Oregon Public Employees’ Benefit Board Other Postemployment Benefits (OPEB) July 1, 2006 Actuarial Valuation PEBB Board Meeting April 17, 2007

Oregon PEBB July 1, 2006 OPEB Valuation 1 Overview of Statement 43/45 Rules Other Postemployment Benefits (OPEB) –Compensation received after employment ends in exchange for employees’ current service –Benefits other than pension benefits –Healthcare Benefits –Medical – Dental –Rx – Vision –Other Benefits (if not part of pension plan) –Life Insurance – Disability –Group Legal – Long-Term Care –Retiree Discounts (PUD)

Oregon PEBB July 1, 2006 OPEB Valuation 2 Overview of PEBB’s Liabilities PEBB actuarial liabilities based on the “implicit” subsidy Actuarial liabilities based on current retirees and current actives who are expected to retire in the future.

Oregon PEBB July 1, 2006 OPEB Valuation 3 PEBB Liabilities and Disclosure Amortization Period30 Years Discount Rate4.50%7.50% Unfunded Actuarial Accrued Liability (UAAL)$309,031,000$238,483,000 Annual Required Contribution$33,503,000$29,405,000 Annual OPEB Cost (Expense)$33,503,000$29,405,000 Net OPEB Obligation-End of Year$20,004,000$0 Actuarial Valuation Date Actuarial Value of Assets (a) Entry Age Normal AAL (b) UAAL (b – a) Funded Ratio (a / b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b – a) / c) 7/1/2006$0 $309,031,000 0%$2,103,081, %

Oregon PEBB July 1, 2006 OPEB Valuation 4 10 Year GASB Projections – Assuming No Changes

Oregon PEBB July 1, 2006 OPEB Valuation 5 GASB 45 Results for Other Governmental Entities State Unfunded Actuarial Accrued Liability (UAAL) Alaska$2.7 Billion (2003) California$70 Billion Delaware$3 Billion Maryland$20 Billion Massachusetts$10 Billion New Jersey$20 Billion New York$47 Billion Texas$50 Billion Vermont$529 Million Oregon PEBB$309 Million

Oregon PEBB July 1, 2006 OPEB Valuation 6 Why Are Oregon’s Liabilities So Low? 1.No coverage after Medicare 2.Retiree pays 100% of “blended” premium 3.Only 30% of eligible employees elect PEBB retiree health care coverage at retirement 4.36% of full-time employees elect part-time/retiree coverage at retirement 5.Blended premiums favor family tiers (single retiree pays a substantial portion of expected actuarial cost of the retiree’s health coverage)

Oregon PEBB July 1, 2006 OPEB Valuation 7 Potential Options to Lower PEBB’s OPEB Liability (Some Options May Require Statutory Changes) 1.Reduce/eliminate liability through plan/premium changes for retirees Have retirees pay premiums based on actual experience (eliminates liability) Partially subsidize retiree costs (reduced liability) Reduce plan design by having retirees pick up more costs 2.Reduce liability through retiree eligibility for coverage 3.Prefund liability through employer contributions to a trust

Oregon PEBB July 1, 2006 OPEB Valuation 8 Potential Options to Lower PEBB’s OPEB Liability (Some Options May Require Statutory Changes) 1.Have retirees pay premiums based on actual experience (eliminates liability) 2.Illustration of the implicit subsidy (based on the three most popular retiree health choices: PEBB Implicit Subsidy Retiree PremiumsRetiree Claims$ Amount% of Claims Plan Retiree Only Retiree & Spouse/ Partner Retiree Only Retiree & Spouse/ Partner Retiree Only Retiree & Spouse/ Partner Retiree Only Retiree & Spouse/ Partner Kaiser Permanente HMO$677.42$907.73$741.69$1,483.38$64.27$ %38.8% Regence BCBSO PPO$738.49$989.48$950.95$1,901.89$212.46$ %48.0% Regence BCBSO Part-Time/Retiree PPO $593.12$794.69$510.43$1,020.87($82.69)$226.18(16.2%)22.2%