson, MS, for inspection, or downloadable at www.mspb.ms.gov. XXII. Ownership of Documents and Work Papers PERS shall own all data collected by the Contractor and all documents, notes, programs, data bases (and all applications thereof), files, reports, studies, work papers, and/or other material collected, electronic or otherwise, whether completed or in progress, created or provided in connection with this Contract, except for the Contractor’s internal administrative and quality assurance files and internal project correspondence. PERS hereby reserves all rights to the databases, and all applications thereof, and to any and all information and/or materials prepared in connection with this Contract. The Contractor is prohibited from the use of the above described information and/or materials without the express written approval of the System.

XXIII. Confidential Information Contractor shall treat all PERS data and information to which it has access by its performance under this Contract as confidential and shall not disclose such data or information to a third party without specific written consent of PERS. The Contractor shall protect such personal and confidential information against unauthorized use, disclosure, modification, or loss. All data files and information submitted by PERS will remain the property of PERS. No later than thirty (30) days after the termination of this Contract, Contractor will destroy all information or data provided by PERS and will provide written confirmation of said destruction to PERS. The Contractor agrees to indemnify and hold harmless PERS for any damages related to Contractor’s unauthorized use of personal information. Any breach of this provision may result in termination of the Contract and demand for return of all personal information. This provision shall survive termination or completion of this Contract and shall continue in full force and effect and shall be binding upon the Contractor and its agents, employees, successors, assigns, subcontractors or any party or entity claiming an interest in this Contract on behalf of, or under the rights of the Contractor following any termination or completion of this Contract. XXIV. Indemnification To the fullest extent allowed by law, the Contractor shall indemnify, defend, save and hold harmless, and protect PERS, its board members, officers, employees, agents, and representatives, and the State of Mississippi from and against all claims, demands, liabilities, suits, actions, damages, losses, and costs of every kind and nature whatsoever, including, without limitation, court costs, investigative fees and expenses, and attorneys’ fees, and claims for damage arising out of or caused by the Contractor and/or its partners, principals, agents, employees and/or subcontractors in the performance of or failure to perform this Contract. XXV. Third-Party Action Notification The Contractor shall notify PERS in writing within five (5) business days of its receipt of liquidation or receivership proceedings or within five (5) business days of its receipt of notification of any action or suit being filed or any claim being made against Contractor or PERS by any entity that may result in litigation related in any way to this Contract and/or which may affect the Contractor’s performance under this Contract. Failure of the Contractor to provide such written notice to PERS shall be considered a material breach of this Contract, and PERS may, at its sole discretion, pursue its rights as set forth in the termination clauses herein and any other remedies it may have at law or in equity. XXVI. Notices All notices required or permitted to be given under this Contract must be in writing and personally delivered or sent by facsimile provided that the original of such notice is sent by certified United States mail with postage prepaid, return receipt requested, or by overnight courier with signed receipt, to the party to whom the notice should be given at the address set forth below. Notice shall be deemed given when actually received or when refused. The parties agree to promptly notify each other in writing of any change of address. For the Contractor: For PERS:

Attn: Executive Director 429 Mississippi Street Jackson, MS 39201 XXVII. Severability If any term or provision of this Contract is prohibited by the laws of this State of Mississippi or declared invalid or void by a court of competent jurisdiction, the remainder of this Contract shall not be affected thereby and each term and provision of this Contract shall be valid and enforceable to the fullest extent permitted by law.

XXVIII. Failure to Enforce Failure by PERS, at any time, to enforce the provisions of the Contract shall not be construed as a waiver of any such provisions. Such failure to enforce shall not affect the validity of the Contract or any part thereof or the right of PERS to enforce any provision at any time in accordance with its terms. XXIX. Conflict of Interest Contractor represents and warrants the following:

A. No Current or Prior Conflict of Interest. That Contractor has no business, professional, personal, or other interest, including, but not limited to, the representation of other clients, that would conflict in any manner or degree with the performance of its obligations under this Contract.

B. Notice of Potential Conflict. If any such actual or potential conflict of interest arises under this Agreement, Contractor shall immediately inform PERS in writing of such conflict.

C. Termination for Material Conflict. If, in the reasonable judgment of PERS, such conflict poses a material conflict to and with the performance of Contractor’s obligations under this Contract, then PERS may terminate the Contract immediately upon written notice to Contractor; such termination of the Contract shall be effective upon the receipt of such notice by Contractor.

XXX. Entire Contract This Contract constitutes the entire agreement of the parties with respect to the subject matter contained herein and supersedes and replaces any and all prior negotiations, understandings and agreements, written or oral, between the parties relating thereto. The RFP for Actuarial Services and Contractor’s Proposal in response to RFP for Actuarial Services are hereby incorporated into and made a part of this Contract. The Contract made by and between the parties hereto shall consist of, and precedence is hereby established by the order of the following:

A. This Contract signed by the parties hereto; B. RFP for Actuarial Services and written addenda, and C. Contractor’s Proposal, as accepted by PERS, in response to RFP for Actuarial Services.

The intent of the above-listed documents is to include all items necessary for the proper execution and completion of the services by the Contractor. The documents are complementary, and what is required by one shall be binding as if required by all. A higher order document shall supersede a lower order document to the extent necessary to resolve any conflict or inconsistency arising under the various provisions thereof; provided, however, that in the event an issue is addressed in one of the above-mentioned documents but is not addressed in another of such documents, no conflict or inconsistency shall be deemed to occur by reason thereof. The documents listed above are shown in descending order of priority, that is, the highest document begins with the first listed document (“A. This Contract”) and the lowest document is listed last (“C. Contractor’s Proposal”). XXXI. Sovereign Immunity By entering into this Contract with the Contractor, PERS and the State of Mississippi does, in no way, waive its sovereign immunities or defenses, as provided by law. XXXII. Trade Secrets, Commercial and Financial Information It is expressly understood that Mississippi law requires that the provisions of this Contract that contain the commodities purchased or the personal or professional services provided, the price to be paid, and the term of the Contract shall not be deemed to be a trade secret or confidential commercial or financial information and shall be available for examination, copying, or reproduction.

XXXIII. Professional Liability Insurance The Contractor shall maintain in full force and effect during the term of the Contract Errors and Omissions/Professional Liability, inclusive of cyber liability, insurance with minimum limits of $5,000,000 per claim and annual aggregate. This Contract has been entered into and executed by the parties hereto as of the day and year first above written. __________________________________ _______________________________

Date Date

EXECUTIVE DIRECTOR CONTRACTOR PUBLIC EMPLOYEES’ RETIREMENT SYSTEM

Attachment B Confidentiality Agreement

I, _____________________, __________________________________, in order to

Name Title submit a proposal on behalf of ___________________________________________ (hereinafter, Vendor) for future actuarial audit services to the Public Employees’ Retirement System of Mississippi (PERS) do hereby acknowledge and agree to the following:

1. Certain confidential information will be made available by PERS to Vendor to enable Vendor to perform services necessary in order to prepare an actuarial audit for PERS.

2. Mississippi law provides that PERS member records are confidential and the contents thereof shall not be disclosed without prior written consent of the individual to whom the record pertains. Vendor shall treat all PERS data and information to which it has access as confidential and shall not disclose such data or information to a third party without specific written consent of PERS. Vendor shall protect such personal and confidential information against unauthorized use, disclosure, modification or loss. This provision shall survive the termination or completion of any Contract and shall continue in full force and effect and shall be binding upon Vendor and its agents, employees, successors, assigns, subcontractors.

3. Vendor agrees to indemnify and hold PERS harmless for any damages related to Vendor’s

unauthorized use of personal or confidential information.

4. That all data and information, electronic or otherwise, provided, collected, or prepared by

the Vendor pursuant to this Request for Proposal or any related Contract and all documents, notes, files and all other materials collected, developed or prepared by Vendor pursuant to this Request for Proposal or any related Contract shall be and shall remain the property of the PERS.

Attachment B 5. No later than thirty (30) days after completion of actuarial audit and reporting of actuarial

audit results to PERS, the Vendor will destroy all data and information provided by PERS and provide written confirmation of said destruction to PERS.

Witness my signature this the _____________ day of _______________________________ 2017. _________________________________________ Signature

1. Can you provide the fees paid to the current actuary for the last three years split between retainer services and non‐retainer services? Response:

FY Retained Services Other Services Total 2017 $143,100 $199,950 $343,050 2016 $143,100 $144,633 $287,733 2015 $143,100 $140,397 $283,497

1. What were the average annual non‐valuation fees for this most recent contract period?

Response: The total fees paid for non‐valuation services are reflected as “other services” in the chart provided to question 1 above. The fees for “Other Services” was $199,950 for FYE 6/30/2017.

2. What was the fee for the most recently performed experience study, either in total or by system? Response: An experience study is prepared for each of the four define benefit plans. The total cost for this service, provided in FY 2016, was $32,000.

3. Please provide hourly rates for the last three years. Response:

Title Hourly Rate Senior/Consultant Actuary $320‐$396 Senior Consultant/Actuary $276‐$320 Consultant $240‐$276 Senior Actuarial Analyst $240‐$276 Actuarial Analyst $180‐$240 Other $116

4. What is the estimated budget for the services requested?

Response: PERS estimated budget for these services for the current fiscal year is $300,000. However, the budget will not prevent the selection of the best firm to provide the services required for a complex system like PERS of Mississippi.

5. Section IV A. H. of the scope of consulting services says the “The actuary will review the financial experience, requested premium rate increases, and proposed plan design changes, if any, of the PERS retiree medical insurance plan(s). The actuary will also make recommendations regarding the adequacy of the current premium rate structure, the necessity for and magnitude of any premium rate increases requested by the insurance carrier, and proposed plan design changes. “Can you provide the most recent report from the actuary? Response: Yes, the report is attached to this document as “Attachment A”.

6. Section III, item J. specifies that submission of a proposal indicates acceptance of the terms of the attached contract. Does this preclude any negotiation of the contract terms set forth in Attachment A to the RFP? Response: PERS expects the contract terms to be substantially similar to those terms set forth in Attachment “A” to the RFP. All of the clauses set out in Attachment “A” are required. Although changes to exact language used may be considered, the substance of the language is required. If there is specific language the proposer cannot agree to, the proposer should clearly identify any exceptions to the language knowing this may disqualify the proposal from further consideration.

7. Will the State agree to final and binding arbitration of any disputes arising out of a

contract with the successful bidder on the condition such disputes are governed by Mississippi law and the arbitration occurs in Jackson, Mississippi? Response: No, as an agency of the State of Mississippi, PERS is prohibited from contractually agreeing to binding arbitration.

a. If the State responds “no” to the foregoing question, will the State agree that all any disputes arising out of a contract with the successful bidder will be addressed via a lawsuit in a Mississippi federal court in Jackson, Mississippi? Response: PERS will agree that venue for resolution of any dispute shall be in a court of competent jurisdiction located in Jackson, Hinds County, Mississippi.

b. In connection with this lawsuit, would the State be willing to waive their right to a jury trial? Response: No, as an agency of the State of Mississippi, PERS is prohibited from contractually waives the right to a jury trial.

8. Will PERS accept a limit of liability?

Response: No, as an agency of the State of Mississippi, PERS is prohibited from contractually agreeing to a limitation of liability.

9. Section IV, item H refers to certain retiree medical consulting services. Are GASB 74/75 reporting services required to be provided as part of this proposal? Response: No. PERS does not provide post‐employment benefits other than pensions.

10. The RFP (page 6) indicates that all actuaries must be both enrolled and members of the

American Academy of Actuaries. Would a member of the Society of Actuaries (with an ASA or FSA designation) who is also a Member of the American Academy of Actuaries (MAAA) but not an Enrolled Actuary (EA) satisfy the eligibility requirements? Response: No, as stated the actuary must be both enrolled and a member in order to satisfy the eligibility requirement.

11. On page 10 of the RFP (item C), it states that the projection report should include the

following: The actuary will provide funding ratio and amortization period projections, including a gain/loss analysis to determine the cause and magnitude of changes in the funding

period due to variance on each major actuarial assumption and population growth assumption (not included in actuarial valuation). Please explain what is meant by the term gain/loss as it relates to the projection. Are you requesting? Response: The positive or negative effect on the projected funding status or the funding period due to changes in future assumption(s) should be analyzed and provided in a report.

a. that the projection model differences between future assumed experience and future actual experience and perform a gain/loss analysis on that difference; Response: No, see comments below.

b. perform an analysis to measure the effect of changes in future assumptions in a manner similar to a gain/loss analysis; or Response: Yes, as future assumptions are changed PERS is asking for a gain/loss analysis to determine the cause and magnitude of variances in the projected funding status and funding period due to the impact of each actuarial assumption.

c. Something else? Response: No.

d. Is this type of analysis being performed in current projection reports (as requested)? If so, could you identify the page where it occurs to illustrate the requested information? Response: No, this analysis is not currently being provided.

12. How many 415 calculations are performed in a typical year? Response: Currently the calculations to determine the qualified participants is conducted on the entire retiree population. However, only 44 participants, all from the PERS plan, qualified as 415 excess benefit in the current year.

13. The RFP indicates on page 11 that attendance of the lead consultant at no less than 10

meeting days per year will be included in the annual fixed fee. Page 20 says that attendance of the lead consultant at up to eight meetings per year are included in the annual fixed fee. Can you clarify whether the number of meeting days included in the fixed fee is 8 or 10? Response: The retained services fee should include no less than ten (10) meeting days.

14. Is the list of retainer services in the RFP the same as in the current retainer services in the Cavanaugh Macdonald (CM) contract? Response: For the most part the retained services are the same as with the current actuarial firm. However, the projection report required under item “C” is invoiced at a stated additional fee of $24,000; the biennial investigation under item “F” is invoiced at a stated additional fee of $32,000; and the actuarial services related to the retiree

medical insurance under item “H” as well as the required meeting(s) under “M. iii” to discuss the retiree medical insurance is invoiced at a stated additional fee of $12,200.

15. How long has CM been the plan’s actuary? Response: PERS of Mississippi first contracted with Cavanaugh Macdonald Consulting on July 1, 2006.

16. What actuarial firm did you use before CM? Response: PERS of Mississippi contracted with Buck Consulting prior to contracting with Cavanaugh Macdonald Consulting, LLC.

17. In the projections shown in the Municipal plan actuarial report, what causes the

contributions to go up and down by year? For example, on the last page for Yazoo, it shows level contributions that then decline to almost zero, then bump up and then go to zero. Response: As a closed plan, the funding policy for MRS has been set up to keep a reserve level threshold that is enough to pay benefit payments for the existing retirees but eventually diminish the assets in the trust fund as fewer retirees are left. The current actuary projects out benefit payments into the future and calculates the contribution requirement in the form of a millage rate on assessed property value in order to keep enough assets in the fund to pay benefits but have very little assets when the last retiree or beneficiary deceases. With a lag of when the millage rate is calculated and when the contribution is made, there may be a time when an increase is necessary.

18. Can the actuary you hired to audit the plan earlier this year also bid on replacing CM as the valuation actuary? Response: Yes, there is no restriction on any qualified actuarial firm from offering a proposal, including CM.

19. Can we get a copy of the recent audit report? Response: Yes. The recent audit report, as well as the response, will be emailed to each actuarial firm that responded to the RFP or submitted questions to the RFP.

20. How will costs of responding to the recommendations provided through an actuarial audit be billed to PERS? Response: All costs incurred while responding to the findings or comments made through the actuarial audit is to be included in the cost proposal and reflected in the total cost of retained services.

September 28, 2017 Mr. Kenny Grissett Deputy Administrator Member and Employer Services Public Employees’ Retirement System of Mississippi 429 Mississippi Street Jackson, MS 39201-1005 Dear Kenny: As requested, Cavanaugh Macdonald Consulting, LLC (CMC) has reviewed the Transamerica renewal analysis for the PERS retiree medical insurance program (Program). As reported by Transamerica, the loss ratio (incurred claims divided by earned premiums) for the Program has gone from 85.4% in calendar year 2016 to 79.0% for the first six months of 2017. Along with the Program’s experience improving in the short-term, with the six-month loss ratio of 79.0% falling from 83.8% during the first six months of 2016, the long-term trend of the loss ratio has returned to target levels. For the twelve month period running from July 2016 through June 2017 (the last month for which premium and claims data were provided), the loss ratio was 82.9%, which is very close to Transamerica’s target loss ratio of 83.0%. In keeping with their most recent renewal methodology, Transamerica’s 2018 renewal analysis has indicated the year-to-date loss ratio of 79.0% is projected to increase to a level of 82.5% by year’s end. As the projected year-end loss ratio of 82.5% is less than the calculation’s loss ratio of 82.8%, Transamerica’s renewal calculation suggests a 4.6% increase to rates is needed to align the 2018 premium rate with experience and Transamerica’s assumed increase in health care costs (claims trend) of 5.0%. Transamerica believes the Program’s year-to-date experience is running as expected, with no unpleasant surprises thus far. Additionally, the Program’s 2016 experience completed as projected, and the Program’s 2017 year-to-date loss ratio is lower than it was in the previous year. Last, Transamerica believes last year’s rate action has worked well, resulting in the closer to target projected year-end loss ratio of 82.5%.

Off

Cavanaugh Macdonald CC OO NN SS UU LL TT II NN GG,, LL LL CC

The experience and dedication you deserve

3550 Busbee Pkwy, Suite 250, Kennesaw, GA 30144 Phone (678) 388-1700 • Fax (678) 388-1730

www.CavMacConsulting.com Offices in Englewood, CO • Kennesaw, GA • Bellevue, NE

Mr. Kenny Grissett September 28, 2017 Page 2 Historical Data Transamerica’s analysis is based upon the use of historical data. Below, historical, monthly earned premium and incurred claims data for the period of January 2009 through June 2017 are provided along with the implied target, or expected, claims based on Transamerica’s target loss ratio of 83.0%. In addition to the historical data, trendlines for each set of data are provided. While a trendline is always associated with a specific data series, a trendline does not represent the actual data, but, instead, depicts trends in the data.

The trendlines indicate earned premiums are increasing at a slightly higher rate than incurred claims for the period of January 2009 through June 2017. While the suggested pattern may indicate future premium increases may be lower than the premium increases implemented over the last several years, the impact of earlier experience may skew trends that are more recent. To illustrate the impact of earlier experience, the same process was used to create the following charts for the periods of:

January 2014 through June 2017 January 2015 through June 2017 January 2016 through June 2017

350,000

400,000

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600,000

650,000

Dollars

Month

Earned Premium Incurred Claims Target Claims

Trend (Earned Premium) Trend (Incurred Claims) Trend (Target Claims)

Mr. Kenny Grissett September 28, 2017 Page 3

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350,000

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Mr. Kenny Grissett September 28, 2017 Page 4 For the period of January 2014 through June 2017, the trend lines indicate earned premiums are decreasing, while incurred claims are increasing. As more near-term experience is reflected, the trend lines move closer to each other, suggesting recent claims experience and rate actions have aligned.

Plan Year

Rate Action

Difference Between

Actual and Indicated

Actual Retrospectively Indicated

Increase/ Decrease

Geometric Average

Actual Loss Ratio

Increase/ Decrease

Target Loss Ratio

2009 0.0% 0.0% 81.2% -2.2% 83.0% 2.2% 2010 5.0% 2.5% 84.9% 7.4% 83.0% -2.4% 2011 6.9% 3.9% 83.2% 7.1% 83.0% -0.2% 2012 5.4% 4.3% 80.2% 1.9% 83.0% 3.5% 2013 4.3% 4.3% 73.7% -7.3% 83.0% 11.6% 2014 -2.4% 3.1% 75.4% -11.3% 83.0% 8.9% 2015 -1.8% 2.4% 87.2% 3.1% 83.0% -4.9% 2016 7.0% 3.0% 85.4% 10.1% 83.0% -3.1% 2017 8.0% 3.5% 82.5%* 7.3% 83.0% 0.7%

Proposed 2018 4.6% 3.6% TBD TBD 83.0% TBD *Projected year-end loss ratio used to determine the 2018 renewal.

Incurred Claims Estimates Transamerica’s analysis is based upon incurred claims. As a result, the claims totals for the more recent months (e.g., June 2017), are based upon paid claims and estimates for claims commonly referred to as the Incurred But Not Reported (IBNR) claims or claims “run-out”. IBNR claims may include the following components:

Incurred but not reported to the claims administrator, Incurred and reported to the administrator but awaiting processing, and Incurred and processed but not yet paid.

Mr. Kenny Grissett September 28, 2017 Page 5 Actual experience may vary from projected experience, and this difference may be material. Based upon past data supplied by Transamerica, initial estimates for the most recent six months have varied from amounts reported at a later time by as much as approximately five percent.

Period

Initial Incurred Claims

(a)

Revised Incurred Claims

(b) Increase/Decrease

[(b) / (a)] - 1 March 2008 – August 2008 $2,480,325 $2,613,452 5.4%

January 2009 – June 2009 $2,805,532 $2,678,881 -4.5%

January 2010 – June 2010 $3,109,983 $3,071,241 -1.2%

January 2011 – May 2011 $2,314,804 $2,361,663 2.0%

December 2011 – May 2012 $2,804,354 $2,905,347 3.6%

January 2013 - June 2013 $2,582,234 $2,643,686 2.4%

January 2015 - June 2015 $2,959,596 $2,872,666 -2.9%

January 2016 - June 2016* $2,854,254 $2,800,726 -1.9% *Most recent period available for review. CMC believes this to be a very reasonable range of results. Large Claims In its 2011 analysis, Transamerica excluded large claims totaling $140,000. It is unclear if the adjustment for the month of August 2010 is the result of a large claim, or poor experience of the Program as a whole. For consistency, CMC recommends the review of any large claims to determine if they are extraordinary from recent experience. Large claims should be included in a manner consistent with Transamerica’s past loss ratio development methodology, and handled in a manner that is consistent with Transamerica’s IBNR estimation process.

Mr. Kenny Grissett September 28, 2017 Page 6 Projected Loss Ratios Beginning with the 2012 renewal, Transamerica’s analysis has relied on a projection of the loss ratio for the current plan year. As with IBNR estimates, actual experience may vary from projected experience and this difference may be material. Based upon past data supplied by Transamerica, the projected loss ratio estimates for the current calendar year have typically varied from amounts reported at a later time by approximately one percent, which CMC believes to be a very reasonable range of results.

Calendar Year

Loss Ratio

Increase/Decrease [(b) / (a)] - 1

Initial First Half

Projected Year-End

(a)

Actual Year-End

(b) 2011 79.2% 83.0% 83.2% 0.2% 2012 78.8% 80.9% 80.2% -0.9% 2013 72.8% 75.0% 73.7% -1.7% 2014 77.5% N/A* 75.4% N/A* 2015 87.3% 86.2% 87.2% 1.2% 2016 85.3% 85.2% 85.4% 0.2% 2017 79.0% 82.5% TBD TBD

*The 2015 rates were obtained via a re-marketing of the plan. Results Transamerica has applied a 5.0% trend rate for the twelve-month projection period (the length of time from the mid-point of the assumed experience period, July 1, 2017, to the mid-point of the next premium cycle, July 1, 2018). The following table presents CMC’s analysis under various scenarios.

Scenario

Calculated Loss Ratio

(a)

Target Loss Ratio

(b)

(a) / (b)

(c)

Average Trend Factor

(d)

Rate Change

[(c) x (d)] - 1 1 82.5% 82.8% 99.6% 1.050 4.6% 2 82.5% 83.0% 99.4% 1.050 4.4% 3 82.5% 83.0% 99.4% 1.045 3.9% 4 82.9% 83.0% 99.9% 1.036 3.5% 5 82.9% 83.0% 99.9% 1.028 2.7% 6 82.5% 86.7% 95.2% 1.050 0.0% 7 79.0% 83.0% 95.2% 1.050 0.0%

Mr. Kenny Grissett September 28, 2017 Page 7 Scenario 1 Transamerica’s analysis, upon which the recommended increase of 4.6% is based. Scenario 2 Transamerica’s analysis, using a Target Loss Ratio of 83.0% instead of 82.8% (the Target Loss Ratio used to determine Transamerica’s recommended increase of 4.6%). Scenario 3 The indicated rate increase for plan year 2018 is determined using Transamerica’s assumed Calculated Loss Ratio for plan year 2017, an assumed annual claims trend rate of 4.5% (reflecting what we believe to be a realistic assumption for general claims trend, which excludes the impact of the demographics of a specific group), and a Target Loss Ratio of 83.0%. Scenario 4 The Calculated Loss Ratio is based upon Transamerica’s 2011 methodology (using the most recent twelve months of incurred claims and earned premiums), applicable premium changes, and an assumed claims trend rate of 5.0% over an eighteen month projection period [the mid-point of the experience used (January 1, 2017) to the mid-point of the next premium cycle (July 1, 2018)]. Scenario 5 This scenario uses the same approach as Scenario 3, but assumes an annual claims trend rate of 4.5% over the eighteen-month projection period, which reflects what we believe to be a realistic assumption for general claims trend. Scenario 6 The Target Loss Ratio for plan year 2018 is determined using Transamerica’s assumed Calculated Loss Ratio for plan year 2017, assuming no change to rates, and an assumed claims trend rate of 5.0% over the projection period. This shows the loss ratio implicitly targeted by recommending no change to rates. Scenario 7 The required Calculated Loss Ratio for plan year 2017 is determined assuming no change to rates and an assumed claims trend rate of 5.0% over the projection period. This shows what the actual loss ratio for 2017 will have to be to support no change to the rates. Conclusions Based upon the results presented above, CMC believes the indicated premium rate change for 2018 to be 3.9% (Scenario 3). This belief reflects the need to align premiums with prior experience, the use of a target loss ratio of 83.0%, and assumes a claims trend estimate in line with CMC’s general expectations (annual claims trend rate of 4.5%). Transamerica’s recommended increase of 4.6% is based upon a claims trend assumption of 5.0%, which suggests the Program’s 2018 claims trend

Mr. Kenny Grissett September 28, 2017 Page 8 will outpace CMC’s general expectations. Additionally, Transamerica has used a target loss ratio of 82.8%, which is 0.2% lower than the agreed upon target. As such, CMC recommends that PERS reject Transamerica’s proposal to increase premium rates for 2018 and negotiate an increase of 4.2%. CMC’s indicated increase of 3.9% assumes future claims experience will not be adversely affected by an aging population and/or a covered population with a higher than average risk profile. Such an assumption is key to provide on-going stability for future renewals given the current premium structure (“community rated” - not based upon issue age or attained age). As reviewing the claims experience of the Program at this level of detail is beyond the scope of our analysis, CMC recommends a detailed review of recent claims experience to determine the contributing factors (e.g., aging population, extraordinary large claims). A decline in enrollment of younger individuals, coupled with the assumption that morbidity increases with age, may result in premium increases that exceed general claims trends. Over time, such premium increases may lead to a further decline in new participant enrollment, resulting in the need for greater and greater increases as younger/healthier participants seek coverage in more competitive/stable plans. Here, CMC recommends PERS collaborate with Transamerica to increase new participant enrollment. Such efforts could include:

Increased marketing efforts to those eligible to participate in the Program. Expanded eligibility for the Program. An analysis (e.g., benchmarking) of similar coverage available to those eligible to

participate in the Program to determine the impact of rate levels upon participation. Development of a premium structure based upon issue age or attained age.

If you or the Advisory Committee has any questions, please do not hesitate to call. Sincerely yours,

Eric H. Gary, FSA, FCA, MAAA Edward J. Koebel, EA, FCA, MAAA Principal and Chief Health Actuary Principal and Consulting Actuary

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