Page 113 - 2018 Comprehensive Annual Financial Report - City of Winston-Salem

Investments
Investment Policy. City Council has adopted an Investment Policy for all City funds inclusive of the investment of the retirement
fund. The City Manager, with recommendation from the Chief Financial O cer and City Treasurer, has the authority, with the
assistance of nancial consultants, to select and employ asset managers to direct investment activities of OPEB in accordance with
the Investment Policy. The City has nine equity managers, two xed income managers, and four index funds, whose performance
is measured against appropriate market indices. Financial consultants are approved by City Council to assist the City in the selection
and oversight of asset managers. Alex. Brown a Division of Raymond James serves as the nancial consultant that helps select and
monitor the performance of the equity and xed income asset managers.

Asset allocation is a strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment
portfolio. Based on the principle that asset types perform di erently in di erent market and economic conditions, asset allocation
is an important factor in determining returns for an investment portfolio. Target asset allocations are set by ranges by the Chief
Financial O cer and City Treasurer with the assistance of the nancial consultant and adjusted within those ranges from time to
time to adjust for market conditions.
Concentrations. The OPEB plan does not hold 5% or more of the OPEB plan’s duciary net position (other than those issued or
explicitly guaranteed by the U.S. government) in any one organization.
Rate of Return. For the year ended June 30, 2018, the annual money-weighted rate of return on OPEB plan investments, net of
investment expense was 9.6%. The money-weighted rate of return expresses investment performance, net of investment expense,
adjusted for the changing amounts actually invested.

Net OPEB Liability
At June 30, 2018, the City reported a net OPEB liability of $15,612,823. The net OPEB liability was measured as of June 30, 2018. The
total OPEB liability as of this date is based on an actuarial valuation as of January 1, 2018, with adjustments made for the 6 month
di erence. Adjustments include service cost, interest on total OPEB liability, and expected bene t payments during the year. This
is also known as a roll-forward.
Actuarial Assumptions. The total OPEB liability was determined by an actuarial valuation as of January 1, 2018, using the following
actuarial assumptions, applied to all periods included in the measurement:

In ation rate 2.75%
Investment rate of return 7.25%, net of investment expense and including in ation
Healthcare trend 6.50% initially, grading down to 4.50% ultimate

Mortality rates were based on RP 2000 Table, with 1 year setback for Males and apply projection scale BB to 2027 for future
improvements in life expectancy, 50% of these rates apply for preretirement deaths.
The Entry Age method is used for accounting/GASB purposes, therefore all of the actuarial gures are based on it. Actuarially
determined contributions are also based on the Entry Age method, with a closed level dollar 30 year amortization (28 years
remaining) of the unfunded liability and ve year asset smoothing.
Changes in Actuarial Assumptions. The following assumption changes were made since the prior valuation:
1. Update of mortality table from 2017 Table to RP 2000 Table.
2. Salary increases updated.

3. Actuarial experience study completed.
Actuarial Methods for Determining Employer Contributions. The same economic and demographic assumptions are used for
both funding and nancial reporting purposes under GASB 74/75.
The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-
estimates of expected future real rates of return (expected returns, net of OPEB plan investment expense and in ation) are
developed for each asset class. These ranges are combined to produce the long-term expected rate of return by weighting the
expected future real rates of return by the target asset allocation percentage and by adding expected in ation. This is then modi ed
through a Monte-Carlo simulation process, by which a (downward) risk adjustment is applied to the baseline expected return.

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