The University participates in two types of OPEB plans – a single employer plan and a cost-sharing plan administered by PERA.

The University-administered single-employer postemployment benefit (non-pension) program, was established by the Regents who have the authority to amend the program provisions. Under this program, the University subsidizes a portion of healthcare and life insurance premiums for retirees on a pay-as-you-go basis. This program does not issue a separate financial report.  As mentioned in Note 1, the University adopted the provisions of Statement No. 75 in Fiscal Year 2018.

Funded Status and Funding Progress.  There are no assets accumulating in a trust for the University’s OPEB plan.  The University contributed $19,304,000 and $17,211,000 for the years ended June 30, 2018 and 2017, respectively.

The actuarial valuation for the fiscal year ending June 30, 2018 had a measurement date of June 30, 2017.  All employees are eligible based on age and years of service. Based on the March 1, 2017 participant data, there were 19,146 participants in the medical/dental plan, with 17,143 active employees and 2,003 retirees and beneficiaries, and 23,984 participants in the life insurance plan, with 20,315 active employees and 3,669 retirees and beneficiaries.

The University recognized $59,631,000 in OPEB expense for this plan in Fiscal Year 2018.  Table 7.1 provides the details regarding the University’s total OPEB plan liability from June 30, 2017 to June 30, 2018.

Table 7.1. Reconciliation of University’s OPEB Liability (in thousands)

				Total OPEB Liability
Balance recognized at June 30, 2017			$	343,570
Cumulative effect of adoption of new accounting principle				476,727
Changes recognized for the fiscal year:
Service cost				53,099
Interest on total OPEB liaibility				24,648
Differences between expected and actual experience				(87,654)
Changes of assumption				(46,406)
Benefit payments				(17,211)
Net changes				(73,524)
Balance recognized at June 30, 2018 (based on June 30, 2017 measurement date)			$	746,773

Actuarial Methods and Assumptions. Actuarial valuations of an ongoing program involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Projections of benefits for financial reporting purposes are based on the substantive program (the program as understood by the employer and the program members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and program members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

The entry age normal actuarial cost method is used. The discount rate used in the valuation is 3.60 percent as of the June 30, 2017 measurement date, and 2.85 percent as of the June 30, 2016 measurement date, and is based on the Bond Buyer General Obligation 20-Bond Municipal Bond Index.  The healthcare trend assumption reflects healthcare cost inflation expected to impact the plan based on forecast information in published papers from industry experts (actuaries, health economists, etc.). This research suggests a 7.00 percent long-term average increase for medical benefits, and an 11 percent increase for prescriptions, both trending down to a 4.50 percent increase for 2027 and later years. The dental trend rate is 4.00 percent, and the administrative expenses trend rate is 3.00 percent. The RP-2014 Healthy Annuitant Mortality Table with adjustments for credibility and gender adjustments of a 73 percent factor applied to the rates for ages below 80 and a 108 percent factors applied to the rates for ages 80 and above, projected to 2018 using the MP-2015 projection scale for males, and a 78 percent factor applied to the rates for ages below 80 and a 109 percent factor applied to the rates for ages 80 and above, projected to 2020 using the MP-2015 projection scale for females.

The valuation reflects the following assumption changes from the June 30, 2016 measurement date to the June 30, 2017 measurement date:

• Interest rate changed from 2.85 percent to 3.60 percent
• Health care trend rates were changed as noted above and detailed in the actuarial report
• Spouse age differential changed from zero years for males and females to spouses two years younger for males and one year older for females
• Spouse coverage assumption changed from 54 percent for males and 22 percent for females to 60 percent for males and 40 percent for females for PERA participants
• The following assumptions were updated based on the December 31, 2015 Colorado PERA assumption study:
  • Mortality rates
  • Withdrawal rates
  • Retirement rates (apply to PERA participants only)

Table 7.2 illustrates the impact of interest rate sensitivity on the University’s total OPEB liability for the fiscal year ending June 30, 2018.

Table 7.2. Sensitivity of University’s Total OPEB Liability (in thousands)

		1% Increase (4.6%)	Discount Rate (3.6%)	1% Decrease (2.6%)
1% decrease in Health Care Trend Rates	$	552,706	630,561	725,579
Health Care Trend Rates		647,343	746,773	869,745
1% increase in Health Care Trend Rates		767,054	895,755	1,057,191

Table 7.3 illustrates the deferred outflows and inflows of resources as of June 30, 2018.

Table 7.3. University’s OPEB Deferred Outflows and Inflows (in thousands)

		2018
		Deferred Outflows		Deferred Inflows
Differences between expected and actual experience	$	-		75,809
Changes in assumptions		-		40,135
Contributions subsequent to the measurement date		19,304		-
Total	$	19,304		115,944

Between the June 30, 2017 measurement date of the University’s total OPEB liability and the University’s June 30, 2018 reporting date, the University made contributions of $19,304,000 during Fiscal Year 2018 that impacted the total OPEB liability and were treated as a deferred outflow of resources.

Table 7.4 lists the amortization bases included in the University’s OPEB deferred outflows and inflows of resources as of June 30, 2018.

Table 7.4. Amortization of University’s OPEB Deferred Outflows and Inflows (in thousands)

		Period			Balance
Date Established	Type of Base	Original	Remaining		Original	Remaining	Annual Amortization
July 1, 2017	Differences between expected and actual experience	7.4	6.4	$	(87,654)	(75,809)	(11,845)
July 1, 2017	Changes in assumptions	7.4	6.4		(46,406)	(40,135)	(6,271)
	Total			$	(134,060)	(115,944)	(18,116)

The deferred outflow from contributions subsequent to the measurement date of $19,304,000 will be recognized as a reduction to the University’s OPEB liability in the year ended June 30, 2019.  Other amounts reported as deferred inflows related to the University’s OPEB liability will be recognized in OPEB expense as summarized in Table 7.5.

Table 7.5. Future Amortization of University’s OPEB Deferred Inflows (in thousands)

Years ending June 30:
2019	$	(18,116)
2020		(18,116)
2021		(18,116)
2022		(18,116)
2023		(18,116)
2024-2025		(25,364)
Total	$	(115,944)

Prior to the adoption of Statement No. 75, the University only recorded a liability for the annual required contribution (ARC) not funded under Statement No. 45.  As of June 30, 2017, based on the July 1, 2016 actuarial valuation, the unfunded actuarial accrued liability was $625,035,000.  For the year ended June 30, 2017, the annual OPEB cost was $69,366,000.  The University contributed $14,929,000, which was 21.5 percent of the annual OPEB cost.  The net OPEB obligation was $343,570,000.  The actuarial method used was the projected unit credit cost method and the discount rate used was 4.5 percent.  The Unfunded Actuarial Accrued Liability (UAAL) was being amortized straight-line over a closed period of 30 years. Table 7.6 presents changes in the University’s OPEB plan for the year ended June 30, 2017.

Table 7.6. University’s OPEB (in thousands)

		2017
Annual required contribution (ARC)	$	74,105
Interest on net obligation		13,011
Adjustment to ARC		(17,750)
Annual OPEB expense		69,366
Estimated benefit payments		(14,929)
Increase in OPEB		54,437
Beginning of year		289,133
End of year	$	343,570

PERA HEALTH CARE TRUST FUND

As noted earlier, the University contributes to the Health Care Trust Fund (HCTF), a cost-sharing multiple-employer defined benefit OPEB fund administered by PERA. The net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, OPEB expense, information about the fiduciary net position and additions to/deductions from the fiduciary net position of the HCTF have been determined using the economic resources measurement focus and the accrual basis of accounting. For this purpose, benefits paid on behalf of health care participants are recognized when due and/or payable in accordance with the benefit terms. Investments are reported at fair value.

Plan description. The HCTF is established under Title 24, Article 51, Part 12 of the C.R.S., as amended. Colorado State law provisions may be amended from time to time by the Colorado General Assembly. Title 24, Article 51, Part 12 of the C.R.S., as amended, sets forth a framework that grants authority to the PERA Board to contract, self-insure, and authorize disbursements necessary in order to carry out the purposes of the PERACare program, including the administration of the premium subsidies. Colorado State law provisions may be amended from time to time by the Colorado General Assembly. PERA issues a publicly available comprehensive annual financial report that can be obtained at www.copera.org/investments/pera-financial-reports.

Benefits provided. The HCTF provides a health care premium subsidy to eligible participating PERA benefit recipients and retirees who choose to enroll in one of the PERA health care plans, however, the subsidy is not available if only enrolled in the dental and/or vision plan(s). The health care premium subsidy is based upon the benefit structure under which the member retires and the member’s years of service credit. The basis for the amount of the premium subsidy funded by each trust fund is the percentage of the member contribution account balance from each division as it relates to the total member contribution account balance from which the retirement benefit is paid.

C.R.S. § 24-51-1202 et seq. specifies the eligibility for enrollment in the health care plans offered by PERA and the amount of the premium subsidy. The law governing a benefit recipient’s eligibility for the subsidy and the amount of the subsidy differs slightly depending under which benefit structure the benefits are calculated. All benefit recipients under the PERA benefit structure are eligible for a premium subsidy, if enrolled in a health care plan under PERACare.

Enrollment in the PERACare is voluntary and is available to benefit recipients and their eligible dependents, certain surviving spouses, and divorced spouses and guardians, among others.  Eligible benefit recipients may enroll into the program upon retirement, upon the occurrence of certain life events, or on an annual basis during an open enrollment period.

PERA Benefit Structure. The maximum service-based premium subsidy is $230 per month for benefit recipients who are under 65 years of age and who are not entitled to Medicare; the maximum service-based subsidy is $115 per month for benefit recipients who are 65 years of age or older or who are under 65 years of age and entitled to Medicare. The basis for the maximum service-based subsidy, in each case, is for benefit recipients with retirement benefits based on 20 or more years of service credit. There is a 5 percent reduction in the subsidy for each year of service less than 20. The benefit recipient pays the remaining portion of the premium to the extent the subsidy does not cover the entire amount.

For benefit recipients who have not participated in Social Security and who are not otherwise eligible for premium-free Medicare Part A for hospital-related services, C.R.S. § 24-51-1206(4) provides an additional subsidy. According to the statute, PERA cannot charge premiums to benefit recipients without Medicare Part A that are greater than premiums charged to benefit recipients with Part A for the same plan option, coverage level, and service credit. Currently, for each individual PERACare enrollee, the total premium for Medicare coverage is determined assuming plan participants have both Medicare Part A and Part B and the difference in premium cost is paid by the HCTF on behalf of benefit recipients not covered by Medicare Part A.

Contributions. Pursuant to Title 24, Article 51, Section 208(1)(f) of the C.R.S., as amended, certain contributions are apportioned to the HCTF. PERA-affiliated employers of the State, School, Local Government, and Judicial Divisions are required to contribute at a rate of 1.02 percent of PERA-includable salary into the HCTF.

Employer contributions are recognized by the HCTF in the period in which the compensation becomes payable to the member and the University is statutorily committed to pay the contributions. Employer contributions recognized by the HCTF from the University were $3,345,000 for the year ended June 30, 2018.

At June 30, 2018, the University reported a liability of $48,374,000 for its proportionate share of the net OPEB liability. The net OPEB liability for the HCTF was measured as of December 31, 2017, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of December 31, 2016. Standard update procedures were used to roll-forward the total OPEB liability to December 31, 2017. The University’s proportion of the net OPEB liability was based on the University’s contributions to the HCTF for the calendar year 2017 relative to the total contributions of participating employers to the HCTF.

At December 31, 2017, the University’s proportion was 3.72 percent, which was a decrease from 3.81 percent as of December 31, 2016.   For the year ended June 30, 2018, the University recognized OPEB expense of $3,602,000. Table 7.7 details the sources of the University’s deferred outflows of resources and deferred inflows of resources related to PERA’s OPEB plan.

Table 7.7. PERA’s OPEB Deferred Outflows and Inflows (in thousands)

		2018
		Deferred Outflows		Deferred Inflows
Difference between expected and actual experience	$	228		-
Net difference between projected and actual earnings on OPEB plan investments		-		809
Changes in proportion share		-		936
Difference between contributions recognized and proportionate share of contributions		-		6
Contributions subsequent to the measurement date		1,547		-
Total	$	1,775		1,751

$1,547,000 reported as deferred outflows of resources related to OPEB, resulting from contributions subsequent to the measurement date, will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2019.  Other amounts reported as deferred outflows of resources and deferred inflows of resources related to PERA’s OPEB that will be recognized in OPEB expense are summarized in Table 7.8.

Table 7.8. Future Amortization of PERA’s OPEB Deferred Outflows and Inflows (in thousands)

Years ending June 30:
2019	$	(342)
2020		(342)
2021		(342)
2022		(342)
2023		(142)
2024		(13)
Total	$	(1,523)

Actuarial assumptions.  PERA’s total OPEB liability in the December 31, 2016 actuarial valuation was determined using the actuarial cost method, actuarial assumptions and other inputs detailed in Table 7.9.

Table 7.9. PERA OPEB Actuarial Assumptions – December 31, 2016

Actuarial cost method		Entry age
Price inflation		2.40 percent
Real wage growth		1.10 percent
Wage inflation		3.50 percent
Salary increases, including wage inflation		3.50 percent in aggregate
Long-term investment rate of return, net of OPEB plan investment expenses, including price inflation		7.25 percent
Discount rate		7.25 percent
Health care cost trend rates:
Service-based premium subsidy		0.00 percent
PERACare Medicare plans		5.00 percent
Medicare Part A premiums		3.00 percent for 2017, gradually rising to 4.25 percent in 2023

Calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each actuarial valuation and on the pattern of sharing of costs between employers of each fund to that point.

Health care cost trend rates reflect the change in per capita health costs over time due to factors such as medical inflation, utilization, plan design, and technology improvements. For the PERA benefit structure, health care cost trend rates are needed to project the future costs associated with providing benefits to those PERACare enrollees not eligible for premium-free Medicare Part A.

Health care cost trend rates for the PERA benefit structure are based on published annual health care inflation surveys in conjunction with actual plan experience (if credible), building block models and heuristics developed by health plan actuaries and administrators, and projected trends for the Federal Hospital Insurance Trust Fund (Medicare Part A premiums) provided by the Centers for Medicare & Medicaid Services. Effective December 31, 2016, the health care cost trend rates for Medicare Part A premiums were revised to reflect the current expectation of future increases in rates of inflation applicable to Medicare Part A premiums.

The PERA benefit structure health care cost trend rates that were used to measure the total OPEB liability are summarized in Table 7.10.

Table 7.10. PERA’s OPEB Health Care Cost Trend Rates

Year	PERACare Medicare Plans	Medicare Part A Premiums
2017	5.00%	3.00%
2018	5.00%	3.25%
2019	5.00%	3.50%
2020	5.00%	3.75%
2021	5.00%	4.00%
2022	5.00%	4.00%
2023	5.00%	4.25%
2024+	5.00%	4.25%

Mortality assumptions for the determination of the total pension liability for each of the Division Trust Funds as shown below are applied, as applicable, in the determination of the total OPEB liability for the HCTF. Affiliated employers of the State, School, Local Government, and Judicial Divisions participate in the HCTF.

Healthy mortality assumptions for active members were based on the RP-2014 White Collar Employee Mortality Table, a table specifically developed for actively working people. To allow for an appropriate margin of improved mortality prospectively, the mortality rates incorporate a 70 percent factor applied to male rates and a 55 percent factor applied to female rates.

Healthy, post-retirement mortality assumptions for the State and Local Government Divisions were based on the RP-2014 Healthy Annuitant Mortality Table, adjusted as follows:

• Males: Mortality improvement projected to 2018 using the MP-2015 projection scale, a 73 percent factor applied to rates for ages less than 80, a 108 percent factor applied to rates for ages 80 and above, and further adjustments for credibility.
• Females: Mortality improvement projected to 2020 using the MP-2015 projection scale, a 78 percent factor applied to rates for ages less than 80, a 109 percent factor applied to rates for ages 80 and above, and further adjustments for credibility.

For disabled retirees, the mortality assumption was based on 90 percent of the RP-2014 Disabled Retiree Mortality Table.

The following economic and demographic assumptions were specifically developed for, and used in, the measurement of the obligations for the HCTF:

• The assumed rates of PERACare participation were revised to reflect more closely actual experience.
• Initial per capita health care costs for those PERACare enrollees under the PERA benefit structure who are expected to attain age 65 and older ages and are not eligible for premium-free Medicare Part A benefits were updated to reflect the change in costs for the 2017 plan year.
• The percentages of PERACare enrollees who will attain age 65 and older ages and are assumed to not qualify for premium-free Medicare Part A coverage were revised to more closely reflect actual experience.
• The percentage of disabled PERACare enrollees who are assumed to not qualify for premium-free Medicare Part A coverage were revised to reflect more closely actual experience.
• Assumed election rates for the PERACare coverage options that would be available to future PERACare enrollees who will qualify for the “No Part A Subsidy” when they retire were revised to more closely reflect actual experience.
• Assumed election rates for the PERACare coverage options that will be available to those current PERACare enrollees, who qualify for the “No Part A Subsidy” but have not reached age 65, were revised to more closely reflect actual experience.
• The health care cost trend rates for Medicare Part A premiums were revised to reflect the then-current expectation of future increases in rates of inflation applicable to Medicare Part A premiums.
• The rates of PERACare coverage election for spouses of eligible inactive members and future retirees were revised to more closely reflect actual experience.
• The assumed age differences between future retirees and their participating spouses were revised to reflect more closely actual experience.

The actuarial assumptions used in the December 31, 2016, valuations were based on the results of the 2016 experience analysis for the periods January 1, 2012, through December 31, 2015, as well as, the October 28, 2016, actuarial assumptions workshop and were adopted by the PERA Board during the November 18, 2016, Board meeting. In addition, certain actuarial assumptions pertaining to per capita health care costs and their related trends are analyzed and reviewed by PERA’s actuary, as needed.

The long-term expected return on plan assets is reviewed as part of regular experience studies prepared every four or five years for PERA. Recently, this assumption has been reviewed more frequently. The most recent analyses were outlined in presentations to PERA’s Board on October 28, 2016.

Several factors were considered in evaluating the long-term rate of return assumption for the HCTF, including long-term historical data, estimates inherent in current market data, and a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected return, net of investment expense and inflation) were developed for each major asset class. These ranges were 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 then adding expected inflation.

As of the most recent adoption of the long-term expected rate of return by the PERA Board, the target asset allocation and best estimates of geometric real rates of return for each major asset class are summarized in Table 7.11.

Table 7.11. Target Allocation and Expected Rate of Return

Asset Class	Target Allocation	30 Year Expected Geometric Real Rate of Return
U.S. Equity - Large Cap	21.20%	4.30%
U.S. Equity - Small Cap	7.42%	4.80%
Non U.S. Equity - Developed	18.55%	5.20%
Non U.S. Equity - Emerging	5.83%	5.40%
Core Fixed Income	19.32%	1.20%
High Yield	1.38%	4.30%
Non U.S. Fixed Income - Developed	1.84%	0.60%
Emerging Market Debt	0.46%	3.90%
Core Real Estate	8.50%	4.90%
Opportunity Fund	6.00%	3.80%
Private Equity	8.50%	6.60%
Cash	1.00%	0.20%
Total	100.00%

In setting the long-term expected rate of return, projections employed to model future returns provide a range of expected long-term returns that, including expected inflation, ultimately support a long-term expected rate of return assumption of 7.25 percent.

Table 7.12 presents the net OPEB liability using the current health care cost trend rates applicable to the PERA benefit structure, as well as if it were calculated using health care cost trend rates that are one percentage point lower or one percentage point higher than the current rates.

Table 7.12. Sensitivity of the University’s Proportionate Share of PERA’s Net OPEB Liability to Changes in the Health Care Cost Trend Rates (in thousands)

	2018
	1% Decrease in Trend Rates	Current Trend Rates	1% Increase in Trend Rates
PERACare Medicare trend rate	4.00%	5.00%	6.00%
Initial Medicare Part A trend rate	2.00%	3.00%	4.00%
Ultimate Medicare Part A trend rate	3.25%	4.25%	5.25%
Net OPEB Liability	$47,043	48,374	49,977

Discount rate. The discount rate used to measure the total OPEB liability was 7.25 percent. The projection of cash flows used to determine the discount rate applied the actuarial cost method and assumptions shown above. In addition, the following methods and assumptions were used in the projection of cash flows:

• Updated health care cost trend rates for Medicare Part A premiums as of the December 31, 2017, measurement date.
• Total covered payroll for the initial projection year consists of the covered payroll of the active membership present on the valuation date and the covered payroll of future plan members assumed to be hired during the year. In subsequent projection years, total covered payroll was assumed to increase annually at a rate of 3.50 percent.
• Employer contributions were assumed to be made at rates equal to the fixed statutory rates specified in law and effective as of the measurement date. For future plan members, employer contributions were reduced by the estimated amount of total service costs for future plan members.
• Employer contributions and the amount of total service costs for future plan members were based upon a process used by the plan to estimate future actuarially determined contributions assuming an analogous future plan member growth rate.
• Transfers of a portion of purchase service agreements intended to cover the costs associated with OPEB benefits were estimated and included in the projections.
• Benefit payments and contributions were assumed to be made at the end of the month.

Based on the above assumptions and methods, the projection test indicates the HCTF’s fiduciary net position was projected to make all projected future benefit payments of current members. Therefore, the long-term expected rate of return of 7.25 percent on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. The discount rate determination does not use the municipal bond index rate, and therefore, the discount rate is 7.25 percent.

Table 7.13 presents the proportionate share of the net OPEB liability calculated using the discount rate of 7.25 percent, as well as what the proportionate share of the net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.25 percent) or 1-percentage-point higher (8.25 percent) than the current rate.

Table 7.13. Sensitivity of the University’s Proportionate Share of PERA’s Net OPEB Liability to Changes in the Discount Rate (in thousands)

	2018
	1% Decrease (6.25%)	Current Discount Rate (7.25%)	1% Increase (8.25%)
Net OPEB Liability	$54,387	48,374	43,241

OPEB plan fiduciary net position. Detailed information about the HCTF’s fiduciary net position is available in PERA’s comprehensive annual financial report which can be obtained at www.copera.org/investments/pera-financial-reports.