Proposal - Lepton Consulting
October 23, 2020
Lepton Proposal
RFP FY 20/21-FIN
ACTUARIAL CONSULTING AND TECHNOLOGY SERVICES
City of La Quinta
Lepton Proposal
P a g e | 1
October 23, 2020
Claudia Martinez
78495 Calle Tampico Second Floor
La Quinta, CA 92253
(760) 777 – 7055
cmartinez@LaQuintaCA.gov
finance@LaQuintaCA.gov
Dear Mrs. Martinez,
Lepton Actuarial & Consulting, LLC (“Lepton Consulting”) is pleased to submit this
proposal in response to the solicitation from the City of LaQuinta (“City”) for a
qualified firm to conduct actuarial valuation in compliance with GASB 68 and 75.
Lepton Consulting is committed to offering high quality services to our clients. We
can provide exceptional value to the City because we have the right team with the
right experience ready to offer the highest quality of services at reasonable rates.
Lepton Consulting has an extensive actuarial expertise and superior data analytic
team for the services envisaged in this solicitation. The team proposed for this
engagement includes (6) high-skilled professionals consisting of credentialed (4)
actuaries and (2) PhD holders, all qualified and properly licensed. Our experts have
over 100 years of relevant experience.
We will deliver to the City quality results in a timely fashion. Our peer review
mechanism involves sensitivity testing of key assumptions and thorough peer review
process performed by an actuary with extensive experience in the application of
GASB standards to postemployment benefits programs.
We thank you for the opportunity to present our qualifications and look forward to a
positive working relationship. If you have any questions, please feel free to contact
me.
Sincerely,
George O. Omondi, FCA, ASA, MAAA
CEO/Principal | Lepton Actuarial & Consulting,
LLC PO Box 99, Tuckahoe, NY 10707
P: +1 (646) 314-1744 | M: +1 (720) 291-9704
Lepton Proposal
P a g e | 2
Contents
1. Company and References ............................................................................................................................................................. 3
Overview ........................................................................................................................................................................................... 3
References ........................................................................................................................................................................................ 3
2. Fee Schedule ....................................................................................................................................................................................... 3
3. Project Approach/Services Offered .......................................................................................................................................... 4
Scope of work ................................................................................................................................................................................. 4
Actuarial Control Cycle ............................................................................................................................................................... 5
City of La Quinta ............................................................................................................................................................................ 6
Tasks and Timeline ....................................................................................................................................................................... 6
Our Approach to Designing Solution .................................................................................................................................. 7
Initial meeting ................................................................................................................................................................................. 7
Data Collection ............................................................................................................................................................................... 8
Actuarial Analytics ......................................................................................................................................................................... 8
Final Report .................................................................................................................................................................................... 15
Audit.................................................................................................................................................................................................. 15
4. Attachments ....................................................................................................................................................................................... 16
Attachment A: Acknowledgment of Insurance Requirements ................................................................................ 16
Attachment B: Non-Collusion Affidavit ............................................................................................................................. 16
Attachment C: Acknowledgement of Addenda ............................................................................................................ 16
Lepton Proposal
P a g e | 3
1. Company and References
Overview
Lepton Consulting is a New York based firm offering actuarial & consulting services to
private and public entities.
References
Client and Project
Contact
Person Email and Telephone
Alabama Department of Insurance:
Actuarial Examinations of Insurers
2020/2021
Reyn Norman Reyn.Norman@insurance.ala
bama.gov
(334) 241-4119
United Shareholders Company Limited
Actuarial Valuation of Insurance Carrier
Nigel Salina nigelsalina@gmail.com
(868) 315-6369
PCALIC, LLC
Loss Ratio Analysis of new product line
Brian Barrick brian@pcalic.com
(800) 673-2558
ext. 115
Deloitte (Mentor Protégé Program)
Actuarial Valuation for Retirement Plans
Jolene Roe joroe@deloitte.com
+1 612 659 2523
2. Fee Schedule
Our fixed feed for GASB 75 services:
Description Price for FY
2020/20
Price for FY
2021/22
Price for FY
2022/23
Price for FY
2023/24
Price for FY
2024/25
Full Valuation $5,000 $5,000 $5,000
Biennial (Roll
forward) Valuation
$2,000 $2,000
Our fixed feed for GASB 68 services:
Description Price for RY
2020/21
Price for FY
2021/22
Price for FY
2022/23
Price for FY
2023/24
Price for FY
2024/25
Accounting
Valuation Report
$20,000 $20,000 $20,000 $20,000 $20,000
Hourly rates for additional actuarial analysis agreed upon separately are shown in this table.
Name Qualification Role Hourly Rate
George Omondi ASA, MAAA, FCA Supervising Actuary $250
Ira Kastrinsky EA, FSA, FCA, MAAA Peer Reviewer $225
Zhihua Liu EA, MAAA, MSPA Consulting Actuary $200
Lepton Proposal
P a g e | 4
Peter Brot ASA, MAAA, FLMI, ACS Consulting Actuary $200
Bruno Kamdem PhD Data Science Specialist $175
Naom Mainye MS (Actuarial Science) Senior Actuarial Analyst $150
3. Project Approach/Services Offered
The City offers a post-employment health benefit plan and is required to have an
actuary determine its OPEB liability associated with the plan and related disclosures.
Scope of work
The City is seeking a proposal to assist the City in developing a plan for compliance
with, and implementation of disclosures under Statements Number 68 and Number
75, issued by the Governmental Accounting Standards Board (GASB) to address and
provide information for accounting, financial reporting, and funding of post-
employment benefits other than pension benefits by employers and plans or the
entities that administer them with the following objectives:
1. Ensuring compliance with the reporting requirements of all applicable GASB
statements, including, but not limited to, GASB Statements 68 and 75 and any
future GASB pronouncements and governmental accounting reporting.
2. Deliver OPED related valuations and/or biennial updates from fiscal year ending
on June 30, 2021 through June 30, 2025.
3. Prepare necessary information for inclusion in the City’s Comprehensive Annual
Financial Report.
4. Assistance in implementing any new GASB statements and other financial
pronouncements related to Pension and OPEB obligations.
5. Provide ongoing professional consultation, analysis, and training related to
Pension and OPEB obligations.
Lepton Consulting understands that the actuarial report sought in this solicitation
should be a comprehensive report on the City’s programs of postemployment benefits
other than pensions, and the application of the GASB standard to these programs. We
will specifically address each item of the required activity on the following basis:
1. Review. We will ascertain a thorough review of the post-employment benefit
programs other than pension plans sponsored by the City, and a determination
of the applicability of the latest applicable GASB standards to these programs.
2. Analysis. We will provide a complete review and analysis of all information
needed for the preparation of an actuarial valuation of the programs in
accordance with the requirements of the GASB standard in so far as the
Lepton Proposal
P a g e | 5
programs will require accounting under the GASB standard. We will elaborate
on the assumptions made to correct for missing or bad data and any other
assumptions used to produce valuation results.
3. Preparation. We will prepare actuarial valuation, including calculation of all
amounts required to be disclosed by the plans and by the City, as employer-
sponsor of the plans, under the GASB standards.
4. Formulation. We will develop and formulate a written report covering the
actuarial valuation and associated required disclosures for the covered plans.
We will ascertain that the format of the report incorporates all information
required to be disclosed under the GASB standard. We will ascertain that the
report is written in language comprehensible to an intelligent layman; contain a
table of contents, a glossary of technical terms, an executive summary, a
recommended course of action for implementing results, and any charts, tables,
and graphs as necessary.
5. Detail. We will include an appendix within the report detailing the claims data
collected and projected claims experience used in the valuation in case, claims
data specific to the City is collected and used. We will prepare the report in
accordance with all relevant Standards of Practice of the American Academy of
Actuaries.
6. Tallying. We certify that our report will forecast the specific number of new
retirees, deaths and the running tally of retirees receiving OPEB for each year in
the future.
7. Meeting. We understand that we will meet with City officials for the purpose of
presenting the report and answering questions concerning its contents.
Actuarial Control Cycle
Our common approach to service delivery can be described in the context of
the actuarial control cycle, which involved the following steps:
Definition of the problem
Design of a solution
Monitoring of the results
All these activities conducted within an environment of actuarial professionalism
and external forces that influence decision-making.
Each work product is undertaken with consideration of the client’s unique
needs and data available, but consistent with our following high standards:
Comprehensibility of deliverables
Accuracy of results
Appropriateness of findings and recommendations
Lepton Proposal
P a g e | 6
Quality and consistency of data
Peer review
City of La Quinta
The City of La Quinta is a city located in Riverside county in the U.S. state of California.
The Mission of the City of La Quinta is to support the public service mission of the City
through the responsive and effective procurement of goods and services in a manner
which maintains the reputation of integrity and Public Trust.
Tasks and Timeline
The following table shows our proposed timeline for the tasks we intend to perform
under this engagement:
Lepton Proposed Timeline
from date that the valuation
begins
Week
Number>>
0 1-2 2-3 3-4 5
Initial Meeting & Preparations
Data Collection and review
Draft Report (Preliminary Findings)
Final Report
Lepton Consulting is committed to delivering required report to the City’s staff by the
appointed date and time.
Based on proven approach and methodology outlined in the next section, we shall
assist the City to accomplish the following key tasks:
Undertake a thorough review of the post-employment benefit programs other
than pension plans sponsored by the City, and a determination of the
applicability of the latest applicable GASB standards to these programs.
Provide a complete review and analysis of all information needed for the
preparation of an actuarial valuation of the programs in accordance with the
requirements of the GASB standard in so far as the programs will require
accounting under the GASB standard. We will elaborate on the assumptions
made to correct for missing or bad data and any other assumptions used to
produce valuation results.
Prepare actuarial valuation, including calculation of all amounts required to be
disclosed by the plans and by the City, as employer-sponsor of the plans, under
the GASB standards.
Develop and formulate a written report covering the actuarial valuation and
associated required disclosures for the covered plans. We will ascertain that the
Lepton Proposal
P a g e | 7
format of the report incorporates all information required to be disclosed under
the GASB standard. We will ascertain that the report is written in language
comprehensible to an intelligent layman; contain a table of contents, a glossary
of technical terms, an executive summary, a recommended course of action for
implementing results, and any charts, tables, and graphs as necessary.
Include an appendix within the report detailing the claims data collected and
projected claims experience used in the valuation in case, claims data specific
to the City is collected and used. We will prepare the report in accordance with
all relevant Standards of Practice of the American Academy of Actuaries.
Certify that our report will forecast the specific number of new retirees, deaths
and the running tally of retirees receiving OPEB for each year in the future.
We understand that a meeting with City officials for the purpose of presenting
the report and answering questions concerning its contents will be required.
Our Approach to Designing Solution
Lepton Consulting will provide the City with actuarial analysis reports, prepared in
accordance with retiree health care benefits guidelines.
Lepton Consulting will assist the City in developing and formulating a written report
covering the actuarial valuation and associated required disclosures for the covered
plans.
Our approach to any assignment shall generally follow a simple 4 step
approach depicted below:
Initial meeting
Prior to the start of the valuation, Lepton Consulting will arrange to attend an initial
on-site visit (or videoconferencing) and additional periodical visits during the
contract. We will use these opportunities to establish and grow strong collaborative
working relationships with the City’s administrative staff and to deepen our
Lepton Proposal
P a g e | 8
understanding of your business needs. We believe these visits will enable us to
design and deliver highest quality solutions fit for you. We will use these meetings to
address any issues pertinent to the valuation process such as: timing, data
requirement, plan provisions, assumptions, and any other issue the City would like to
be considered during the valuation.
Data Collection
Our valuations will be based upon data, furnished by the City’s administrative staff.
Lepton Consulting will collect required data for our analysis and perform a thorough
review of the data guided by ASOP No. 23: “Data quality” promulgated by the
Actuarial Standards Body (ASB). We will coordinate with the MDOT MTA to identify
and compile information including
(i) census data for both active employees and current retirees of the City
(ii) Summary Plan Descriptions
(iii) benefits covered
(iv) cost history for each benefit plan
(v) claim experience for each benefit plan
(vi) year of hire for individual employee
(vii) contribution structure for each benefit plan
Lepton Consulting will ensure that data supplied only includes necessary sensitive
information and overall data confidentiality is maintained. Even though we do not
audit the data, Lepton Consulting will conduct due diligence to ensure that data
received for actuarial valuation are reasonable and of good quality by, for example,
comparing it to:
• relevant and readily available external data and information known to us
• data used in prior analysis where consistency can be reasonable expected
We will share summary results from our data review to the City’s administrative staff
for their comments. This will ensure accuracy in the assumptions developed
thereafter and the subsequent calculations performed during valuation processes.
For purpose of disclosure in the final report, we will document
Sources of data
Review of data
Significant biases resulting from data
Adjustments or corrections made to the data
Extent of reliance on data supplied by the City
Actuarial Analytics
The actuarial methods and assumptions used in the pension and OPEB reports must comply
with GASB 68 and GASB 75 respectively, and the actuarial standards of practice promulgated
by the Actuarial Standards Board.
Lepton Proposal
P a g e | 9
Valuation Steps for Pension and Post-Retirement Benefit Plans
When valuating plan obligations, we generally follow the following steps:
1. Identify plan, benefits promised and eligibility criteria
2. Collect demographic data i.e. current retirees, future retirees, spouses,
dependents
3. Select appropriate actuarial and economic assumptions
4. Project future expected benefit payments (or cash flows)
5. Discount expected payments to yield actuarial present value of future
benefits
6. Allocate present values to the appropriate period of employment
7. Develop annual expense and financial statement items
We shall design appropriate solutions requested for each task item. We briefly discuss our
actuarial methods and assumptions when designing our solutions for Pension and Post-
Retirement Benefit Plans separately as follows.
Pension Plans
GASB Statement No. 68, Accounting and Financial Reporting for Pensions, requires
employers participating in state and local government pension plans to report
expanded information concerning pensions in their financial statements, as well as their
proportionate share of the Net Pension Liability effective for fiscal years beginning after
June 15, 2014. It replaced GASB Statement No. 27 and Statement No. 50 as the
reporting standards for employers. Employers preparing financial statements in
accordance with Generally Accepted Accounting Principles (GAAP) are expected to
comply with GASB Statement No. 68.
This Statement establishes standards for measuring and recognizing liabilities,
deferred outflows of resources, deferred inflows of resources, and
expense/expenditures.
GASB classifies 3 categories of employers as follows:
Lepton Proposal
P a g e | 10
Frequency
Actuarial valuations of the total pension liability are required to be performed
at least every two years, with more frequent valuations encouraged. If a
valuation is not performed as of the measurement date, the total pension
liability is required to be based on update procedures to roll forward amounts from an
earlier actuarial valuation.
Methodology
To perform a valuation of defined benefit pensions, actuaries project benefit payments,
discount projected benefit payments to their actuarial present value, and attribute that
present value to periods of employee service. GASB statement and relevant ASOPs
guides actuaries in selecting appropriate methods and assumptions that should be
used.
Step 1: Projections of benefit payments:
• based on benefit terms and legal agreements as of measurement date
• incorporate the effects of projected salary changes and service credits
• reflect projected postemployment benefit changes (automatic or ad hoc) e.g.
cost-of-living-adjustments (COLAs)
Step 2: Discount projected benefit payments to their actuarial present value using a
single rate:
1Single employers
•Pension plans in which pensions are provided to the employees of only one
employer
2Agent employers
•Pension plans in which plan assets are pooled for investment purposes but
separate accounts are maintained for each individual employer so that each
employer’s share of the pooled assets is legally available to pay the benefits of only
its employees
3Cost-sharing
employers
•Pension plans in which the pension obligations to the employees of more than one
employer are pooled and plan assets can be used to pay the benefits of the
employees of any employer that provides pensions through the pension plan
Lepton Proposal
P a g e | 11
Actuary determines whether plan’s fiduciary net position is projected to be sufficient to
pay benefits and pension plan assets are expected to be invested using a strategy to
achieve that return.
If yes, then long-term expected rate of return on pension plan investments is used
If not, then a tax-exempt, high-quality municipal bond rate is used.
Step 3: Attribute actuarial present value of projected benefit payments to periods of
employee service
• use the entry age actuarial cost method
• each period’s service cost is determined as a level percentage of pay
Attribution is performed for each employee individually, from the period when the
employee first accrues pensions through the period when the employee retires
Post-Retirement Benefit (OPEB) Plans
GASB 75 prescribes Entry Age Normal method as the actuarial cost method to use.
GASB 75 requires biennial valuation.
We generally calculate the following items: Accumulated Postretirement Benefit
Obligation (APBO), Expected Postretirement Benefit Obligation (EPBO), Service Cost,
Interest Cost, Recognition of Gains and Losses and Transition Obligation for
presentation in our final report.
Is the plan's fiduciary net
position projected to be
sufficient to pay benefits and
pension plan assets?
Use of long-term expected rate
of return on pension plan
investements
Use of a tax-exempt, high-
quality municipal bond rate
YES
NO
Lepton Proposal
P a g e | 12
GASB 45 was revised to GASB 75 effective in 2017. The following is a summary of the
key differences between the two.
GASB 45 GASB 75
Unfunded Actuarial
Accrued Liability
(UAAL)
UAAL reported in the notes
to the financial statements
UAAL recognized on the
balance sheet as a liability
of the employer
Frequency of Valuation Every two (2) or three (3)
years depending on
number of participants
Biennial valuations
required for all plans
Actuarial Cost Method Choice of 6 methods:
projected unit credit is
most common
Allows 1 method: Entry
Age Normal as a level
percentage of pay
Discount rate long-term expected rate of
return on OPEB
investments
long-term expected rate of
return on OPEB plan
investments or tax-exempt,
high-quality municipal
bond rate
Implicit Rate subsidy Limited exceptions to age
adjustment to premiums
Age adjustment to
premiums required
Assumptions Development
Lepton Consulting will accord the City’s staff with an option to review all economic,
demographic, and other assumptions used PRIOR to the final actuarial valuation
calculations being performed. Following is a brief discussion of relevant
assumptions:
Inflation
Purpose Reflects retiree Cost-of-Living Adjustments, Used for wage
growth and investment return assumptions
Source Consumer Price Index and the Office of the Chief Actuary of
the SSA’s inflation forecasts for a 30-year as provided in the
Trustees Report
Wage growth
Purpose Reflects compensation increases, including productivity gains
and inflation.
Source Historical average wage index published by SSA and wage
growth based on State’s data. Real wage growth forecasts for
a 30-year period provided by the SSA
Salary increases
Purpose Reflects future changes in general price levels, productivity,
seniority, promotion
Lepton Proposal
P a g e | 13
Source Plan sponsor’s information i.e. merit salary increase studies,
prior reports, and benchmark studies
Investment return
Purpose Reflects the average rate of earnings expected on the funds
invested or to be invested to provide for benefits
Source Plan’s actual investment policy based on its asset allocation
and investment philosophy
Discount rate
Purpose Reflects rates at which the defined benefit obligation could
be effectively settled. Used for calculating interest cost and
service cost components of net benefit cost
Source Rates available on corporate bonds as suggested by
published indices such as Merrill Lynch US Corporates Aa
15+ years, Merrill Lynch US Corporates Aa/Aaa 10+ years, as
well as FTSE’s (formerly Citigroup’s) Pension Liability Index
Health Care Cost Trend Rate
Purpose Reflects the expected annual rates of change in the cost of
health care benefits currently provided by the postretirement
benefit plan
Source Initial trend rates will be based on claims experience and
benchmark rates from the industry. Ultimate trends will be
developed to reflect projected growth in per capita gross
domestic product (GDP), projected long-term wage inflation,
and projected health care expenditures as a percentage of
GDP.
Claims Cost
Purpose This will form the basis of the initial annual benefit costs for
estimating the future health care obligations
Source Based on credible health plan experience data or premiums
and normative databases. Claims experience relied upon will
only include net payments. Reserving techniques will be used
to complete claims to reflect the difference in level of paid
claims for a period and the level of incurred claims for the
same period. Age specific cost adjustment will be used.
“Age-Curve”
Purpose Reflects increase in healthcare cost by age
Source Based on plan sponsor’s claims experience or industry data
Healthcare Reform
Purpose Reflects Impact of regulatory changes on plan e.g. “Cadillac
Plan” Tax or Excise Tax levied on the “excess benefit” of
applicable employer-sponsored health coverage
Source Prescribed by congress at 40%
Mortality and mortality improvement
Lepton Proposal
P a g e | 14
Purpose Reflects likelihood that people will live or die in the current
and future years and longevity improvements
Source Based on recent SOA mortality tables adjusted to reflect
characteristics of the group (blue collar, occupation, medical
coverage)
Withdrawal
Purpose Reflects termination incidence from service for reasons other
than retirement, death, and disablement: rates typically vary
by age and/or service
Source Based on employer-specific or job-related factors such as
occupation, employment policies, work environment,
unionization, hazardous conditions, and location of
employment and plan provisions, such as early retirement
benefits, vesting schedule, or payout options.
Disability
Purpose Reflects disability incidence, recovery, mortality, and
eligibility for Social Security disability benefits
Source Based on coverage provided to disabled participants under
the retiree group benefits program
Marriage, Divorce, and Remarriage
Purpose Reflects payment of benefits, the amount or type of benefits,
or the continuation of benefit payments
Source Based on specific experience by the plan and will
be reviewed considering benchmark or industry
data
Contribution Changes
Purpose Reflects rate of change in participant contributions
Source Depends on modeled retiree group benefits program
Participation and Persistency
Purpose The participation assumption models portion of eligible active
participants assumed to elect OPEB coverage upon
retirement. The persistency assumption models the
percentage of current retired participants that continue
coverage in future years
Source Based on historical experience alongside expected
plan benefit levels and expected changes
Retirement Rates
Purpose Models the age(s) at which active/terminated vested
participants commence receipt of benefits
Source Based on plan provisions
Administrative Expenses
Purpose Reflects administrative expenses charged for services such as
investment advisory, investment management, or insurance
advisory services
Lepton Proposal
P a g e | 15
Source Plan experience
Lepton Consulting will rely on ASOPs such as No. 27, Selection of Economic
Assumptions for Measuring Pension Obligations and No. 35, Selection of
Demographic and other Noneconomic Assumptions for Measuring Pension
Obligations as a guide in selecting assumptions. Generally stated, certain
assumptions can be based on a combination of the actuary’s professional
judgment, experience, and expected long-term future trends. Assumptions should
be individually reasonable and in combination with others, and they should be
consistent.
Sensitivity Testing
We shall carry out sensitivity analysis “for each significant actuarial assumption”
showing how the APBO, Service Cost and Interest Cost would have been affected.
Our estimate will be based on a reasonable range of likely outcomes e.g. +/-1%
change in the discount rate.
Aging and Implicit Rate Subsidies
The initial per capita costs must consider ages, gender, and other characteristics of
OPEB plan members. Since younger individuals generally incur fewer medical
costs, and older individuals generally incur higher medical costs, actuarial valuation
of OPEB plan must reflect true cost of coverage and avoid techniques where
younger subsidize the older.
Final Report
Lepton Consulting will present the final report to the City on the development of a plan
for compliance with, and implementation of disclosures under Statements Number 68
and Number 75, issued by the Governmental Accounting Standards Board (GASB). The
actual report will address and provide information for accounting, financial reporting,
and funding of post-employment benefits other than pension benefits by employers and
plans or the entities that administer them.
Audit
It is recommended that private institutions obtain independent audits of their plans in
accordance with the appropriate professional auditing standards. Lepton Consulting
understands that properly performed audits play a vital role on the financial statement
quality and help to preserve the integrity of the finance functions.
We believe that such reviews, when conducted at least once year, will provide an
independent assessment of the reasonableness of the actuarial methods and
assumptions in use and the validity of the resulting actuarially computed contributions
and liabilities.
Lepton Proposal
P a g e | 16
As the respondents, we will be prepared to discuss with the auditor or examiner any
pertinent issues relevant to the valuation of the City’s retirement benefits such as data
used, the source of prescribed assumptions, methods used, basis for assumptions that
are not prescribed assumptions and known circumstances that, in our professional
judgment, had a significant effect on the valuation. We will be appropriately responsive
to the auditor’s or examiner’s reasonable requests for any relevant information such as
data, analyses, and sample calculations.
4. Attachments
Attachment A: Acknowledgment of Insurance Requirements
Attachment B: Non-Collusion Affidavit
Attachment C: Acknowledgement of Addenda
GEORGE OMONDI
LEPTON ACTUARIAL & CONSULTING, LLC
CEO LEPTON ACTUARIAL & CONSULTING, LLC
GEORGE OMONDI
CEO LEPTON ACTUARIAL & CONSULTING, LLC
GEORGE OMONDI
CEO
LEPTON ACTUARIAL & CONSULTING, LLC
PO BOX 99, TUCKAHOE NY 10707
1