1

UNITED STATES BANKRUPTCY COURT

DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO 

RICO,

as representative of

THE COMMONWEALTH OF PUERTO RICO, 

et al.

Debtors.

PROMESA TITLE III

Case No. 17-BK-3283-LTS

(Jointly Administered)

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO 

RICO,

as representative of

THE PUERTO RICO ELECTRIC POWER 

AUTHORITY,

Debtor.

Case No. 17-BK-4780-LTS

This Court Filing Relates Only to 

PREPA and Shall be Filed Only in Case 

No. 17-BK-4780-LTS and Main Docket 

17-BK-3283-LTS

EXPERT REBUTTAL REPORT OF THOMAS S. TERRY

May 15, 2023

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TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................. 4

II. QUALIFICATIONS ............................................................................................................... 5

III. SUMMARY OF ANALYSIS AND OPINIONS.................................................................... 6

A. Basis for My Actuarial Analysis......................................................................................... 6

B. Summary of My Opinions .................................................................................................. 6

IV. THE OVERSIGHT BOARD’S ACTUARY REFRAINS FROM ASSESSING THE 

REASONABLENESS OF THE ASSUMPTIONS AND METHODS THAT UNDERPIN 

THE PENSION CLAIM, THE PENSION RECOVERY, AND THE RECOVERY 

PERCENTAGE, THUS CALLING INTO QUESTION THEIR RELIABILITY ................. 8

A. The reliability of actuarial calculations is inextricably linked to an actuary’s 

certification that they are reasonable. ................................................................................. 8

B. The Oversight Board’s Actuary Sheva Levy refrains from attesting to the 

reasonableness of key actuarial assumptions and methods, thus calling into question 

the reliability of the Oversight Board’s calculations of the Pension Claim and the 

Pension Recovery................................................................................................................ 8

C. My Report is a Statement of Actuarial Opinion that can be relied upon.......................... 10

V. CORRECTLY CALCULATED, THE PENSION CLAIM IS $2.616 BILLION, NOT 

$3.955 BILLION AS STATED IN THE DISCLOSURE STATEMENT............................ 11

A. The amount of the Pension Claim provided in the Disclosure Statement is overstated 

by $1.339 billion. .............................................................................................................. 11

B. $407 million of the overstatement is attributable to the inappropriate inclusion of 

non-vested benefits. .......................................................................................................... 11

C. There are inconsistencies concerning the administrative expense allowances built 

into the Oversight Board’s Pension Claim calculation. This would not modify the 

numbers, but I am including because it is an apparent flaw in the work by Ms. Levy..... 15

D. $87 million of the overstatement is attributable to the inappropriate inclusion of extra 

amortization payments due to a funding lag..................................................................... 18

E. $546 million of the overstatement is attributable to the use of an inappropriate cash 

flow discount rate.............................................................................................................. 20

F. $299 million of the overstatement is attributable to use of an overly conservative 

discount rate assumption for pension funding. ................................................................. 23

G. Summary tabulation of the reasonable and appropriate Pension Claim of $2.616 

billion after correcting for the $1.339 billion of overstatements. ..................................... 24

VI. THE PLAN PROVIDES A RECOVERY OF BETWEEN 89% AND 95% OF THE CLAIM 

AMOUNT............................................................................................................................. 26

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A. The Pension Recovery Percentage in the Disclosure Statement is understated................ 26

B. The various Recovery Ratios calculated by the Oversight Board and shown in the 

Disclosure Statement contain flaws and inconsistencies.................................................. 26

C. The Pension Recovery amount reported in the Disclosure Statement is overstated......... 28

D. Despite Ms. Levy stating her most recent Recovery Percentage was 92% and 

evidence of a 94% Recovery Percentage, the Disclosure Statement still shows an 

86% Recovery Percentage. The proper Recovery Percentage is either 89% or 95%, 

depending on which interest rate assumption is used for discounting.............................. 30

VII. RESPONSE TO THE EXPERT REPORT OF JOSE FERNANDEZ.................................. 32

A. Fernandez failed to take into account $595 million in assets when setting his claim. 

This and other mistakes cause his claim to be overstated by $936 million ...................... 32

B. Correcting for Fernandez’s flaw claim amount, the Recovery Percentage would have 

been 95%........................................................................................................................... 33

C. Mr. Fernandez’s analysis of the Retirement System’s reform proposal is flawed and 

results in an inexplicable conclusion. ............................................................................... 33

APPENDICES................................................................................................35

Appendix A. Thomas S. Terry CV

Appendix B. Materials Considered in the Preparation of this Report

Appendix C. Data, Assumptions and Methods, and Plan Provisions 

Appendix D. Development of Reasonable and Appropriate Pension Claim Cash Flows

Appendix E. Development of a Reasonable and Appropriate Interest Rate Assumption

Appendix F. Development of Reasonable and Appropriate Recovery Cash Flows

Appendix G. Participant Loan Repayment Schedule

Appendix H. Reliance on Models 

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I. INTRODUCTION

1. I am the Chief Executive Officer of The Terry Group and I was retained as an 

expert in March 2023 by counsel for the Ad Hoc Group of PREPA Bondholders, Assured 

Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. (the 

“Bondholders”) concerning the Puerto Rico Electric Power Authority (“PREPA”) Pension Claim

and Recovery. 

2. I submit this rebuttal report in support of the Bondholders’ objections to 

confirmation of the Plan of Adjustment (“POA”) for PREPA based on the Disclosure Statement 

for the Modified Second Amended Title III Plan of Adjustment of the Puerto Rico Electric 

Power Authority dated March 1, 2023 (“Disclosure Statement”). I have been asked to review 

and analyze the amount of the Pension Claim reported in the Disclosure Statement, the amount 

of the Pension Recovery and the Pension Recovery Percentage reported in the Disclosure 

Statement, the Debtor’s Opening Expert Report and Disclosures (ECF No. 3418), the transcript 

of the Deposition of Sheva Levy and the Expert Declaration of Mr. José Fernandez.

3. Except as otherwise indicated, all facts set forth in this declaration are based upon 

my personal knowledge, my review of relevant documents and published reports, and my 

professional opinion. The analysis supporting my conclusions has been performed based on 

commonly used and widely accepted actuarial methodologies that are fully consistent with 

relevant U.S. Actuarial Standards of Practice. 

4. If called upon to testify in this matter, I would testify competently to the facts and 

opinions set forth in this report. I reserve the right to supplement or revise my opinions in light 

of any additional information that may subsequently be made available to me, or if I am asked to 

perform further analysis. 

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II. QUALIFICATIONS

5. I am the Founder and Chief Executive Officer of The Terry Group, an actuarial 

and employee benefits consulting and research firm based in Chicago, Illinois. 

6. I served as CEO and the top actuary at a succession of pension consulting firms 

since 1991: Chicago Consulting Actuaries (later named CCA Strategies); JPMorgan 

Compensation and Benefits Strategies; and, currently, The Terry Group. I and my firms have 

provided actuarial valuation and consulting services to numerous pension plan sponsors, 

including with respect to some of the largest, most complex pension plans in the United States.

7. I am past president (2014) of the American Academy of Actuaries, the national 

association for actuaries practicing in the United States. The Academy is the home of the 

Actuarial Standards Board, which sets standards for actuarial practice in the United States. I am 

also past president (2017) of the International Actuarial Association. 

8. I am past vice president for pensions (2007-2009) of the American Academy of 

Actuaries. In that role, I also chaired the Pension Practice Council. The Council has 

responsibility for the Academy’s pension policy work in the Unites States, as well as practice 

advancement for actuaries working in the pension field. 

9. I served for five years (2008-2012) on the board of the Society of Actuaries, an 

education and research association that credentials actuaries and produces authoritative research 

on relevant actuarial topics. 

10. I hold a Bachelor of Science in Math and Physics from Tufts University, and a 

Masters of Actuarial Science from the Graduate School of Business Administration at the 

University of Michigan. I am a Fellow of the Society of Actuaries, a Member of the American 

Academy of Actuaries, and an Enrolled Actuary.

11. Further details on my qualifications are included in my curriculum vitae, attached

as Appendix A, which includes a list of expert testimony I have provided in the previous ten 

years.

12. I am being compensated for my work on this case at my hourly rate of $950. I 

have been assisted on this matter by Terry Group staff members whose hourly rates range from 

$395 to $700. My charges are not dependent upon the substance of my opinions or testimony or 

the outcome of this matter.

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III. SUMMARY OF ANALYSIS AND OPINIONS

A. Basis for My Actuarial Analysis

13. I and my team performed our actuarial analysis based on the information we have 

available. This information is included in Appendix B, Materials Considered in the Preparation 

of this Report. As indicated elsewhere in my report, I reserve the right to amend or supplement 

our analysis based on additional information that may become available. In particular, I have 

requested models, data and other information that would be helpful in my analysis that I have not 

received. Additionally, questions were asked in deposition to the Oversight Board’s actuary, Ms. 

Sheva Levy, which Ms. Levy could not provide an answer or could provide only muddled 

answers. If new information becomes available, it is possible that some results or conclusions

could change in either direction.

14. Where data or information was insufficient or entirely lacking, I made reasonable 

assumptions consistent with Actuarial Standard of Practice No. 23, Data Quality, and also 

Actuarial Standard of Practice No. 17, Expert Testimony by Actuaries.

15. While the Petition Date in this bankruptcy is July 2, 2017, for convenience, I have 

performed my actuarial analysis using a “claim valuation date” of June 30, 2017 – the “as of” 

date for pension asset reporting. This is the same approach taken by the Oversight Board1 in their 

analysis of the Pension Claim.

16. The appendices include documentation of my actuarial analysis, including 

documentation and rationale for all actuarial assumptions to the extent not fully described in the 

body of my report.

17. My report and the actuarial conclusions herein, constitute a statement of actuarial 

opinion that I am qualified to make according to the U.S. Qualification Standards of the 

American Academy of Actuaries.

B. Summary of My Opinions 

18. There are two main values relevant to determining the Recovery Percentage for 

the Pension Claim, as stated in the Disclosure Statement. The first is the Pension Claim itself,

which is “the estimated present value of cash payments to be made by PREPA to the PREPA 

ERS under the PREPA ERS Regulations as of the Petition Date.”2 In other words, it is money 

that would be owed to PREPA ERS under the current laws and regulations. The second is the 

Pension Recovery. The Pension Recovery is the money that will be paid to the PREPA ERS 

under the Plan of Adjustment, after certain reforms are made to the PREPA ERS as described in 

the Plan of Adjustment.

19. In my expert opinion, the values estimated and disclosed by the Oversight Board 

are unreliable and fail to accurately capture the Pension Claim and the Pension Recovery. This 

1 The Financial Oversight and Management Board for Puerto Rico 2 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment, page 29.

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report explains why these estimated values are unreliable (in Section IV), why the Pension Claim 

is overstated (in Section V), and why the Recovery Ratio is understated (in Section VI). 

Additionally, I explain why Sistema de Retiro de los Empleados de la Autoridad de Energia 

Electrica’s (SREAEE3) erroneously inflates the Pension Claim (in Section VII). I provide a brief 

preview of my conclusions here.

20. First Opinion. The Oversight Board’s Actuary refrains from assessing the 

reasonableness of the key assumptions and methods that underpin the Pension Claim, the 

Pension Recovery and the Recovery Percentage, thus calling into question their reliability.

21. Second Opinion. The reported Pension Claim of $3.955 billion is overstated by 

approximately $1.339 billion. Based on my calculations, the correct computation of the claim 

amount is $2.616 billion. The Oversight Board has overstated the Pension Claim. The Board 

inappropriately included benefits that vest after the Petition date, included a “lag” in calculating 

funding payments which results in overfunding the plan, applied an incorrect discount rate as to 

future payments, and incorrectly assumed a too-low rate of return for Pension Assets. 

22. In bankruptcy, the size of a pension claim can properly be thought of as a

hypothetical “pot of money” such that, if it was provided to the pension system today, it would 

result in the pension system begin able to fully pay its obligations. The “pot of money” for 

PREPA ERS, when the Oversight Board’s erroneous assumptions are corrected, is $2.616 

billion, meaning the claim is overstated by 51%.

23. Third Opinion. The Approximate Recovery of 86% reported in the Disclosure 

Statement4 is understated. Some of the same issues that plague the calculation of the Pension 

Claim are present in the Oversight Board’s calculation of the Pension Recovery, resulting in a 

Recovery Percentage that is more generous than the Oversight Board predicts. I estimate that the 

actual Recovery Percentage proposed by the POA and Disclosure Statement is between 89% and 

95%. If the Recovery Percentage was actually 86%, the recovery to the pensions would be 

$2.250 billion.

24. Fourth Opinion. Finally, below, I also respond to the report of Mr. Jose 

Fernandez submitted on behalf of the SREAEE. Mr. Fernandez significantly overstates the 

Pension Claim due to numerous issues including (among others) the failure to account for $595

million in pension funding at his chosen measurement date. His faulty calculations on the size of 

the Claim should not be relied upon.

3 For sake of clarity I will refer to the party representing the Pension System as SREAEE. I will refer to the Pension 

System itself as PREPA ERS. 4 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment, page 29.

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IV. THE OVERSIGHT BOARD’S ACTUARY REFRAINS FROM ASSESSING THE 

REASONABLENESS OF THE ASSUMPTIONS AND METHODS THAT UNDERPIN 

THE PENSION CLAIM, THE PENSION RECOVERY, AND THE RECOVERY 

PERCENTAGE, THUS CALLING INTO QUESTION THEIR RELIABILITY

A. The reliability of actuarial calculations is inextricably linked to an actuary’s 

certification that they are reasonable.

25. The American Academy of Actuaries,

5 through its Code of Professional Conduct, 

issues “Qualification Standards for Actuaries issuing Statements of Actuarial Opinion in the 

United States.”6 These standards define a “Statement of Actuarial Opinion” as an opinion 

expressed by an actuary about an actuarial calculation upon which others rely:

“... a Statement of Actuarial Opinion” (SAO) is an opinion expressed by 

an actuary who is subject to the Code of Professional Conduct by virtue of 

membership in a U.S.-based actuarial organization, where such opinion is 

expressed in the course of performing Actuarial Services and intended by 

that actuary to be relied upon by the person or organization to which the 

opinion is addressed.7

26. The Oversight Board has put forth a multibillion dollar Pension Claim and a 

multibillion-dollar Pension Recovery that are based on complex pension actuarial calculations. 

These calculations must be accompanied by a Statement of Actuarial Opinion in order to be 

considered reliable.

27. Reasonability and reliability are inextricability linked and are central elements of 

the profession’s Actuarial Standards of Practice (“ASOPs”). Thus, values (e.g., the value of a 

pension claim or of a pension recovery in a bankruptcy) derived from actuarial calculations are 

deemed reliable if the underlying assumptions, methods and models are deemed reasonable by a 

Qualified Actuary.

B. The Oversight Board’s Actuary Sheva Levy refrains from attesting to the 

reasonableness of key actuarial assumptions and methods, thus calling into question the

reliability of the Oversight Board’s calculations of the Pension Claim and the Pension 

Recovery.

28. I have seen no evidence of support by the Oversight Board or Ms. Levy for the 

reasonableness of the assumptions or methods used to calculate the Pension Claim or the 

Recovery amount, nor any rationale for the selection of those assumptions. 

5 The American Academy of Actuaries (the Academy) is the national association for actuaries practicing in the 

United States. The Academy is the home of the Actuarial Standards Board (ASB), which sets standards for actuarial 

practice in the United States. 6 Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States, Effective 

January 1, 2022.

7 Ibid, page 1.

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29. Ms. Levy developed the $3.955 billion Pension Claim8 amount that was reported

in the Disclosure Statement.9 

30. Despite being involved with the Oversight Board since 2019,

10 Ms. Levy 

acknowledges in her work product and in her deposition that she did not evaluate any of the 

assumptions or methods for reasonableness. 

31. Ms. Levy testified that all assumptions used in her work product were prescribed 

by the Oversight Board and were not assessed for reasonableness. The following disclaimer can 

be found in the work product for the $3.955 billion claim – a document that that Ms. Levy 

testified was “wholly produced”11 by her and her team:

“These assumptions were discussed with and were prescribed by the 

Board for the purposes of this analysis. Assessing the reasonableness of 

these assumptions would have required performing a substantial amount 

of additional work beyond the scope of the assignment.”12

32. As Ms. Levy testified in her deposition, she is not providing any actuarial opinion 

whatsoever on the appropriateness of the actuarial assumptions, including the highly relevant 

expected return on assets of 5.75%.13

Question: So, for example, the discount rate at the top of the page, actuarially 

determines contribution ADC 5.75 percent, that was a rate that was 

prescribed by the board?

Answer: Yes. 

Question: And that was a rate that you did not take steps to independently 

determine the reasonableness of?

Answer: Correct.

33. Ms. Levy’s work product also documents the Oversight Board’s use of a present 

value discount rate of 3.58% -- used in part to determine the Pension Claim and the Pension 

Recovery. In the following disclaimer, Ms. Levy acknowledges that this assumption is not her 

own assumption, rather it was prescribed by the Oversight Board. Further, this disclaimer 

includes an implicit admission that there could be a significant difference between the calculated 

values of the Pension Claim and the Pension Recovery if other assumptions were used –

including, presumably, assumptions not prescribed by the Oversight Board but deemed 

reasonable by a qualified actuary:

8 Levy deposition, 46:8-17 9 Levy deposition, 49:5-15] 10 Levy deposition, 11:8-10 11 Levy deposition, 46:8-17 12 PREPA Pension Claim and Recovery January 27, 2023 and Levy deposition, 50:21-51:4 13 Levy deposition, 53:13-22

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“NOTE: The above approach was directed by the Board under the advice 

of counsel. Changes to this approach could significantly impact the 

amount of the claim and recovery shown”14

34. Further, as Ms. Levy testified in her deposition, she is not providing any actuarial 

opinion whatsoever on whether or not it is appropriate to use the Entry Age Normal actuarial 

cost method15 to calculate the value of the Claim.16

Question: You are not giving an opinion on the appropriateness of using entry 

age normal as the actuarial funding method; right? 

Answer: Correct. 

35. Refraining from rendering reasonableness opinions or from even undertaking a 

reasonableness assessment of relevant assumptions and methods, despite the actuary’s multiyear 

engagement with the Oversight Board, calls into question the reliability of the Oversight Board’s 

actuarial calculations of the Pension Claim and Recovery.

C. My Report is a Statement of Actuarial Opinion that can be relied upon.

36. The estimation of the Pension Claim and the Pension Recovery amount are 

actuarial calculations. These calculations demand a careful understanding of pension plans and 

the principles of pension finance, and involve several important actuarial considerations.

37. I have considered, and attest to, the reasonableness of the assumptions and 

methods used in my actuarial calculations. Where data was not available, I made efforts to 

adjust available data with reasonable proxies. 

38. Documentation of my actuarial calculations and all relevant assumptions are 

included in the appendices to this report.

39. My work has been conducted in accordance with the Actuarial Standards of 

Practice (ASOPs), and I list the relevant ASOPs I considered in the Appendix.

40. I meet the Qualification Standards of the American Academy of Actuaries to 

render the various opinions included in my report.

14 PREPA Pension Claim and Recovery January 27, 2023, Appendix E. 15 I address the relevance of the Entry Age Normal actuarial cost method later in my report. 16 Levy deposition, 106:15 – 19

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V. CORRECTLY CALCULATED, THE PENSION CLAIM IS $2.616 BILLION, NOT 

$3.955 BILLION AS STATED IN THE DISCLOSURE STATEMENT

42. The Disclosure Statement provides a purported value for the Pension Claim in the 

amount of $3.955 billion. Based on documents provided by the Oversight Board and testimony 

provided by Ms. Levy, this figure was calculated by Ms. Levy based on a series of assumptions 

and instructions provided by the Oversight Board that are not appropriate for the measurement of 

the Pension Claim. 

A. The amount of the Pension Claim provided in the Disclosure Statement is overstated by 

$1.339 billion.

43. In my opinion, the Disclosure Statement’s Pension Claim of $3.955 billion is 

overstated by approximately $1.339 billion. My calculation of the proper Pension Claim amount 

is $2.616 billion. The Oversight Board has overstated the Pension Claim amount by 51%.

44. The overstatement is caused by these four flaws in the Disclosure Statement’s 

Pension Claim:

• The inappropriate inclusion of non-vested benefits in the claim determination

accounts for $407 million of overstatement.

• The inappropriate inclusion of extra amortization payments when the pension plan 

is projected to be overfunded due a funding lag accounts for $87 million of 

overstatement.

• The inappropriate use of an industry report to choose a cash flow discount rate

accounts for $546 million of overstatement. 

• The inappropriate dismissal of a reasonable expected rate of return accounts for 

$299 million of overstatement. 

45. I describe each of these elements of the overstatement, as well as my corrections, 

in the following sections.

B. $407 million of the overstatement is attributable to the inappropriate inclusion of nonvested benefits.

A pension claim in bankruptcy should be the value of the vested, accrued benefit as 

of the claim valuation date.

46. According to the Disclosure Statement all permanent full-time employees of 

PREPA are eligible to participate in a defined benefit pension plan (the “plan”) administered by 

the Employees’ Retirement System (“ERS”) of PREPA. The defined benefit plan provides

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retirement and termination benefits to plan participants as well as death, disability, and survivor 

benefits.17

47. As an actuary, I understand that in bankruptcy where the focus is on the right to 

payments,18 the right to pension payments is established by the terms of the pension plan. 

Employees must satisfy all conditions for receiving pension benefits according the terms of the 

plan in order to earn the right to future pension payments. It follows that employees who have 

not satisfied all conditions for receiving pension benefits have not yet earned the right to receive 

pension payments, but may be able to earn such a right in the future if they continue to work for 

the employer.

48. I use the term “claim valuation date” to denote the point in time at which one can 

determine employees’ vested rights to pension benefits.

49. Ordinarily, pension benefits are considered to be “career benefits” that are earned 

fully over an employee’s career. A bankruptcy claim, however, “freezes” that process. It is most 

appropriately thought of as the benefit to which the employees have a vested right as of a claim 

valuation date, which is often on or close to the petition date.

19

Career Benefits Vested Accrued Benefits at a Claim Valuation Date

Projected to retirement Accrued at a point in time

Past service plus future projected service Past service only

Projected pay at a future retirement date Past pay only

Rights to benefits based on age and service at 

retirement

Rights to benefits based on age and service at the claim 

valuation date

The appropriate measurement methodology for a pension claim in a bankruptcy is 

the unit credit method, not the entry age normal method.

50. There are two general types of methods for valuing pension plan liabilities. One is 

based on projected benefits and the other is based on accrued benefits. The purpose of the 

measurement will determine the appropriate measurement methodology.

Projected benefit actuarial cost methods Accrued benefit actuarial cost methods

Based on career benefits projected to retirement Based on accrued benefits at a point in time, such as a 

claim valuation date in a bankruptcy

17 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment, page 80. 18 US Code Title 11 Section 101(5) “The Term “claim” means (A) right to payment, whether or not such right is 

reduced to judgement, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, 

equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach give 

rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgement, fixed, 

contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.” 19 In this case, the claim valuation date is June 30, 2017. This is consistent with the work of the Oversight Board. 

PREPA Pension Claim and Recovery January 27, 2023, Claim and Recovery as described in Appendix E.

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Used for long term funding decisions for an ongoing 

plan

Used for plan terminations, bankruptcy claims, and 

other point-in-time measures20

Values what needs to be in the plan at retirement Values what needs to be in the plan today for what has 

already been earned

Going concern perspective “Up to now” perspective

51. An example of a projected benefit actuarial cost method is the entry age normal 

method. Using this method, an actuary projects all future benefits, including future service and 

pay, and allocates the value of those future benefits across all years, past and future. At any point 

in time, the amount attributable to past versus future service is an allocation. Allocation merely 

reflects rules defined by the cost method, not necessarily the benefits the participants have 

actually earned. Different allocation methods result in differences between what is allocated to 

the past and to the future. 

52. An example of an accrued benefit actuarial cost method is the unit credit method, 

which relies on actual accrued benefits as of a point in time, not an allocation method which 

relies on employees’ ultimate benefits at some future retirement date. The unit credit method 

only includes the vested portion of each individual’s benefit. 

53. The unit credit actuarial cost method is, in my opinion, the appropriate method to 

use to measure a pension claim in a bankruptcy in which we are not trying to value future 

benefits, but only the already-accrued right to payment. It is clear when using the unit credit 

method that the accrued benefit value includes only vested benefits and similarly, does not 

include non-vested benefits.

Entry age normal method Unit credit method

A projected benefit actuarial cost method An accrued benefit actuarial cost method

Reliant on many assumptions about future pay and 

service

Reliant only on past pay and service determined at a 

point in time

54. ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan 

Costs or Contributions, is the definitive practice standard for an actuary to measure pension 

obligations. A key consideration is the purpose of the measurement.21

55. The reason the entry age normal method is inappropriate for measuring a pension 

claim in bankruptcy is that its calculations are dependent upon both benefits that are vested and 

benefits that are non-vested. Specifically, the liability calculated under the entry age normal 

method will always include certain benefits based on future service that has not been performed, 

benefits based on future compensation that has not been earned, and benefits to which employees 

are not yet eligible because they are not yet vested. In short, in this case the liability at the 

20 In a similar situation where a private sector employer declares bankruptcy and the Pension Benefit Guaranty 

Corporation (PBGC) takes over an underfunded pension plan, PBGC only guarantees nonforfeitable benefits (i.e., 

vested accrued benefits) as of the bankruptcy filing date (see 29 CFR 4022.3 and 29 CFR 4022.4). The valuation of 

vested accrued benefits is done using the unit credit actuarial cost method. 21 Actuarial Standard of Practice No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or 

Contributions, Section 3.3.

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petition date is a function of the employee pay and service through all years after the petition 

date. Individuals are only valued to the extent that they have claim to a pension on the petition 

date.

56. Where projections of future pay and service are irrelevant, as in a bankruptcy 

claim, the actuary should use an accrued benefit actuarial cost method, such as the unit credit 

method.

57. The overstatement in the Disclosure Statement of the Pension Claim caused by 

inappropriately including non-vested benefits and by the inappropriate use of the entry age 

normal actuarial cost method is $407 million. Details are provided in Appendix D.

Ms. Levy Acknowledges Employees Hired after Petition Date Add to Claim

58. The deposition testimony of Ms. Levy confirmed that in calculating the Pension 

Claim, the Oversight Board improperly included future salary, future service, and future hires, 

thus inflating the Pension Claim. 

59. For example, Ms. Levy acknowledges the Actuarially Determined Contributions 

(“ADCs”) found in Column A of the “PREPA Pension Claim and Recovery” Document,22 which 

themselves are the basis of the calculation of the $3.955b Claim,

23 include employees hired after 

the petition date. As an example, Ms. Levy was asked about her calculation of the 2023 ADC of 

$253.1 million.24

Question: So for your calculation for 2023 of 253.1 million, that presumes a 

new hire post July 1, 2017 as well; right? 

Answer: Yes. 

Ms. Levy Acknowledges Additional Salary and Service Beyond Measurement Date 

Adds to Claim. 

60. When asked about her calculation for 2024, Ms. Levy acknowledged that part of 

the $258.0 million25 ADC is attributable to future salary increases that both occur after 2024 and 

occur long after the Claim date of June 30, 2017.26

Question: And likewise, what you did for 2024 and on, it is likewise 

attributable part of -- part of the ADC is attributable to the future 

salary increases that are presumed to occur? 

Answer: Yes. 

22 PREPA Pension Claim and Recovery January 27, 2023, page 2. 23 Ibid. 24 Levy deposition, 115:24-116:4. 25 PREPA Pension POA Savings Estimates February 8, 2023 with exhibit 6 appended April 26, 2023, Exhibit 2. 26 Levy deposition, 115:12-17.

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61. When asked about her calculations more generally, Levy admits that the ADC in a 

given year is impacted by the future service performed.27

Question: Well, from 2017 – let’s do one year at a time. The numbers for 2018 

presume that at least some of the employees are going to continue in 

2019; right? 

Answer: The actuarial liability that’s used in the ADC calculation requires 

knowing how many years of service are assumed for an individual in 

the future. 

C. There are inconsistencies concerning the administrative expense allowances built into 

the Oversight Board’s Pension Claim calculation. This would not modify the numbers, 

but I am including because it is an apparent flaw in the work by Ms. Levy.

62. Clearly, there will be administrative expenses, the money needed to administer 

PREPA ERS, associated with calculating and paying the benefits obligated in the Pension Claim. 

The Disclosure Statement’s measure of the Pension Claim includes an “administrative fee load” 

of “3.0% of benefit payments.”28 This means that the Pension Claim includes a provision for 

annual administrative expenses equal to 3% of estimated annual pension benefit payments. In 

vastly simplified terms, it means that if the pension plan pays out $1 million in benefits, the cost 

of administering the pension plan is $30,000.

63. Based on the information provided to me to date, there is no factual justification 

for the 3% administrative fee load. . It far overstates the costs of effectively running a pension 

system.

64. The reasonableness of this assumption is best assessed by looking at the rate of 

expenses in recent years. 

65. The table below shows, for the years 2016 to 2019, the level of expenses implied 

by the Disclosure Statement’s 3% assumption and compares that to the actual level of expenses

reported in Cavanaugh Macdonald’s 2019 actuarial report.

29

27 Ibid, 116:17-117:2. 28 PREPA Pension Claim and Recovery report dated January 27, 2023, Appendix B: Assumptions. 29 Employees' Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Second Actuarial 

Valuation as of June 30, 2019, August 6, 2020, page 5.

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Disclosure Statement’s 3% expense load assumption, if applied historically to benefit 

payments for 2016 to 2019, unreasonably overstates the level of actual expenses.

Year

Annual 

Benefit Payments

Annual Expenses

Implied by 

Disclosure 

Statement’s 

3.0% Assumption Actual

Actual

Percentage

2019 $277,263,390 $8,317,902 $274,652 0.10%

2018 $274,818,013 $8,244,540 $260,280 0.09%

2017 $269,178,338 $8,075,350 $229,675 0.09%

2016 $255,847,034 $7,675,411 $315,139 0.12%

66. The pattern of actual expenses observed in recent years shows that a reasonable 

and appropriate expense assumption is 0.1%, not 3.0%.

67. In her deposition testimony, Ms. Levy states that the administrative expenses in 

the new PayGo+30 system set up by the Plan of Adjustment to fund PREPA ERS pension 

benefits are higher due to certain circumstances unique to that system. 

68. Ms. Levy states that she is aware that the PayGo+ system of the Oversight 

Board’s pension reform proposal would be more expensive to administer than the existing 

PREPA ERS program (the prior program being referenced below).31

Question: Are you aware of any reason why the PayGo system, PayGo Plus 

system would cost more to administer were than the prior system?

Answer: Yes. 

69. Ms. Levy then identified three reasons that the PayGo+ system is more expensive 

than the PREPA ERS program.

32

Answer: The PayGo Plus system would involve reviewing the benefits paid by 

PREPA ERS to confirm that they're consistent with the plan of 

adjustment to be then eligible for reimbursement. The PayGo Plus 

structure would require some estimate of the contributions needed 

under the plan of adjustment which are different from how the 

contributions are currently determined. And since this is a separate 

trust, those assets would need to be managed in addition to the assets 

30 PayGo+ is the proposed new trust and system set up under the Disclosure Statement for Modified Second 

Amended Title III Plan of Adjustment. In the PayGo+ trust, the Pension Plan has no long-term assets. Instead, 

PREPA contributes to the PayGo+ trust on an annual basis, and then the PayGo+ trust reimburses PREPA ERS for 

the required benefit payments.

31 Levy deposition, 135:13-17] 32 Ibid, 133:9-24.

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-- the costs of PREPA ERS managing their own assets. Those are the 

costs that come to mind that don't currently exist. 

70. Ms. Levy waffled as to whether this that this additional fee structure (3% of all 

benefit payments made) is actually being assessed in the determination of the Pension Claim.33 

In one case, Ms. Levy says the expenses impact the Pension Claim.

Question: Is the 3 percent administrative fee load included within the 

computations included in Column A?

Answer: To my knowledge, yes. 

Question: And it’s on an annual basis; right?

Answer: Yes. 

Question: And that's for each year from 2018 through 2060?

Answer: Yes. 

71. But in the case of the exchange below, Ms. Levy claims there are no explicit 

expenses whatsoever in the Pension Claim calculation (not even the 0.10% expense assumption 

that was proposed by the Oversight Board).34

Question: Is there any expense allowance used in the Column A calculation?

Answer: Expect[ed] the return assets assumption is assumed to have been 

adjusted for expenses.

Question: So the return is expected to be net of the expenses?

Answer: That's our understanding of how Cavanaugh Macdonald developed that 

assumption.

72. This 3.0% expense assumption (if it is indeed present in the Pension Claim) 

would be a wholly unnecessary inclusion of the administrative expenses associated with the 

PayGo+ funding vehicle in the determination of Pension Claim where the PayGo+ system does 

not exist.

73. Except for the above testimony, the documentation and testimony I have reviewed 

provide no alternative administrative expense load, and so I have assumed 0.1% of benefit 

payments as the administrative expense load for the purposes of determining Pension Claim. 

However, if additional information comes to light, it could cause me to adjust my computations. 

I have requested the underlying models to confirm this but have not received them. 

33 Ibid, 126:15-24. 34 PREPA Pension Inputs Discussion January 5, 2023, page 3.

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74. I reserve the right to amend this portion of my report upon the discovery of any 

data or additional information that is able to resolve the inconsistency between the deposition 

testimony noted above and the documentation I have been provided.

D. $87 million of the overstatement is attributable to the inappropriate inclusion of extra 

amortization payments due to a funding lag.

75. The Disclosure Statement’s Pension Claim is based on a flawed projection of 

employer contributions. Under the Oversight Board’s figures, the PREPA ERS would be 

projected to be fully funded by some time in 2040, however the Oversight Board does not stop 

contributions as of that date. Instead, the flawed approach upon which the Pension Claim is 

based builds in an overstated contribution for 2040 and a completely unnecessary contribution 

for 2041.

76. The overstatement occurs because the flawed projection fails to adjust for the fact 

that the normal PREPA process for funding the plan has a built-in delay. When PREPA’s 

actuaries calculate an ADC, that ADC amount isn’t actually contributed right away. Instead, it is 

contributed in the fiscal year two years later than the year for which it was calculated –

effectively ignoring any contributions made in the interim. 

77. In the normal course of “going concern” pension plan financing—that is, a 

pension plan that is assumed to exist indefinitely—this nuance is not significant. However, for 

purposes of measuring the Pension Claim, which anticipates a single, finite amortization 

payment period that ends in 2039-2040, it is significant. The “going concern” modeling at the 

end of the amortization period can lead to tacking on additional contributions that simply are not 

needed to fully amortize the liability – and the result is a Pension Claim that inappropriately 

anticipates “over-funding” the pension plan.

78. In my opinion, it is inappropriate for the Pension Claim to anticipate 

“overfunding” the plan at the end of the amortization period. The overstatement of the Pension 

Claim in the Disclosure Statement caused by this modeling flaw is $87 million. Details are 

provided in Appendix D.

79. Testifying in her deposition, Ms. Levy appears to agree in principle that it is not 

appropriate to overfund the pension plan in this context, yet in her calculations that appears to be

exactly what she has done. 

80. Ms. Levy agrees that the objective in funding the claim amount is to target a 

100% funded ratio.

35

Question: And the objective for the claim amount calculation is not to be 

overfunded; it's to be 100 percent; right? 

Answer: Yes.

35 Levy deposition,146:16-20.

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81. Ms. Levy further agrees that a revision should be made where the ADC results in 

a funded ratio exceeding 100%.

36

Question: And so if the calculation of ADC ended up above 100 percent, that 

would indicate that a revision should be made, so that does not occur 

in a hypothetical scenario? 

Answer: In a hypothetical scenario. 

82. I believe that Ms. Levy is indeed projecting to overfund the plan, but is attributing 

this to being consistent with Cavanaugh Macdonald’s approach to determining ADC. In other 

words, the Oversight Board adopted the PREPA ERS’s calculation method without thinking 

through the different purposes behind those methods. See the following note contained within 

Levy’s materials:

37

The unfunded actuarial liability that is amortized does not 

include the prior year's ADC within the asset value, to be 

consistent with the approach followed by Aon38 and 

Cavanaugh Macdonald 

83. When discussing the Cavanaugh Macdonald method, Ms. Levy further clarified 

this as follows:

And the plan asset amount does not include any contributions 

associated with the prior year’s ADC and that is to be 

consistent with the approach followed by the other actuaries 

who have determined the ADC.

39

84. I see the result of this alleged consistency in the March 8, 2021 Cavanaugh 

Macdonald LUMA study.

40 This report decisively shows that Cavanaugh Macdonald’s own 

method of determining ADCs results in a projected funded status of over 100% at June 30, 2040 

and worse – a projected funded status that increases significantly by fiscal year end 2041.

85. Although this method of not including the prior year’s ADC (meaning the one 

calculated in the prior year, but payable in a subsequent year) may be reasonable for an ongoing 

pension funding schedule, it is inappropriate during its last year of amortization. When a 

pension plan approaches the last two years of an amortization schedule, additional care is needed 

to ensure that contributions do not result in the overfunding of the plan.

36 Ibid, 146:21-147:2. 37 PREPA Pension Claim and Recovery January 27, 2023, Appendix B. 38 Levy deposition, 66:15-19 39 Ibid, 141:10-15. 40 Cavanaugh MacDonald 2021 LUMA Study, March 8, 2021 (235915 - Cavanaugh MacDonald 2021 LUMA 

Study.pdf.pdf).

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E. $546 million of the overstatement is attributable to the use of an inappropriate cash 

flow discount rate.

Background on the Oversight Board’s selection of the 3.58% discount rate

86. A discount rate of 3.58% is used in the Oversight Board’s claim and recovery for 

the purpose of calculating the present value of cash flows occurring in the future. With respect 

to the determination of the Pension Claim, this discount rate applies to the present value of the 

future ADCs. With respect to the determination of the Pension Recovery, this discount rate 

applies to the present value of the future PayGo+ reimbursements to PREPA ERS. The purpose 

of calculating the present values using the discount rate is to provide comparability between 

these two different values – including the calculation of a Pension Recovery Percentage.

87. Like all actuarial assumptions used in the Oversight Board’s work, Ms. Levy 

claims this discount rate was prescribed by the Board.41 The same document42 states that 

“approach was directed by the Board under the advice of counsel.” Nowhere in this document is 

there any indication that Ms. Levy has assessed this assumption for reasonableness as part of her 

analysis.

88. In choosing a discount rate, a key consideration for the actuary is the purpose or 

intended use of the calculations to be performed using the rate.

89. Here, a document entitled “PREPA Pension Inputs Discussion,” dated January 5, 

2023 (“PREPA Pension Inputs document”)43 provides a variety of considerations for the 

selection of this 3.58% rate, including a reference to the Society of Actuaries Report of the Blue 

Ribbon Panel on Public Pension Plan Funding (“Blue Ribbon Report”). In her deposition, Ms. 

Levy stated that the 3.58 rate was based on the Blue Ribbon Report:

Question: Do you have an understanding of why a 3.58 discount rate was used 

for purposes of the claim recovery calculations?

Answer: My understanding is the board wanted to use a rate that was 

consistent with the description in the bullet that begins, “The Society 

of Actuaries’ report of the blue ribbon panel.”

90. In her deposition, Ms. Levy confirms that she did not assess this 3.58% discount 

rate as being reasonable:

44

Question: And EY didn’t vet or determine that that choice [3.58%] was 

reasonable or unreasonable; right?

Answer: I did not.

41 PREPA Pension Claim and Recovery January 27, 2023, Appendix A. 42 Ibid, Appendix E. 43 PREPA Pension Inputs Discussion January 5, 2023, page 4. 44 Levy deposition, 163:5-8.

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Ms. Levy’s use of the Blue Ribbon Report was a faulty application of the report’s 

recommendation.

91. This represents a faulty application of the Blue Ribbon Report’s recommendation 

to the task at hand, which was to choose a discount rate for the purposes of calculating the Claim 

and Recovery amounts. The Blue Ribbon Report instead offered a recommendation for selecting 

a funding discount rate. 

92. Ms. Levy, in her January 5, 2023 Pension Inputs document, borrows language 

from the Blue Ribbon Report in an apparent attempt to set forth the Oversight Board’s rationale 

for prescribing this 3.58%.45 That passage from the Blue Ribbon Report was discussed during 

Ms. Levy’s deposition:

“However, the Panel believes that the rate of return assumption should be based 

primarily on the current risk-free rate (e.g., the U.S. Treasury yield curve) plus 

explicit risk premia or on other similar forward-looking techniques.” 46

93. But this quote omits relevant context for which the Blue Ribbon Report offered 

this recommendation. Directly preceding the passage47 that the Oversight Board relied upon is 

the following sentence which makes it clear that the Blue Ribbon Report’s recommendation was 

for funding calculations (emphasis added):

“Finally, the Panel makes specific recommendations on methods and 

assumptions used by plans for the purposes of funding calculations; 

specifically, discount rates, amortization periods, asset smoothing, and the use of 

direct rate smoothing or alternative funding methods....”48

94. The 3.58% interest rate is used in the context of comparing different pensionrelated cash flows in the Plan of Adjustment, not in the context of funding calculations.

The Actuarial Standards of Practice issued by the Actuarial Standards Board are

the only authoritative guidance for actuarial calculations.

95. The Blue Ribbon Report is not authoritative guidance for actuaries. The Actuarial 

Standards Board considered the recommendations in the Blue Ribbon Report, but the report’s 

recommendations ultimately were not adopted nor incorporated into the ASOPs. 

The Oversight Board’s selection of the 3.58% interest rate is inconsistent with its 

own rate of PREPA’s borrowing costs in 2017.

96. The PREPA Pension Inputs document reflected various other considerations, such 

as the municipal bond index, Puerto Rico’s borrowing cost, GASB’s accounting interest rates or 

the “explicit risk premia.” One of those potential inputs – the 20-year municipal bond index on 

45 PREPA Pension Inputs Discussion, January 5, 2023, page 4. 46 Levy deposition, 154:22 – 155:16 47 Report of the Blue Ribbon Panel on Public Pension Plan Funding, February 2014, page 8 48 Ibid.

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June 30, 2017 – coincides with the 3.58% discount rate chosen by the Oversight Board. But 

when asked in her deposition about these other possible inputs Ms. Levy said that she neither 

performed any analyses based on these considerations nor had knowledge of how these 

considerations were applied by the Oversight Board in the selection of the 3.58% interest rate.

49

97. Nevertheless, the PREPA Pension Inputs document states that “municipal bond 

rates offer a reasonable proxy at the cost of funds for Puerto Rico and reasonably reflect market 

available rates for settlement of the obligation.” 50 This, too, was not analyzed by Ms. Levy, who 

testified that she did not examine the actual “cost of funds for Puerto Rico” (or PREPA) in 

2017.51 Nor did Ms. Levy examine the interest rate of Series-B bonds contemplated under 

PREPA’s Plan of Adjustment (which at least would reflect some measure of actual cost of funds 

to PREPA as of 2023).52 And, notably, the Oversight Board’s own analysis in the Estimation 

Proceeding reflects the selection of 6.5% discount rate for the cost of capital in 2017 – a far cry 

from the 3.58% used by the Oversight Board in its pension analysis.53 

5.45% is the most appropriate rate for comparing the values of different pensionrelated cash flows in the Plan of Adjustment.

98. In my view, the most appropriate interest rate for the purpose of comparing the 

values of different pension-related cash flows in the Plan of Adjustment is 5.45%. 

99. The cost of funds interest rate is well established in finance for managing and 

allocating resources to different uses and is mentioned as a consideration in the Oversight 

Board’s PREPA Pension Inputs document.54

100. Here, the interest rate used by the Oversight Board in Series B Bonds – as well as 

in other calculations in PREPA’s Plan of Adjustment – is 6.00%, which was determined in 2023. 

Using that same interest rate would ensure comparability and not cause one present value to be 

larger than other present values merely because different interest rates are selected.

101. However, the 6.00% should be adjusted to account for the fact that the 

calculations are being done as of 2017, not as of 2023. In particular, according to Thomson 

Reuters Municipal Market Data, BAA municipal yields (at a 12-year duration) in 2017 were 

0.55% lower than in 2023.55 Thus, we decrease the interest rate from 6.00% to 5.45%.

49 Levy deposition, 155–169. 50 PREPA Pension Inputs Discussion, January 5, 2023, page 3 - 4. 51 Levy deposition, 158-160. 52 Ibid, 160. 53 See Report of David Plastino, dated May 5, 2023, paragraph 50. 54 PREPA Pension Inputs Discussion January 5, 2023, page ___. 55 The Thomson Reuters Municipal Market Data (MMD) for BAA rated bonds at a 12-year duration showed a yield 

of 3.72% in March 1, 2023, and 3.17% on July 1, 2017, for a decrease of 0.55%. I determined the duration of the 

Pension Claim to be approximately 12 years.

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F. $299 million of the overstatement is attributable to use of an overly conservative 

discount rate assumption for pension funding.

An actuarial present value is akin to a “hypothetical pot of money.”

102. Financial analysts regularly deploy present value concepts in their work. 

Actuaries take these present value concepts one step further and determine an “actuarial present 

value.”

103. To the layperson, however, an actuarial present value is nothing more than the 

“hypothetical pot of money” needed at a point in time to fund the expected payouts associated 

with, say, a pension obligation. In other words, it addresses how much money would be needed 

to be contributed today to fund all the benefits needed in the future.

The Pension Claim can be thought of as the “hypothetical pot of money” expected to 

be needed at the claim valuation date to fund the vested pensions earned as of that 

date.

104. The Pension Claim is based on the vested benefits earned as of the claim 

valuation date. Because pension benefits are paid over retirees’ lifespans, assumptions have to be 

made in order to ascertain an expected value of those vested pensions. The resulting calculation 

of actuarial present value results in the amount needed in the “pot” in order to fund those future 

vested pension payments.

105. Because of uncertainty about the future, valuing the “hypothetical pot of money”

requires making certain assumptions, most importantly about how much money the pot can be 

expected to earn over the future years of expected payouts.

The reputable and widely used Horizon study indicates an expected rate of return 

assumption of 6.30% for the PREPA ERS as of June 30, 2017. 

106. The first step in determining a reasonable rate of return requires the consideration 

of a fund’s asset valuation. In this case. PREPA ERS investments are allocated such that the 

majority of assets are invested in equities (e.g., US Large Cap Equities) with the balance being 

invited in bonds. From that distribution, the next step is to determine what rate of return that 

distribution generates on average. 

107. The best available source for these assumptions is the Survey of Capital Market 

Assumption, 2017.56 Horizon Actuarial Services, LLC, annually surveys and aggregates the 

capital market assumption models from dozens of reputable investment advisors57 in order to 

create an industry-wide perspective into the capital market expectations of the major investment 

firms in the United States. This survey is the most widely used survey by pension plan sponsors 

56 https://www.horizonactuarial.com/blog/2017-survey-of-capital-market-assumptions 57 35 investment advisors participated in the 2017 survey.

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and actuaries across the U.S. In fact, PREPA ERS itself, relies on the Horizon survey for 

research into expected returns.58

108. Applying the Horizon Survey methodology to the PREPA ERS asset target 

allocation in 2017 yielded a geometric (annually compound) expected portfolio return of 6.30%.

While the actual future returns on a pot of money invested as of June 30, 2017 would no doubt 

be different from the 6.30% due to the inevitable volatility of investment results, the 6.30% is an 

unbiased return expectation set in accordance with ASOP No. 27, Selection of Economic 

Assumptions for Measuring Pension Obligations.

59 See Appendix E for more detail on the 

development of this expected return assumption.

6.30% is a reasonable discount rate assumption for determining and discounting 

future PREPA ERS ADCs as of June 30, 2017, and in my opinion is more 

reasonable than using either 3.58% or 5.75% as an expectation of earnings for a 

“pot of money” that is representative of the Pension Claim.

109. In my opinion, 6.30% is a reasonable discount assumption both for determining 

ADC's as well as for discounting those ADCs back to the claim valuation date, June 30, 2017. 

Applying the hypothetical pot of money logic, the most commonly used logic for setting 

discount rates that reflect the time value of money, the long term expected investment return of 

6.30% produces a reasonable, unbiased, Pension Claim measure. 

110. The Oversight Board offers no rationale for either of the two alternative rates 

underlying the Disclosure Statement measure of the Pension Claim (neither 3.58% nor 5.75%), 

and there is a strong rationale for using 6.30%. The overstatement of the Disclosure Statement’s 

Pension Claim caused the inappropriate use of overly conservative discount rates is $299 million. 

Details are provided in Appendix D.

G. Summary tabulation of the reasonable and appropriate Pension Claim of $2.616 billion 

after correcting for the $1.339 billion of overstatements.

111. The table below tabulates the impact of the key corrections to the Disclosure 

Statement’s estimate of the Pension Claim. In my opinion, a reasonable, unbiased estimate of 

the Pension Claim is $2.616 billion. The detail of all these adjustments to the Pension Claim are 

shown in Appendix D.

58 For example, see the June 30, 2019 Audited Financial Statements, Page 73. 59 Actuarial Standard of Practice No. 27 Revised Edition Selection of Economic Assumptions for Measuring 

Pension Obligations, Doc. No. 172.

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The Pension Claim is $2.616 billion after making five key corrections to the estimate in the 

Disclosure Statement ($ billions). 

Impact of Correction

Value of 

Pension Claim

as of June 30, 

Incremental Cumulative 2017

Disclosure Statement -- -- $3.955

Value vested benefits only; measure value using unit 

credit method ($0.407) ($0.407) $3.548

Correct for inadvertent over-funding ($0.087) ($0.494) $3.461

Correct for reasonable cost of borrowing ($0.546) ($1.040) $2.915

Correct to reflect reasonable expected rate of return ($0.299) ($1.339) $2.616

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VI. THE PLAN PROVIDES A RECOVERY OF BETWEEN 89% AND 95% OF THE 

CLAIM AMOUNT

A. The Pension Recovery Percentage in the Disclosure Statement is understated. 

112. In my opinion, the Disclosure Statement’s Pension Recovery Percentage of 86% 

is significantly understated. My calculation of the Recovery Percentage is between 89% and 

95%. 

113. The understatement is attributable to these factors:

• The Pension Claim differs from the overstated Pension Claim reported in the 

Disclosure Statement, as I described in the preceding section of this report. 

• The correctly computed value of the Pension Recovery differs from the overstated 

value reported in the Disclosure Statement, as I describe below in this section of 

my report.

• I further describe and quantify the overstatement of the Pension Recovery in the 

following section. In addition, I consider the discounting of the year-by-year 

Pension Recovery at two different discount rates.

B. The various Recovery Ratios calculated by the Oversight Board and shown in the 

Disclosure Statement contain flaws and inconsistencies. 

114. The 86% “approximate recovery” percentage60 shown in the Disclosure Statement 

is based on a flawed calculation, as I will explain below. 

115. The Pension Recovery Percentage is the ratio of the amount of the Pension 

Recovery to the Pension Claim – in other words, the portion of the Pension Claim that is to be 

recovered. Pension benefits are typically both funded by contributions over a period of years and 

paid out to participants over a period of years. Thus, both Pension Claim and the Recovery 

amounts are each a single actuarially calculated present value, as of a specific point of time, 

covering the pension benefits to be funded and paid over a number of years.

116. The actuarially calculated present value (both for the Pension Claim and for the 

Pension Recovery) is essentially, in layman’s terms, simply the benefits to be funded and paid 

over a period of years “collapsed” into a single value. 

117. It stands to reason that when comparing the amount to be recovered within the 

amount of the Pension Claim, the two periods of years over which the pensions are funded (i.e., 

the Pension Claim) and paid out (i.e., the Pension Recovery) should be the same. However, in 

the case of the 86% shown in the Disclosure Statement, the period of years used in the recovery 

amount is not the same as the period of years used in the claim amount.

60 Ibid, page 29.

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118. The Pension Recovery Percentage of 86% in the Disclosure Statement appears to 

be calculated based on the Pension Claim in the Disclosure Statement of $3.955 billion 61 and the 

adjusted Recovery of $3.412 billion shown later in the Disclosure Statement.

62

119. The pension exhibit dated April 26, 2023 reveals a flaw in the computation of the 

86% Recovery Ratio.63 The Pension Claim included contributions from fiscal years 2018 – 2053

while the Pension Recovery was only given credit for contributions made from fiscal years 2024 

– 2053. This results in shortchanging the dollar amount of the Oversight Board’s Recovery by 

$348.6m – the total contributions made to PREPA ERS during fiscal years 2018 – 202364. 

120. I also note that this 86% Recovery Ratio was not a figure that Ms. Levy had been 

aware of, as evidenced by this exchange in her deposition.65

Question: Let's go back to page 28 for a moment. Are you aware of any 

document that reflects how the 86 percent recovery was calculated?

Answer: No. 

The Oversight Board has stated at least one other Recovery Percentage that 

conflicts with and is not consistent with the 86% shown in the Disclosure Statement 

and which thereby creates confusion. 

121. The Oversight Board’s PREPA Pension Claim and Recovery document dated 

January 27, 2023 details the calculation of a Pension Recovery Percentage that differs from the 

Recovery Percentage in the Disclosure Statement. The Recovery Percentage in that document is 

92%. 

122. Ms. Levy, testified in her deposition that the January 27 document containing the 

92% Recovery percentage $3,955.7 million Claim was created in whole by her and her team.

66 

Levy further confirmed that she calculated the $3.955 billion Pension Claim.

67,68

123. Levy stated that the most recent Recovery amount she had calculated was not the 

$3,412 million shown in the Disclosure Statement, but rather $3,626.1 million. Using this 

recovery amount results in a Recovery Ratio of 92%.

Question: So this 3.626 recovery, is that correct?

61 Ibid. 62 Ibid, page 81. 63 PREPA Pension POA Savings Estimates February 8, 2023 with exhibit 6 appended April 26, 2023 64 The present value would be $316m if the OSB’s discount rate of 3.58% were applied to the payment stream. 65 Levy deposition, 43:12-17 66 Ibid, 46:8-17 67 Ibid, 40:25-41:6. 68 I note that Levy’s Claim of $3,955.7m rounds to $3,956m which is slightly different than the Claim shown in the 

Disclosure Statement, but for purposes of my report I am assuming that these are the same figures based on Levy’s 

deposition.

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Answer: That is the most recent amount that I estimated based on the most 

recent instructions given to me related to the recovery.

Question: And you see there, it says "recovery percentage, 92 percent"?

Answer: Yes.

124. Ms. Levy’s Recovery Percentage is the ratio of the Recovery payments (from 

fiscal years 2018 – 2059) to the Claim payments (from the same fiscal years, 2018 – 2059).

The Implied 94% Recovery percentage

125. The combination of Pension Claim and Pension Recovery percentage in the most 

recent Disclosure Statement can also be used to create a 94% Pension Recovery percentage. 

This is computed by using the $3.412 billion Pension Recovery (as described above) and yet a 

different Pension Claim amount of $3.622 billion.69

126. The Pension Claim of $3.622 billion is obtained by removing contributions from 

2018 to 2023, as described in footnote 41 of the most recent Disclosure Statement. In this 

calculation both the Claim and the Recovery percentage are only accounting for payments from 

fiscal years 2024 to 2053.70 This removed the flaw of using different years for Pension Claim 

and Pension Recovery. The result is that the Pension Recovery Percentage increases from 86% to 

94%.

C. The Pension Recovery amount reported in the Disclosure Statement is overstated.71

The Pension Recovery amount reported in the Disclosure Statement inappropriately 

includes benefits that were not vested as of the claim valuation date.

127. Because the proper determination of the Pension Claim should include only 

benefits that are vested as of the claim valuation date, the same should be true of the Pension 

Recovery amount. 

128. The Pension Recovery amount reported in the Disclosure Statement also includes

both benefits that were earned by employees after June 30, 2017 as well as employees that were 

hired after June 30, 2017. Thus, to be consistent and to assure an “apples-to-apples” comparison, 

I have removed from my calculation of the Pension Recovery amount any benefits derived from 

the continued accrual of pension benefits after June 30, 2017 or from employees hired after June 

30, 2017.

69 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment, page 29, footnote 41. 70 PREPA Pension POA Savings Estimates February 8, 2023 with exhibit 6 appended April 26, 2023, page 2. 71 In fact, the March 1, 2023 Disclosure Statement provides no detail on the precise amount of the Pension 

Recovery. However, the preliminary Disclosure Statement dated January 27, 2023 does include such detail. It is this 

January 27, 2023 detail on which I rely for purposes of my analysis. My year-by-year recalculation of the Pension 

Recovery amount reflecting the two identified corrections is shown in Appendix F.

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The Pension Claim recovery amount reported in the Disclosure Statement 

inappropriately includes an unreasonable allowance for expenses.

129. Just as I corrected for the unreasonably high “load “of 3% applied to the benefits 

and liabilities for purposes of calculating a reasonable value for the Pension Claim, the same 

correction should be made with respect to the Pension Claim recovery amount. Thus, to be 

consistent and to assure an “apples-to-apples” comparison, I have removed from my calculation 

of the Pension Claim recovery amount the effect of this unreasonable 3% expense “load” and 

replaced it with a reasonable “load” of 0.2% to recognize the additional costs of running the new

PayGo+ trust. This still allows for some of the increase predicted by Ms. Levy, but not the 

3,000% increase recommended by the Board.

The Pension Claim recovery amount shown in the Disclosure Statement fails to 

account for the investment return on the participant loans. 

130. Under PREPA ERS individuals could take out loans with their pensions as 

collateral. These loans would then be paid back to PREPA ERS with interest. A significant 

amount of these loans are still outstanding, and will be paid back.

131. The pension plan has outstanding loans to participants in the amount of $156

million.

72 The annual repayments of these loans impact the recovery. 

132. Specifically, the Recovery anticipates that the “Assumed illiquid balance of $156

million in loans at July 1, 2023 remain, decreasing by 5% per year”.

73 The repayment of the 

loans are assumed to flow into the PREPA ERS trust and reduce the amounts needed in the 

PayGo+ trust to fund the current year’s benefit payments.74 

133. However, the participant loans in the amount of $156 million are not assumed to 

earn any interest.

75 The lack of an interest return assumption on the repayment of participant 

loans overstates the amounts needed to fund the PayGo+ trust.

134. In my analysis, I calculated adjusted cash flows into the PREPA ERS trust 

appropriately reflecting interest on the loan repayment amounts. For my calculations I assumed a 

rate of interest based on documentation of the reported returns for these funds.

72 PREPA Pension POA Savings Estimates February 8, 2023 with exhibit 6 appended April 26, 2023, Appendix B. 73 Ibid. 74 Levy deposition, 187:7-15. 75 Ibid, 196:2-9

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135. The illiquid balance is known as the “Internally Managed Portfolio” within the 

2022 Fiscal Plan76. The Internally Managed funds have a reported return of 7.07% for the 10 

years ending June 30, 201777 and 6.24% for the period of July 1, 2017 to June 30, 2022.78 

136. Given this data, in my recovery calculations I assume a return of 6.24% for the 

illiquid balance of $156 million as of June 30, 2023. I increase the maturation assumption79 from 

5% to 10.58%80 to account for the annual growth in the accounts. Under this new loan 

maturation assumption, the outstanding principle remains constant at the end of each year.81 See 

Appendix G for more detail. 

137. As a result of factoring in investment return on the loan repayments, the amounts 

available in the PREPA ERS are increased each year, this reducing the amounts needed for the 

PayGo+ trust. As an example, in fiscal year 2024 this increases the amounts available to PREPA 

ERS by $9.7 million, and this $9.7 million in turn reduces the amounts needed to fund the 

associated PayGo+ trust by $9.7 million.

138. Recognizing the investment return on participant loan repayments, I estimate that 

this decreases the amount PREPA needs to fund PayGo+. This has a value of $85 million when 

such investment return is discounted using the Oversight Board’s prescribed rate of 3.58%. See 

Appendix G of this report for more detail.

D. Despite Ms. Levy stating her most recent Recovery Percentage was 92% and evidence 

of a 94% Recovery Percentage, the Disclosure Statement still shows an 86% Recovery 

Percentage. The proper Recovery Percentage is either 89% or 95%, depending on 

which interest rate assumption is used for discounting.

139. The Disclosure Statement anticipates a 3.58% interest rate for discounting the 

year-by-year recovery cash flows and so for comparison purposes, I have discounted the 

corrected recovery cash flows using that same 3.58% rate. I am using this rate for comparability 

to the Oversight Board’s calculations only.

76 2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority As certified by the Financial Oversight 

and Management Board for Puerto Rico on June 28, 2022, page 175. 77Asset Consulting Group Employees' Retirement System of Puerto Rico Electric Power Authority For the Periods 

Ending June 30, 2017 78Asset Consulting Group Employees' Retirement System of Puerto Rico Electric Power Authority For the Periods 

Ending June 30, 2022 79 Levy describes 5% rate of decrease as a maturation assumption in the deposition. See Levy deposition, 152:,13-

21.

80 This assumption was chosen such that the principle remaining at each future fiscal year remains the same, so the 

only difference accounting for interest. 10.24% = [ 1 – (1 – 5%) / (1 + 6.24%) ] 81 For example, if 5% of the $156m in loans mature under the Oversight Board’s assumption then the balance after 

the first year is $148.2m =156m x (1 – 5%). Using this new assumption, the balance after the first year remains 

$148.2m =156m x (1 + 6.24%) x (1 – 10.58%).

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140. As shown in the prior section, I have calculated a Pension Claim that makes 

corrections to the Oversight Board’s calculations while using a 5.75% discount rate but a 5.45% 

to discount the ADCs. I have shown the Pension Recovery Percentage on this basis in the table 

below. 

141. As shown in the preceding section of this report, I have recalculated the value of 

the corrected Pension Claim using a 6.30% discount rate. So, for the purposes of an additional 

“apples-to-apples” comparison I have also discounted the recovery cash flows using this rate. 

142. The table below summarizes my recalculation the present value of the corrected 

year-by-year Pension Recovery amounts at 3.58%, 5.45% and 6.30%, and then compares those 

values to the corresponding Pension Claim values in order to calculate a range of reasonable and 

appropriate measures of the Pension Recovery Percentages: 89% to 95%

Reasonable and appropriate measure of the Recovery Percentage ($ billions)

Disclosure 

Statement82

Reflecting Pension Claim Recovery 

Corrections

Discounting at 

3.58%83

Discounting at 

5.45%

Discounting at 

6.30%

Pension Claim $3.955 $3.461 $2.915 $2.616

PV of Recovery $3.412 $3.281 $2.582 $2.334

Recovery percentage 86% 95% 89% 89%

143. The table below summarizes applies the various recovery percentages (shown in 

the Disclosure Statement84) to the correctly calculated Pension Claim of $2.616 billion. 

Claimant

Disclosure Statement: 

Approx. Recovery (%)

Application of Approx Recovery to the 

Pension Claim of $2.616b

Non-Settling Bondholder and 

Non-Settling Monoline Claims

46.49%85 $1.216 billion

Pension Claim 86% $2.250 billion

Fuel Line Loan Claims 84% $2.198 billion

National Insured Bond Claims 71.65% $1.875 billion

82 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment page 29. PV of recovery of 

$3.412 billion is inferred as 86% of $3.955 billion.

83 Based on the discount rate selected by the Oversight Board, PREPA Pension POA Savings Estimates February 8, 

2023 with exhibit 6 appended April 26, 2023, Appendix E.

84 Disclosure Statement for Modified Second Amended Title III Plan of Adjustment, page 29. 85 Approx. Recovery (%) under scenario "Oversight Board wins lien counts but loses recourse counts." I understand 

from counsel that these numbers may not reflect the full recoveries available to these claimants under the Plan of 

Adjustment.

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VII. RESPONSE TO THE EXPERT REPORT OF JOSE FERNANDEZ

144. Jose Fernandez is the President and Consulting Actuary of Fase2 C&W, LLC 

(Fase2), a consulting group that provides actuarial services for “public pension systems.” His 

opening report was submitted by PREPA ERS to this Court on April 28, 2023.

A. Fernandez failed to take into account $595 million in assets when setting his claim. This 

and other mistakes cause his claim to be overstated by $936 million

145. Fernandez asserts that the ERS Retirement System’s claim is $4,459.5 million

based on the June 30, 2021 actuarial valuation report using a 5.75% discount rate86. This is a 

flawed claim number in numerous ways.

146. The bankruptcy petition date is July 2, 2017. The closest pension measurement 

date is June 30, 2017 and not June 30, 2021. The date of June 30, 2021 is irrelevant to this 

process. However, for purposes of this analysis, I show the flaw in his claim methodology using 

his measurement date of June 30, 2021.

147. Fernandez’s claim is based on an actuarial liability known as the “Present Value 

of Future Benefits”, which exceeds the Entry Age Normal actuarial accrued liability by $229.7 

million due to valuing all future pay and future service for active employees. Reducing his claim 

of $4,459.5 million87 by the amount of liability on account of future pay and service reduces the 

claim to $4,229.8 million, which is the Entry Age Normal actuarial liability88.

148. However, as discussed earlier in this report, the Entry Age Normal Actuarial 

liability itself overstates the value of the benefits that had been earned as of the measurement 

date. The reduced claim of $4,229.8 million itself by $111.5 million89 to $4,118.2 million. This 

$4,118.2 million is the approximate unit credit liability at Fernandez’s measurement date of June 

30, 2021.

149. Finally, the Pension Claim should be reduced by the assets currently available to 

pay pension benefits. As of June 30, 2021, the 2021 actuarial report showed a market value of 

asset of $1,263.0 million and a contribution receivable of $668.1 million. 

150. The amount of assets available to pay pension benefits as of June 30, 2023, should 

be reduced by contribution receivables because contribution receivables are the amount owed by 

PREPA to the Retirement System and had not been contributed to the pension plan. Therefore, 

the amount of assets available to pay pension benefits is $594.9 million (obtained as $1,263.0

million minus $668.1 million). 

86 In Mr. Jose Fernandez’s expert declaration, page 8, he states that “The total actuarial liabilities of $4,459.5 million 

is the estimated claim by the Retirement System to maintain the promised benefits under the current System without 

any changes or reform.” 87 Employees’ Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Sixth Actuarial 

Valuation As of June 30, 2021, page 7. 88 Ibid, page 1. 89 This calculation is estimated based on my June 30, 2017 results.

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151. After reducing the claim by the amount of assets available to pay benefits, 

Fernandez’s claim after correcting for his flawed methodologies would have been $3,523.3 

million measured at a 5.75% discount rate as of June 30, 2021, a reduction of $936 million from 

his original Claim of $4,459.5 million

B. Correcting for Fernandez’s flaw claim amount, the Recovery Percentage would have 

been 95%.

152. Fernandez calculates a Recovery of $3,344.8 million as of June 30, 202390. This 

Recovery amount is calculated as the present value of benefits reflecting the Oversight Board’s 

pension reforms using a 5.75% discount rate. To obtain the Recovery Percentage, Fernandez 

divides the Recovery amount $3,344.8 million by his Claim amount. He calculates 75% as the 

Recovery Percentage.

153. His Recovery Percentage calculation suffers from the problem of mismatched 

dates because the recovery amount of $3,344.8 million is as of June 30, 2023, while his claim is 

calculated as of June 30, 2021. The mismatch of the “as of” dates causes different years to be 

used for Claim versus Recovery. This mismatch of dates would produce unreliable Recovery 

Percentage.

154. Putting aside the mismatch of dates, if I take his recovery amount of $3,344.8

million and divide it by the corrected claim amount of $3,523.3 million, the Recovery Percentage 

would have been 95%, significantly higher than his 75% Recovery Percentage.

155. In Fernandez’s report, he also calculates a recovery of $3,746.0 million if the 

Retirement System were to receive 84% of the Pension Claim, the same Recovery Percentage as 

the Fuel Line lenders (FLL). However, the $3,746.0m figure is based on his flawed Pension 

Claim of $4,459.5m. If the corrected Pension Claim of $3,523.3m is used, the 84% Recovery 

Percentage would produce a much lower Recovery amount of $2,959.6m.

C. Mr. Fernandez’s analysis of the Retirement System’s reform proposal is flawed and 

results in an inexplicable conclusion. 

156. In his report, Mr. Fernandez also summarizes the Retirement System’s reform 

proposal, which proposes to eliminate future pension increases for current inactive members (i.e., 

current retirees, beneficiaries, and terminated vested members entitled to deferred benefits), 

while maintaining all active employees’ current benefits in a new defined benefit trust. This 

proposal provides for more generous pension benefits than the Oversight Board’s proposed 

pension reform for active members.

157. Mr. Fernandez’s analysis of the actuarial viability of the Retirement System’s 

proposal depends crucially on the initial funding of the new plan for active members. As he 

stated,

90 Mr. Jose Fernandez’s expert declaration, page 9.

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The employer contributions will vary depending on the funds the new plan will receive 

to fund the actuarial accrued liabilities transferred from the current System....The 

greater the initial assets of the new plan, the lower the ongoing employer contributions.91

158. In his analysis of the actuarial viability of the Retirement System’s proposal under 

the assumption that the Retirement System receives the same treatment as the Fuel Line Lenders 

(FLL), Mr. Fernandez assumes that $731.692 million would be available as the initial assets for 

the new active employees’ plan. With this initial funding, he shows a total savings of $656.1 

million for the Retirement System’s proposal compared to the Oversight Board’s proposal.93

159. This analysis is flawed because the purported “savings” is obtained by not 

counting the initial asset of $731.6 million as a cost to the employer. If the initial asset of $731.6 

million are added in as an employer cost under the Retirement System’s proposal, then the 

“savings” would disappear. Further, his total savings is the nominal sum of the differences in 

annual employer contributions on or after fiscal year 2024. This has the effect of counting the 

investment earnings on the initial assets as future savings. Thus, by not counting the initial 

$731.6 million as a cost but including the future investment returns on $731.6 million as savings, 

Mr. Fernandez’s methodology produced an inexplicable result, namely, that a more generous 

pension benefit proposal under the Retirement System ended up saving money for the employer.

***** 

160. I declare under penalty of perjury that the foregoing is true to the best of my 

knowledge, information and belief.

May 15, 2023

__________________________ 

Thomas S. Terry

91 Fernandez report, page 13. 92 The 731.6 million is calculated as 84% * $4,459.5 – $3,014.4, where 84% is the recovery percentage for the fuel 

line lenders, $4,459.5 is the “all-in” present value of future benefits, and $3,014.4 is the current retirees’ benefit 

obligation after the elimination of COLA

93 Fernandez report, page 14.

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APPENDICES

Appendix A. Thomas S. Terry CV

Appendix B. Materials Considered in the Preparation of this Report

Appendix C. Data, Assumptions and Methods, and Plan Provisions

Appendix D. Development of Reasonable and Appropriate Pension Claim Cash Flows

Appendix E. Development of a Reasonable and Appropriate Interest Rate Assumption

Appendix F. Development of Reasonable and Appropriate Recovery Cash Flows

Appendix G. Participant Loan Repayment Schedule

Appendix H. Reliance on Models 

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Appendix A: Thomas S. Terry CV

Thomas S. Terry, MAAA, FSA, FCA, EA

CEO

The Terry Group

130 E. Randolph Street, Suite 2810

Chicago, IL 60601

Education

Masters of Actuarial Science, Graduate School of Business Administration, University of 

Michigan, 1975

Bachelor of Science, Tufts University, 1973

• Summa Cum Laude

• Double major in math and physics

• Phi Beta Kappa

• Winner, N. Hobbs Knight Prize Scholarship for excellence in theoretical and practical 

physics

Professional Experience

The Terry Group, 2010 to present

• Founder and CEO

J.P. Morgan Compensation and Benefit Strategies, 2006 to 2010

• CEO of J.P. Morgan Compensation and Benefit Strategies

• J.P. Morgan acquired CCA Strategies in October 2006

CCA Strategies LLC, 1991 to 2006

• Co-founder and President

• Firm of approximately 200 professionals in ten offices across the U.S.

Towers Perrin, 1975 to 1991

• Principal and Vice President

• More than two thousand actuaries and employee benefits professionals world-wide

• Retirement Plan Practice Leader in Chicago office

Professional Associations and Research Organizations: Roles and Memberships

International Actuarial Association (association of world-wide actuarial associations):

• President, 2017

• Chair, Pensions and Employee Benefits Committee, 2015 

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Global Aging Institute (Washington DC based research organization):

• Board Chair, 2014 to present

American Academy of Actuaries (national professional association for US practicing actuaries):

• President, 2014

• Board of Directors, 2005 to 2009, 2013 to 2015

• Chair of Public Interest Committee, 2009 to 2012

• Member, Strategic Planning Committee, 2010

• Vice President for Pensions, 2007 to 2009

• Chair of Stock Options Task Force, 2004 to 2008

• Chair of Defined Benefit Revitalization Task Force, 2002 to 2004

• MAAA, since 1981

Board of Actuaries (oversight responsibility for the U.S. government’s Civil Service Retirement 

System and the Federal Employees Retirement System):

• Board chair, since 2013

• Board member, since 2010

Social Security Advisory Board Technical Panel:

• Member, 2018-2019

Society of Actuaries (education and research):

• Vice President and board member, 2010 to 2012

• Board member, 2007 to 2010

• FSA, since 1976

Conference of Consulting Actuaries (continuing education):

• President-elect, President, 2006 to 2007

• Treasurer, 2003 to 2005

• Vice President, Pensions, 2001 to 2003

• Board member, 2001 to 2009

• Member, since 1982, FCA, since 2001

Publications

Communicating Longevity Risk – More Things to Think About

Co-authored with Liaw Huang; Contingencies Magazine, November-December 2015

Communicating Longevity Risk – Beyond the Definitions

Co-authored with Liaw Huang; Contingencies Magazine, September-October 2015

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Uncertain Times, Plural Rationalities and the Pension Fiduciary in Handbook of Institutional 

Investment and Fiduciary Duty (edited by James P. Hawley, et al, 239-253) Liaw Huang, David 

Ingram, Thomas Terry, and Michael Thompson – Cambridge University Press, 2014

Public Interest – Preserving the Trust

President’s Message, Contingencies Magazine, November-December 2014

The Aging of America

President’s Message, Contingencies Magazine, September-October 2014

A New Retirement Paradigm

President’s Message, Contingencies Magazine, July-August 2014

Public Confidence – What Does It Take?

President’s Message, Contingencies Magazine, May-June 2014

Promoting Objective Public Policy in a Partisan World

President’s Message, Contingencies Magazine, March-April 2014

Keeping Up with the Brits

President’s Message, Contingencies Magazine, January-February 2014

A Year Well Spent

President’s Message, Contingencies Magazine, November-December 2013

Communicating Longevity Risk – Beyond the Definitions

Co-authored with Liaw Huang; presented in Beijing at Longevity 9 Conference, 2013

Congressional Testimony

Testimony on Social Security’s Current Benefit Expenditures, Proposed Changes to Future 

Benefits and the Impact Those Change Would Have on the Program, Future Beneficiaries, 

Workers, and the Economy. U.S. House of Representatives Ways and Means Committee 

Subcommittee on Social Security, July 2011

Expert Trial or Deposition Testimony within Previous Ten Years

Berube v. Rockwell Automation Inc., et. al., Case No. 2:20-cv-01783 (United States District 

Court Eastern District of Wisconsin)

Williams v. Retirement Plan for Chicago Transit Authority Employees, et al., Case No. 11-CH15446 (Circuit Court of Cook Co., IL) 

Guenther v. BP Retirement Accumulation Plan, Case No. 4:16-CV-995 (S.D. Tex.)

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Smith (Thorne) v. U.S. Bank, Case No. 18-cv-03405-PAM-KMM (D. Minn.)

Cruz v. Raytheon Co., Case No. 1:19-cv-11425-PBS (D. Mass.)

Herndon v. Huntington Ingalls Industries, Case No. 4:19-cv-00052-RCY-LRL (E.D. Va.)

Dallas Police & Fire Pension System v. Buck Global LLC, et al. Case no. DC-18-16385 (The 

District Court of Dallas County, Texas, 298th Judicial District.)

City of Houston v. Towers Watson & Co., Case No. 4:14-cv-02213 (Southern District of Texas 

Houston Division of the Federal District Court.) (2017)

Johnston v. Dow Employees’ Pension Plan, Case No. 1:14-cb-10427-TLL-CEB (Eastern District 

of Michigan Federal District Court) (2015)

City of Detroit Bankruptcy Proceedings, Case No. 13-53846 (United States Bankruptcy Court, 

Eastern District of Michigan Southern Division) (2014)

In Re: Patriot Coal Corporation, et. al., Case No. 12-51502-659 Chapter 11 (United States 

Bankruptcy Court, Eastern Division of Missouri) (2013)

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Appendix B: Materials Considered in the Preparation of this Report

Disclosure Statement for Modified Second Amended Title III Plan of Adjustment of the Puerto Rico 

Electric Power Authority (without exhibits), March 1, 2023 (Document # 3297)

Exhibit G - Summary of Pension Reform (Document # 3279-7)

Exhibit Q - Analysis of Savings of CBA Modifications (Document # 3279-17)

2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority, as certified by the Financial 

Oversight and Management Board for Puerto Rico on June 28, 2022

Cavanaugh MacDonald 2021 LUMA Study, March 8, 2021 (235915 - Cavanaugh MacDonald 2021 

LUMA Study.pdf.pdf)

Employees' Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Second 

Actuarial Valuation as of June 30, 2017, July 8, 2019

Employees' Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Second 

Actuarial Valuation as of June 30, 2019, August 6, 2020

Employees' Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Second 

Actuarial Valuation as of June 30, 2021, February 21, 2023

PREPA Financial Statements, Required Supplementary Information and Supplemental Schedules, 

Years Ended June 30, 2013 and 2012 With Report of Independent Auditors (PREPA - Audited 

Financial Statement FY '12 and FY '13.pdf)

PREPA Financial Statements, Required Supplementary Information and Supplemental Schedules, 

Years Ended June 30, 2014 and 2013 With Report of Independent Auditors (PREPA 2013 and 2014 

Financial Statements.pdf)

PREPA Financial Statements, Required Supplementary Information and Supplemental Schedules, Year 

Ended June 30, 2015 With Report of Independent Auditors (corrected) (PREPA - Audited Financial 

Statement FY '14 and FY '15 (corrected).pdf)

PREPA Independent Auditors’ Report, Audited Financial Statements, Required Supplementary 

Information and Supplemental Schedules, for the year ended June 30, 2016 (PREPA - Audited 

Financial Statement FY '15 and FY '16.pdf)

PREPA Independent Auditors’ Report, Audited Financial Statements, Required Supplementary 

Information and Supplemental Schedules, for the year ended June 30, 2017 (PREPA - Audited 

Financial Statement FY '16 and FY '17.pdf)

PREPA Audited Financial Statements, Required Supplementary Information and Supplemental 

Schedules, For the fiscal year ended June 30, 2019 (with Independent Auditors’ Report Thereon) 

(PREPA - Audited Financial Statement FY Ended 6-30-2019.pdf)

PREPA Audited Financial Statements and Required Supplementary Information, For the fiscal year 

ended June 30, 2020 (with Independent Auditors’ Report Thereon) (PREPA - Audited Financial 

Statement FY Ended 6-30-2020.pdf)

Case:17-03283-LTS Doc#:24392-3 Filed:06/01/23 Entered:06/01/23 21:01:55 Desc:

Exhibit Exhibit C - Expert Report of T. Terry Page 40 of 64
41

PREPA Audited Basic Financial Statements and Required Supplementary Information, For the fiscal 

year ended June 30, 2021 (with Independent Auditors’ Report Thereon) (PREPA - Audited Financial 

Statement FY Ended 6-30-2021.pdf)

PREPA Pension Claim and Recovery, January 27, 2023 (Prepa Claim and recovery exhibit 

1.27.23.pdf)

PREPA_3.1 Update v2.pdf.pdf

PREPA Employee Retirement System Regulations, Amended April 26, 2018

(retirement_system_regulations.pdf.pdf) 

Horizon Survey of Capital Market Assumptions, 2017 Edition (available at

https://www.horizonactuarial.com/uploads/3/0/4/9/30499196/horizon_cma_survey_2017_v0822.pdf)

Asset Consulting Group Employees' Retirement System of Puerto Rico Electric Power Authority For 

the Periods Ending June 30, 2017

Asset Consulting Group Employees' Retirement System of Puerto Rico Electric Power Authority For 

the Periods Ending June 30, 2022

PREPA Pension Claim and Recovery Discussion January 27, 2023 (PREPA Claim and Recovery 

Discussion 1-27-23.pdf)

PREPA Pension POA Savings Estimates February 8, 2023 with exhibit 6 appended April 26, 2023 

(Prepa exhibits 4.26.23.pdf)

PREPA Pension Inputs Discussion January 5, 2023 (PREPA Pension Inputs Discussion 1-5-23.pdf)

Report of the Blue Ribbon Panel on Public Pension Plan Funding, February 2014

Expert Declaration of Mr. José Fernandez, dated April 28, 2023

Deposition of Sheva Levy, dated May 10, 2023

Report of David Plastino, dated May 5, 2023 

Debtor’s Opening Expert Report and Disclosures (ECF No. 3418), dated April 28, 2023

US Code Title 11

Code of Professional Conduct

Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States, 

Effective January 1, 2022.

Actuarial Standard of Practice No. 4, Measuring Pension Obligations and Determining Pension Plan 

Costs or Contributions

Actuarial Standard of Practice No. 17, Expert Testimony by Actuaries

Actuarial Standard of Practice No. 23, Data Quality

Actuarial Standard of Practice No. 27, Selection of Economic Assumptions for Measuring Pension 

Obligations

Actuarial Standard of Practice No. 35, Selection of Demographic and Other Noneconomic 

Assumptions for Measuring Pension Obligations

Actuarial Standard of Practice No. 41, Actuarial Communications

Actuarial Standard of Practice No. 56, Modeling

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Exhibit Exhibit C - Expert Report of T. Terry Page 41 of 64
42

Appendix C: Data, Assumptions and Methods, and Plan Provisions

The following outlines the assumptions, methods, data and plan provisions I used to replicate 

results presented in the “Employees’ Retirement System of Puerto Rico Electric Power Authority 

report on the Seventy-Second Actuarial Valuation as of June 30, 2017” prepared by Cavanaugh 

Macdonald, the retirement system’s actuary, and issued on July 8, 2019 (“2017 Actuarial 

Valuation”). In my replication I used actuarial assumptions and methods described in and thus 

consistent with the 2017 Actuarial Valuation—the retirement system’s own assumptions and 

methods—and is the basis upon which I perform my projections. 

As seen below, I was able to replicate both the key characteristics of the member data and the 

associated active, inactive and total actuarial accrued liabilities.

Replication Results

The following chart compares key results as of June 30, 2017 published in the 2017 Actuarial 

Valuation with the results of the replication process (“Replication Results”) (dollars in millions).

Item

2017 Actuarial 

Valuation

2017 Replication 

Results

Active headcount 6,196 6,196

Inactive headcount 12,435 12,435

Active pensionable compensation $253.6 $253.6

Active actuarial accrued liability $1,054.1 $1,118.2

Inactive actuarial accrued liability $3,123.8 $3,067.1

Total actuarial accrued liability $4,177.9 $4,185.3

Actuarial Assumptions

All actuarial assumptions used for the 2017 Replication Results are consistent with Section D of 

the 2017 Actuarial Valuation.

Actuarial Cost Method

The actuarial cost method used for the 2017 Replication Results is the Individual Entry Age 

Normal actuarial cost method, consistent with the 2017 Actuarial Valuation (see pages 19 and 

23).

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43

Active Demographic Data

Individual active participant records as used in the 2017 Actuarial Valuation were not available. 

The 2017 active census data was estimated based on the Schedule of Active Member Data 

presented in Schedule G of the 2017 Actuarial Valuation which a) provides the number of active 

participants by age and service bands, b) provides the total payroll for each age band, and c) 

provides average age and average service.

The Schedule of Active Member Data is shown below:

I was able to replicate the table above using estimated data including matching the counts in each 

age and service cell and matching the payroll dollars for each age band. In addition, the 

following summary statistics were matched:

Item

2017 Valuation

Report

2017 Replication

Results

Average age 46.8 46.8

Average service 16.9 16.9

Note that within each age and service cell in the table above, individual ages, years of service 

and payroll were estimated. 

The gender distribution was not provided; for my analysis I assumed that 75% of actives are 

male.

Completed Years of Service Payroll

Age x < 5 5 <= x < 10 10 <= x < 15 15 <= x < 20 20 <= x < 25 25 <= x < 30 30 <= x Total $(000)

 x < 20 1 0 0 0 0 0 0 1 $36

20 <= x < 25 5 1 0 0 0 0 0 6 $193

25 <= x < 30 41 34 1 0 0 0 0 76 $2,545

30 <= x < 35 54 157 64 0 0 0 0 275 $9,936

35 <= x < 40 59 172 475 79 0 0 0 785 $30,004

40 <= x < 45 36 110 466 486 81 2 0 1181 $46,730

45 <= x < 50 39 101 397 462 396 180 1 1576 $64,428

50 <= x < 55 26 49 177 268 266 466 23 1275 $56,164

55 <= x < 60 4 37 99 138 156 245 30 709 $30,465

60 <= x < 61 0 1 10 21 15 40 3 90 $3,690

61 <= x < 62 1 3 6 15 12 21 2 60 $2,595

62 <= x < 63 1 0 8 12 14 24 2 61 $2,508

63 <= x < 64 0 1 4 2 7 8 0 22 $937

64 <= x < 65 0 1 0 3 5 7 4 20 $894

65 <= x < 66 0 0 2 3 3 4 2 14 $574

66 <= x < 67 0 0 0 0 0 5 0 5 $242

67 <= x < 68 0 0 1 1 4 2 2 10 $388

68 <= x < 69 0 0 2 3 0 3 0 8 $375

69 <= x < 70 0 0 0 2 0 2 0 4 $156

70 <= x 0 2 3 2 3 6 2 18 $719

<Total> 267 669 1715 1497 962 1015 71 6196 $253,580

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Exhibit Exhibit C - Expert Report of T. Terry Page 43 of 64
44

Inactive Demographic Data

Individual inactive participant records as used in the 2017 Actuarial Valuation were not 

available. The 2017 inactive census data was estimated based on the summary of the inactive 

data presented in the 2017 Actuarial Valuation (see Table 3, The Number and Annual Retirement 

Benefits of Retired Members and Survivors of Deceased Members as of June 30, 2017 on page 

5). The following is a summary of the inactive data used:

Status Count

Average

Age

Total Annual

Annuity Benefits ($ millions)

Retiree 8,190 69.2 219.997

Disabled 1,982 65.4 25.032

Beneficiary 2,169 77.0 9.882

Term Vested 94 n/a n/a

The 94 Terminated Vested participants were assumed to be evenly distributed across the ages of 

35, 45 and 55. Each participant was assumed to have a benefit payable at age 60 of $9,900 per 

year.

The gender distribution was not provided, as such it was assumed that 75% of retirees, disabled 

participants and terminated vested participants were male; 25% of beneficiaries were assumed to 

be male.

In addition, simplifying assumptions were made with respect to the inactive participant data as 

follows:

• Individual ages and benefit amounts for retirees, disabled and beneficiaries were 

estimated such that, in total, the amounts were matched to the table above. Generally, 

annuity benefits were distributed such that younger annuitants were assumed to have 

higher annual benefits than older annuitants.

• A single life annuity form of payment was assumed to be payable for 83% of current 

retirees and disabled participants and 17% were assumed to have elected the 30% J&S 

form of payment with wives 4 years younger than their husbands. The age difference is 

consistent with the 2017 Actuarial Valuation. 

• All retirees, disabled, beneficiaries and terminated participants with deferred vested 

benefits were assumed to be eligible for the Christmas and Summer bonuses.

• All retirees and disabled retirees were assumed to be eligible for the $1,000 funeral death 

benefit. 

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Exhibit Exhibit C - Expert Report of T. Terry Page 44 of 64
45

Plan Provisions for the PREPA Employee Retirement System

a) Participation

All employees who were identified as participants for purposes of the actuarial valuation were 

assumed to be eligible to participate in the Plan. 

b) Final Average Compensation

Average of the three highest annual base salaries. For new members hired on or after January 1, 

1993, annual compensation is limited to $50,000. 

Note: The annual salary as reported in the actuarial valuation is assumed to already reflect the 

$50,000 annual pay limit.

c) Accrued Basic Benefit

The accrued basic benefit is an annual amount equal to one and half percent (1.50%) of Final 

Average Compensation multiplied by service (up to twenty years) plus two percent (2.0%) of 

Final Average Compensation multiplied by service in excess of twenty, with a total maximum 

amount of seventy-five percent (75%) of Final Average Compensation.

The accrued basic benefit is assumed to be supplementary to any benefits payable under the 

Social Security Act for all participants.

d) Retirement Benefits

Basic retirement benefit

Eligibility: Age 60 with at least 5 years of service or any age with 20 or more years of service

Amount: Accrued basic benefit payable at age 60 for the life of the participant with 30% of the 

benefit continuing to the surviving spouse. A participant who retires with 20 or more years of 

service but is under age 60, may elect to commence benefits immediately at retirement and 

receive an actuarially reduced benefit to the benefit that would have been payable at age 60. 

Merit retirement benefit

Eligibility 

• Hired before 1/1/1993: 30 years of service (or reduced benefits after 25 years of service)

• Hired on/after 1/1/1993: age 55 with 30 or more years of service (or reduced benefits 

after age 50 with 30 or more years of service)

Amount: Annual amount equal to seventy-five percent (75%) of Final Average Compensation.

The merit benefits is assumed to be supplementary to any benefits payable under the Social 

Security Act for all participants.

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46

Early merit benefits

For those hired before January 1, 1993 and who retire after 25 years of service (but before 30 

years of service), the merit benefit is equal to 2.5% of Final Average Compensation multiplied 

by years of service.

For those hired on or after January 1, 1993 and who retire after age 50 with 30 or more years of 

service (but prior to age 55), a reduced merit benefit is available.

e) Separation Pension

Eligibility: less than 10 years of service 

Amount: A participant who terminates prior to 10 or more years of service will receive a lump 

sum equal to the amount of the participant’s accrued contributions through the date of 

termination.

Eligibility: 10 or more years of service 

Amount: A participant who terminates with 10 or more years of service, may choose to receive 

the basic accrued benefit commencing at age 60 (calculated based on final average compensation 

and service at termination), in lieu of a refund of accrued contributions.

f) Disability Pension

Eligibility: Participants who terminate due to disability prior to reaching retirement eligibility 

will be eligible for disability benefits as follows:

• Hired before 1/1/1993: 5 years of service

• Hired on/after 1/1/1993: 10 years of service

Amount: 90% of the accrued basic benefit but not less than 20% of Final Average Compensation

Participants who are eligible for the basic retirement benefit or merit retirement benefit who 

terminate due to disability, will receive the retirement benefit for which they would otherwise be 

eligible.

g) Death Benefits

Salary benefit

Death while active: 

A participant who dies during active service receives a lump sum benefit equal to the last salary 

at the date of death.

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Death after retirement:

Eligibility: 

• Retirement after age 60 with at least 15 years of service or any age with 20 years of 

service

• Termination after 15 years of service

• Disability after 5 years of service (for pre-1/1/1993 hires) or after 10 years of service 

(hires on/after 1/1/1993)

Amount: lump sum benefit is payable when retirement benefits begin equal to the last salary at 

the time of termination.

A participant who retires after age 60 with 5 or more years of service but prior to 15 years of 

service will be eligible for a reduced lump sum benefit equal to the last salary multiplied by 

years of service over fifteen. A participant who terminates due to disability but with fewer years 

of service than are required for the full disability lump sum, will be eligible for a reduced lump 

sum equal to the last salary multiplied the ratio of the number of years credited to the number of 

years required for eligibility.

Surviving spouse benefit

Surviving spouses of retired members receiving a benefit will receive a life annuity equal to 30% 

of the annual pension payable to the member at the time of death.

h) Employee Contributions

Employees hired before January 1, 1993 are assumed to contribute 9.06% of salary (with no 

election for optional early payment of the salary death benefit). Employees hired on or after 

January 1, 1993 are assumed to contribute 11.0% of salary (with no election for optional early 

payment of the salary death benefit).

Contributions are credited with interest at a rate of 5% per year.

Contributions are refunded as follows:

• Upon death in active service

• Upon separation of a non-vested member

In addition, a vested participant can elect a refund of contributions in lieu of a deferred benefit 

(although no vested participants are assumed to make this election). Upon death after 

commencement of a pension, a participant who did not elect an optional form of payment will 

receive the excess, if any, of the accrued contributions over the installments already received. 

i) Cost-of-living adjustments

Increases are assumed to be granted automatically every three years as follows:

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Exhibit Exhibit C - Expert Report of T. Terry Page 47 of 64
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• 8% on monthly pensions up to $300

• 4% for monthly pensions on the next $300

• 2% of the monthly pension in excess of $600

The minimum monthly increase is $25 and the maximum monthly increase is $50.

j) Additional benefits

Christmas bonus: an annual Christmas bonus of $400 is payable to all current and future retirees 

and beneficiaries.

Summer bonus: an annual summer bonus of $100 is payable to all current and future retirees and 

beneficiaries.

Funeral benefits: a lump sum benefit of $1,000 is payable upon death to all current and future 

retirees.

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Exhibit Exhibit C - Expert Report of T. Terry Page 48 of 64
49

Appendix D: Development of Reasonable and Appropriate Pension Claim Cash Flows

 1. Disclosure Statement: $3.955 billion

 2. Remove non-vested benefits; measure value using unit credit method: $3.548 billion

(dollars below shown in millions)

Fiscal 

Year End Liability Interest Assumption Assets Return on Assets UAAL Funded Ratio

Amort 

Years

Annuity 

Factor

 Normal 

Cost 

Expense 

Allowance

Amort 

pymt Int Memb Cont ADC Benefit Payments

Expense 

Allowance

Member 

Contrib

Employer 

Contrib

2017 4,062 5.75% 1,226 2,836 30.2% 23 12.58 - 0.3 225 6 (25) 207 

2018 4,007 5.75% 1,141 5.75% 2,866 28.5% 22 12.31 - 0.3 233 7 - 240 (280) (0.3) - 130 

2019 3,945 5.75% 1,127 5.75% 2,818 28.6% 21 12.02 - 0.3 235 7 - 241 (283) (0.3) - 207 

2020 3,878 5.75% 1,144 5.75% 2,734 29.5% 20 11.71 - 0.3 234 7 - 240 (285) (0.3) - 240 

2021 3,805 5.75% 1,162 5.75% 2,643 30.5% 19 11.38 - 0.3 232 7 - 239 (287) (0.3) - 241 

2022 3,727 5.75% 1,179 5.75% 2,548 31.6% 18 11.03 - 0.3 231 7 - 238 (287) (0.3) - 240 

2023 3,644 5.75% 1,195 5.75% 2,449 32.8% 17 10.67 - 0.3 230 7 - 236 (288) (0.3) - 239 

2024 3,553 5.75% 1,208 5.75% 2,346 34.0% 16 10.28 - 0.3 228 6 - 235 (291) (0.3) - 238 

2025 3,459 5.75% 1,222 5.75% 2,238 35.3% 15 9.87 - 0.3 227 6 - 233 (289) (0.3) - 236 

2026 3,358 5.75% 1,233 5.75% 2,125 36.7% 14 9.44 - 0.3 225 6 - 232 (291) (0.3) - 235 

2027 3,255 5.75% 1,247 5.75% 2,008 38.3% 13 8.98 - 0.3 223 6 - 230 (287) (0.3) - 233 

2028 3,145 5.75% 1,260 5.75% 1,885 40.1% 12 8.50 - 0.3 222 6 - 228 (288) (0.3) - 232 

2029 3,028 5.75% 1,271 5.75% 1,757 42.0% 11 7.99 - 0.3 220 6 - 226 (288) (0.3) - 230 

2030 2,912 5.75% 1,288 5.75% 1,624 44.2% 10 7.45 - 0.3 218 6 - 224 (281) (0.3) - 228 

2031 2,789 5.75% 1,305 5.75% 1,484 46.8% 9 6.88 - 0.3 216 6 - 222 (281) (0.3) - 226 

2032 2,668 5.75% 1,329 5.75% 1,339 49.8% 8 6.27 - 0.3 214 6 - 220 (273) (0.3) - 224 

2033 2,542 5.75% 1,354 5.75% 1,188 53.3% 7 5.63 - 0.3 211 6 - 217 (271) (0.3) - 222 

2034 2,414 5.75% 1,384 5.75% 1,030 57.3% 6 4.96 - 0.3 208 6 - 214 (265) (0.3) - 220 

2035 2,289 5.75% 1,422 5.75% 867 62.1% 5 4.24 - 0.3 204 6 - 210 (255) (0.3) - 217 

2036 2,162 5.75% 1,465 5.75% 697 67.8% 4 3.49 - 0.2 200 6 - 206 (251) (0.3) - 214 

2037 2,039 5.75% 1,518 5.75% 520 74.5% 3 2.69 - 0.2 194 6 - 200 (240) (0.2) - 210 

2038 1,915 5.75% 1,576 5.75% 339 82.3% 2 1.84 - 0.2 184 5 - 190 (233) (0.2) - 206 

2039 1,793 5.75% 1,639 5.75% 154 91.4% 1 0.95 - 0.2 162 5 - 167 (225) (0.2) - 200 

2040 1,676 5.75% 1,708 5.75% (33) 101.9% 1 0.95 - 0.2 - 0 - 0 (213) (0.2) - 190 

2041 1,561 5.75% 1,767 5.75% (206) 113.2% 1 0.95 - 0.2 - 0 - 0 (205) (0.2) - 167 

2042 1,451 5.75% 1,669 5.75% (218) 115.0% 1 0.95 - 0.2 - 0 - 0 (193) (0.2) - 0 

2043 1,345 5.75% 1,575 5.75% (231) 117.1% 1 0.95 - 0.2 - 0 - 0 (184) (0.2) - 0 

2044 1,244 5.75% 1,488 5.75% (244) 119.6% 1 0.95 - 0.2 - 0 - 0 (173) (0.2) - 0 

2045 1,148 5.75% 1,406 5.75% (258) 122.5% 1 0.95 - 0.2 - 0 - 0 (162) (0.2) - 0 

2046 1,057 5.75% 1,330 5.75% (273) 125.8% 1 0.95 - 0.1 - 0 - 0 (152) (0.2) - 0 

2047 971 5.75% 1,259 5.75% (288) 129.7% 1 0.95 - 0.1 - 0 - 0 (142) (0.1) - 0 

2048 889 5.75% 1,194 5.75% (305) 134.3% 1 0.95 - 0.1 - 0 - 0 (133) (0.1) - 0 

2049 813 5.75% 1,135 5.75% (323) 139.7% 1 0.95 - 0.1 - 0 - 0 (124) (0.1) - 0 

2050 741 5.75% 1,082 5.75% (341) 146.1% 1 0.95 - 0.1 - 0 - 0 (115) (0.1) - 0 

2051 673 5.75% 1,034 5.75% (361) 153.6% 1 0.95 - 0.1 - 0 - 0 (107) (0.1) - 0 

2052 610 5.75% 991 5.75% (382) 162.6% 1 0.95 - 0.1 - 0 - 0 (99) (0.1) - 0 

2053 550 5.75% 954 5.75% (403) 173.3% 1 0.95 - 0.1 - 0 - 0 (91) (0.1) - 0 

2054 495 5.75% 922 5.75% (427) 186.2% 1 0.95 - 0.1 - 0 - 0 (84) (0.1) - 0 

2055 444 5.75% 895 5.75% (451) 201.6% 1 0.95 - 0.1 - 0 - 0 (77) (0.1) - 0 

2056 396 5.75% 873 5.75% (477) 220.4% 1 0.95 - 0.1 - 0 - 0 (71) (0.1) - 0 

2057 352 5.75% 857 5.75% (505) 243.3% 1 0.95 - 0.1 - 0 - 0 (65) (0.1) - 0 

2058 312 5.75% 845 5.75% (534) 271.2% 1 0.95 - 0.1 - 0 - 0 (59) (0.1) - 0 

2059 274 5.75% 839 5.75% (564) 305.6% (53) (0.1) - 0 

Interest Assumption 5.75%

Exp allowance as % of ben 0.1%

Full Funding Cap None

Discount rate 3.58%

PV of Employer Contribs 3,548

Liability Assets, Funded Ratios Development of the ADC Cash Flows

Results

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 49 of 64
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3. Correct for inadvertent over-funding: $3.461 billion

(dollars below shown in millions)

Fiscal 

Year End Liability Interest Assumption Assets Return on Assets UAAL Funded Ratio

Amort 

Years

Annuity 

Factor

 Normal 

Cost 

Expense 

Allowance

Amort 

pymt Int Memb Cont ADC Benefit Payments

Expense 

Allowance

Member 

Contrib

Employer 

Contrib

2017 4,062 5.75% 1,226 2,836 30.2% 23 12.58 - 0.3 225 6 (25) 207 

2018 4,007 5.75% 1,141 5.75% 2,866 28.5% 22 12.31 - 0.3 233 7 - 240 (280) (0.3) - 130 

2019 3,945 5.75% 1,127 5.75% 2,818 28.6% 21 12.02 - 0.3 235 7 - 241 (283) (0.3) - 207 

2020 3,878 5.75% 1,144 5.75% 2,734 29.5% 20 11.71 - 0.3 234 7 - 240 (285) (0.3) - 240 

2021 3,805 5.75% 1,162 5.75% 2,643 30.5% 19 11.38 - 0.3 232 7 - 239 (287) (0.3) - 241 

2022 3,727 5.75% 1,179 5.75% 2,548 31.6% 18 11.03 - 0.3 231 7 - 238 (287) (0.3) - 240 

2023 3,644 5.75% 1,195 5.75% 2,449 32.8% 17 10.67 - 0.3 230 7 - 236 (288) (0.3) - 239 

2024 3,553 5.75% 1,208 5.75% 2,346 34.0% 16 10.28 - 0.3 228 6 - 235 (291) (0.3) - 238 

2025 3,459 5.75% 1,222 5.75% 2,238 35.3% 15 9.87 - 0.3 227 6 - 233 (289) (0.3) - 236 

2026 3,358 5.75% 1,233 5.75% 2,125 36.7% 14 9.44 - 0.3 225 6 - 232 (291) (0.3) - 235 

2027 3,255 5.75% 1,247 5.75% 2,008 38.3% 13 8.98 - 0.3 223 6 - 230 (287) (0.3) - 233 

2028 3,145 5.75% 1,260 5.75% 1,885 40.1% 12 8.50 - 0.3 222 6 - 228 (288) (0.3) - 232 

2029 3,028 5.75% 1,271 5.75% 1,757 42.0% 11 7.99 - 0.3 220 6 - 226 (288) (0.3) - 230 

2030 2,912 5.75% 1,288 5.75% 1,624 44.2% 10 7.45 - 0.3 218 6 - 224 (281) (0.3) - 228 

2031 2,789 5.75% 1,305 5.75% 1,484 46.8% 9 6.88 - 0.3 216 6 - 222 (281) (0.3) - 226 

2032 2,668 5.75% 1,329 5.75% 1,339 49.8% 8 6.27 - 0.3 214 6 - 220 (273) (0.3) - 224 

2033 2,542 5.75% 1,354 5.75% 1,188 53.3% 7 5.63 - 0.3 211 6 - 217 (271) (0.3) - 222 

2034 2,414 5.75% 1,384 5.75% 1,030 57.3% 6 4.96 - 0.3 208 6 - 214 (265) (0.3) - 220 

2035 2,289 5.75% 1,422 5.75% 867 62.1% 5 4.24 - 0.3 204 6 - 210 (255) (0.3) - 217 

2036 2,162 5.75% 1,465 5.75% 697 67.8% 4 3.49 - 0.2 200 6 - 206 (251) (0.3) - 214 

2037 2,039 5.75% 1,518 5.75% 520 74.5% 3 2.69 - 0.2 194 6 - 200 (240) (0.2) - 210 

2038 1,915 5.75% 1,576 5.75% 339 82.3% 2 1.84 - 0.2 184 5 - 190 (233) (0.2) - 206 

2039 1,793 5.75% 1,639 5.75% 154 91.4% 1 0.95 - 0.2 162 5 - 167 (225) (0.2) - 200 

2040 1,676 5.75% 1,676 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (213) (0.2) - 158 

2041 1,561 5.75% 1,561 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (205) (0.2) - 0 

2042 1,451 5.75% 1,452 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (193) (0.2) - 0 

2043 1,345 5.75% 1,345 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (184) (0.2) - 0 

2044 1,244 5.75% 1,244 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (173) (0.2) - 0 

2045 1,148 5.75% 1,148 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (162) (0.2) - 0 

2046 1,057 5.75% 1,057 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (152) (0.2) - 0 

2047 971 5.75% 971 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (142) (0.1) - 0 

2048 889 5.75% 889 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (133) (0.1) - 0 

2049 813 5.75% 813 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (124) (0.1) - 0 

2050 741 5.75% 741 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (115) (0.1) - 0 

2051 673 5.75% 673 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (107) (0.1) - 0 

2052 610 5.75% 610 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (99) (0.1) - 0 

2053 550 5.75% 551 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (91) (0.1) - 0 

2054 495 5.75% 495 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (84) (0.1) - 0 

2055 444 5.75% 444 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (77) (0.1) - 0 

2056 396 5.75% 396 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (71) (0.1) - 0 

2057 352 5.75% 352 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (65) (0.1) - 0 

2058 312 5.75% 312 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (59) (0.1) - 0 

2059 274 5.75% 274 5.75% (0) 100.0% (53) (0.1) - 0 

Interest Assumption 5.75%

Exp allowance as % of ben 0.1%

Full Funding Cap 100%

Discount rate 3.58%

PV of Employer Contribs 3,461

Results

Liability Assets, Funded Ratios Development of the ADC Cash Flows

Inputs

Case:17-03283-LTS Doc#:24392-3 Filed:06/01/23 Entered:06/01/23 21:01:55 Desc:

Exhibit Exhibit C - Expert Report of T. Terry Page 50 of 64
51

4. Correct for reasonable cost of borrowing: $2.915 billion

(dollars below shown in millions)

Fiscal 

Year End Liability Interest Assumption Assets Return on Assets UAAL Funded Ratio

Amort 

Years

Annuity 

Factor

 Normal 

Cost 

Expense 

Allowance

Amort 

pymt Int Memb Cont ADC Benefit Payments

Expense 

Allowance

Member 

Contrib

Employer 

Contrib

2017 4,062 5.75% 1,226 2,836 30.2% 23 12.58 - 0.3 225 6 (25) 207 

2018 4,007 5.75% 1,141 5.75% 2,866 28.5% 22 12.31 - 0.3 233 7 - 240 (280) (0.3) - 130 

2019 3,945 5.75% 1,127 5.75% 2,818 28.6% 21 12.02 - 0.3 235 7 - 241 (283) (0.3) - 207 

2020 3,878 5.75% 1,144 5.75% 2,734 29.5% 20 11.71 - 0.3 234 7 - 240 (285) (0.3) - 240 

2021 3,805 5.75% 1,162 5.75% 2,643 30.5% 19 11.38 - 0.3 232 7 - 239 (287) (0.3) - 241 

2022 3,727 5.75% 1,179 5.75% 2,548 31.6% 18 11.03 - 0.3 231 7 - 238 (287) (0.3) - 240 

2023 3,644 5.75% 1,195 5.75% 2,449 32.8% 17 10.67 - 0.3 230 7 - 236 (288) (0.3) - 239 

2024 3,553 5.75% 1,208 5.75% 2,346 34.0% 16 10.28 - 0.3 228 6 - 235 (291) (0.3) - 238 

2025 3,459 5.75% 1,222 5.75% 2,238 35.3% 15 9.87 - 0.3 227 6 - 233 (289) (0.3) - 236 

2026 3,358 5.75% 1,233 5.75% 2,125 36.7% 14 9.44 - 0.3 225 6 - 232 (291) (0.3) - 235 

2027 3,255 5.75% 1,247 5.75% 2,008 38.3% 13 8.98 - 0.3 223 6 - 230 (287) (0.3) - 233 

2028 3,145 5.75% 1,260 5.75% 1,885 40.1% 12 8.50 - 0.3 222 6 - 228 (288) (0.3) - 232 

2029 3,028 5.75% 1,271 5.75% 1,757 42.0% 11 7.99 - 0.3 220 6 - 226 (288) (0.3) - 230 

2030 2,912 5.75% 1,288 5.75% 1,624 44.2% 10 7.45 - 0.3 218 6 - 224 (281) (0.3) - 228 

2031 2,789 5.75% 1,305 5.75% 1,484 46.8% 9 6.88 - 0.3 216 6 - 222 (281) (0.3) - 226 

2032 2,668 5.75% 1,329 5.75% 1,339 49.8% 8 6.27 - 0.3 214 6 - 220 (273) (0.3) - 224 

2033 2,542 5.75% 1,354 5.75% 1,188 53.3% 7 5.63 - 0.3 211 6 - 217 (271) (0.3) - 222 

2034 2,414 5.75% 1,384 5.75% 1,030 57.3% 6 4.96 - 0.3 208 6 - 214 (265) (0.3) - 220 

2035 2,289 5.75% 1,422 5.75% 867 62.1% 5 4.24 - 0.3 204 6 - 210 (255) (0.3) - 217 

2036 2,162 5.75% 1,465 5.75% 697 67.8% 4 3.49 - 0.2 200 6 - 206 (251) (0.3) - 214 

2037 2,039 5.75% 1,518 5.75% 520 74.5% 3 2.69 - 0.2 194 6 - 200 (240) (0.2) - 210 

2038 1,915 5.75% 1,576 5.75% 339 82.3% 2 1.84 - 0.2 184 5 - 190 (233) (0.2) - 206 

2039 1,793 5.75% 1,639 5.75% 154 91.4% 1 0.95 - 0.2 162 5 - 167 (225) (0.2) - 200 

2040 1,676 5.75% 1,676 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (213) (0.2) - 158 

2041 1,561 5.75% 1,561 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (205) (0.2) - 0 

2042 1,451 5.75% 1,452 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (193) (0.2) - 0 

2043 1,345 5.75% 1,345 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (184) (0.2) - 0 

2044 1,244 5.75% 1,244 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (173) (0.2) - 0 

2045 1,148 5.75% 1,148 5.75% (0) 100.0% 1 0.95 - 0.2 - 0 - 0 (162) (0.2) - 0 

2046 1,057 5.75% 1,057 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (152) (0.2) - 0 

2047 971 5.75% 971 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (142) (0.1) - 0 

2048 889 5.75% 889 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (133) (0.1) - 0 

2049 813 5.75% 813 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (124) (0.1) - 0 

2050 741 5.75% 741 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (115) (0.1) - 0 

2051 673 5.75% 673 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (107) (0.1) - 0 

2052 610 5.75% 610 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (99) (0.1) - 0 

2053 550 5.75% 551 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (91) (0.1) - 0 

2054 495 5.75% 495 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (84) (0.1) - 0 

2055 444 5.75% 444 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (77) (0.1) - 0 

2056 396 5.75% 396 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (71) (0.1) - 0 

2057 352 5.75% 352 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (65) (0.1) - 0 

2058 312 5.75% 312 5.75% (0) 100.0% 1 0.95 - 0.1 - 0 - 0 (59) (0.1) - 0 

2059 274 5.75% 274 5.75% (0) 100.0% (53) (0.1) - 0 

Interest Assumption 5.75%

Exp allowance as % of ben 0.1%

Full Funding Cap 100%

Discount rate 5.45%

PV of Employer Contribs 2,915

Results

Liability Assets, Funded Ratios Development of the ADC Cash Flows

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 51 of 64
52

5. Reflect reasonable interest rate assumption: $2.616 billion

(dollars below shown in millions)

Fiscal 

Year End Liability Interest Assumption Assets Return on Assets UAAL Funded Ratio

Amort 

Years

Annuity 

Factor

 Normal 

Cost 

Expense 

Allowance

Amort 

pymt Int Memb Cont ADC Benefit Payments

Expense 

Allowance

Member 

Contrib

Employer 

Contrib

2017 3,839 6.30% 1,226 2,612 31.9% 23 11.98 - 0.3 218 7 (25) 200 

2018 3,790 6.30% 1,147 6.30% 2,644 30.3% 22 11.73 - 0.3 225 7 - 233 (280) (0.3) - 130 

2019 3,736 6.30% 1,132 6.30% 2,604 30.3% 21 11.47 - 0.3 227 7 - 234 (283) (0.3) - 200 

2020 3,677 6.30% 1,148 6.30% 2,528 31.2% 20 11.20 - 0.3 226 7 - 233 (285) (0.3) - 233 

2021 3,612 6.30% 1,165 6.30% 2,446 32.3% 19 10.90 - 0.3 224 7 - 232 (287) (0.3) - 234 

2022 3,542 6.30% 1,181 6.30% 2,361 33.4% 18 10.59 - 0.3 223 7 - 230 (287) (0.3) - 233 

2023 3,467 6.30% 1,196 6.30% 2,271 34.5% 17 10.25 - 0.3 221 7 - 229 (288) (0.3) - 232 

2024 3,384 6.30% 1,207 6.30% 2,177 35.7% 16 9.90 - 0.3 220 7 - 227 (291) (0.3) - 230 

2025 3,298 6.30% 1,219 6.30% 2,079 37.0% 15 9.52 - 0.3 218 7 - 225 (289) (0.3) - 229 

2026 3,204 6.30% 1,228 6.30% 1,976 38.3% 14 9.12 - 0.3 217 7 - 224 (291) (0.3) - 227 

2027 3,109 6.30% 1,241 6.30% 1,868 39.9% 13 8.70 - 0.3 215 7 - 222 (287) (0.3) - 225 

2028 3,007 6.30% 1,251 6.30% 1,756 41.6% 12 8.25 - 0.3 213 7 - 220 (288) (0.3) - 224 

2029 2,898 6.30% 1,260 6.30% 1,638 43.5% 11 7.77 - 0.3 211 7 - 218 (288) (0.3) - 222 

2030 2,789 6.30% 1,274 6.30% 1,515 45.7% 10 7.26 - 0.3 209 6 - 216 (281) (0.3) - 220 

2031 2,674 6.30% 1,288 6.30% 1,386 48.2% 9 6.71 - 0.3 206 6 - 213 (281) (0.3) - 218 

2032 2,560 6.30% 1,308 6.30% 1,252 51.1% 8 6.14 - 0.3 204 6 - 211 (273) (0.3) - 216 

2033 2,441 6.30% 1,330 6.30% 1,111 54.5% 7 5.52 - 0.3 201 6 - 208 (271) (0.3) - 213 

2034 2,320 6.30% 1,356 6.30% 964 58.4% 6 4.87 - 0.3 198 6 - 204 (265) (0.3) - 211 

2035 2,202 6.30% 1,391 6.30% 811 63.2% 5 4.18 - 0.3 194 6 - 200 (255) (0.3) - 208 

2036 2,081 6.30% 1,429 6.30% 652 68.7% 4 3.44 - 0.2 189 6 - 195 (251) (0.3) - 204 

2037 1,964 6.30% 1,477 6.30% 486 75.2% 3 2.66 - 0.2 183 6 - 189 (240) (0.2) - 200 

2038 1,846 6.30% 1,530 6.30% 316 82.9% 2 1.83 - 0.2 173 5 - 179 (233) (0.2) - 195 

2039 1,729 6.30% 1,588 6.30% 141 91.8% 1 0.94 - 0.2 150 5 - 155 (225) (0.2) - 189 

2040 1,617 6.30% 1,618 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (213) (0.2) - 146 

2041 1,507 6.30% 1,507 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (205) (0.2) - 0 

2042 1,402 6.30% 1,403 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (193) (0.2) - 0 

2043 1,300 6.30% 1,300 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (184) (0.2) - 0 

2044 1,203 6.30% 1,203 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (173) (0.2) - 0 

2045 1,111 6.30% 1,111 6.30% (0) 100.0% 1 0.94 - 0.2 - 0 - 0 (162) (0.2) - 0 

2046 1,024 6.30% 1,024 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (152) (0.2) - 0 

2047 941 6.30% 941 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (142) (0.1) - 0 

2048 862 6.30% 862 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (133) (0.1) - 0 

2049 788 6.30% 789 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (124) (0.1) - 0 

2050 719 6.30% 719 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (115) (0.1) - 0 

2051 654 6.30% 654 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (107) (0.1) - 0 

2052 593 6.30% 593 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (99) (0.1) - 0 

2053 535 6.30% 535 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (91) (0.1) - 0 

2054 482 6.30% 482 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (84) (0.1) - 0 

2055 432 6.30% 432 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (77) (0.1) - 0 

2056 386 6.30% 386 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (71) (0.1) - 0 

2057 343 6.30% 344 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (65) (0.1) - 0 

2058 304 6.30% 304 6.30% (0) 100.0% 1 0.94 - 0.1 - 0 - 0 (59) (0.1) - 0 

2059 268 6.30% 268 6.30% (0) 100.0% (53) (0.1) - 0 

Interest Assumption 6.30%

Exp allowance as % of ben 0.1%

Full Funding Cap 100%

Discount rate 6.30%

PV of Employer Contribs 2,616

Results

Liability Assets, Funded Ratios Development of the ADC Cash Flows

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 52 of 64
53

Appendix E: Development of a Reasonable and Appropriate Interest Rate Assumption

I relied on the Horizon Survey of Capital Market Assumptions, 2017 Edition (“2017 Horizon 

Survey”) for the capital market assumptions underlying the expected return on assets 

assumption. The Horizon Survey is a survey of 35 investment advisors who provided forwardlooking, expected risk and returns for different asset classes in which pension plans commonly 

invest. It is a source widely referenced by the public and multiemployer pension plan 

communities. ERS itself references use of surveys from Horizon its audited financial 

statements.94 I have reviewed the information contained in the 2017 Horizon Survey and 

determined that it is appropriate to use for the purpose of this assignment.

Developing My Expected Return Assumption

The expected return assumption depends on a plan’s asset allocation and should reflect a plan’s 

target asset allocation. The following target asset allocation for ERS was reported as of June 30, 

2017 by Asset Consulting Group.95

Target Asset Allocation and Capital Market Assumptions

Asset Class Target Allocation (%)

US Large Cap Equity 22%

US Small/Mid Cap Equity 10%

Non US Equity 20%

Global Long/Short Equity 8%

Global Private Equity 5%

Core Bonds 30%

Core Real Estate 5%

Total 100%

The 2017 Audited Financial Statements show that the Non US Equity can be further subdivided 

into an allocation of 15% to International Developed Equity and 5% to Emerging Market 

Equity.96

I used the 2017 Horizon Survey97 to develop the expected return assumption for the ERS as of 

June 30, 2017, presuming an ongoing reference to the asset allocation shown above.

94 94 PREPA Independent Auditors’ Report, Audited Financial Statements, Required Supplementary Information and 

Supplemental Schedules, for the year ended June 30, 2019, page 73. 95 Asset Consulting Group, June 30, 2017. 96 PREPA Independent Auditors’ Report, Audited Financial Statements, Required Supplementary Information and 

Supplemental Schedules, for the year ended June 30, 2017, page 51. 97 See https://www.horizonactuarial.com/uploads/3/0/4/9/30499196/horizon_cma_survey_2017_v0822.pdf, accessed 

on April 21, 2023.

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54

This survey of 35 different investment advisors gathers information on the key inputs into their 

own capital markets modeling, including expected returns by asset class, standard deviations by 

asset class, and asset return correlation relationships. The relevant assumptions from the 2017 

Horizon Survey are as follows:

Asset Class

10-Year 

Horizon 

Geometric 

Returns

Standard 

Deviation

US Large Cap Equity 6.46% 16.58%

US Small/Mid Cap Equity 6.90% 20.22%

Non US Equity: Developed Markets 6.99% 18.86%

Non US Equity: Emerging Markets 8.00% 25.42%

Global Private Equity 9.01% 21.98%

Core Bonds 3.24% 5.50%

Core Real Estate 6.18% 14.52%

The 2017 Horizon Survey did not show return expectations for Global Long/Short Equity. I 

assumed that this asset class has the same characteristics as US Large Cap Equity.

Applying these assumptions as input to our capital market model (along with the associated 

correlation coefficients98), and using the ERS asset allocation described above, these return 

expectations emerge from the model: 

Arithmetic 

Return

Geometric 

Return

Standard 

Deviation

ERS Portfolio 6.95% 6.30%99 11.82%

The assumption of 6.30% is the median expected return of the expected return distribution given 

the portfolio above and the assumptions contained within the 2017 Horizon Survey.

98 See 2017 Horizon Survey, page 13. 99 Formula: ( 1 + 6.95% ) x ( 1 + 11.82% ^ 2 / ( ( 1 + 6.95% ) ^ 2 ) )^ -0.5 - 1]

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Exhibit Exhibit C - Expert Report of T. Terry Page 54 of 64
55

Appendix F: Development of Reasonable and Appropriate Recovery Cash Flows

Methodology

The recovery scenario modeled is based on analyzing the benefits earned through June 

30, 2017 but payable according to the provisions of the Plan of Adjustment as stated in the 

Disclosure Statement. The provisions generally call for a change in the benefits eligibility for 

active members and a change in the pension increase for retirees effective upon confirmation of 

the Plan of Adjustment (which is assumed to be June 30, 2023 in the modeling). These 

provisions are described in Exhibit G of the March 1, 2023 Disclosure Statement. 

Assets

Projecting Assets to June 30, 2022

The following are the steps to develop the starting assets as of June 30, 2022:

Item Description

Value

($ millions)

1 March 30, 2022 assets100 $538.6

2 Expected PREPA contributions April 1, 2022 – June 30, 2022 $12

3 Expected Benefit payments April 1, 2022 – June 30, 2022101 ($72)

4 June 30, 2022 assets (1) + (2) + (3) $478.6

The investment return from March 30, 2022 to June 30, 2022 was not available. Any 

investment return between March 30, 2022 and June 30, 2022 will impact the figures above.

Accounting for Member Contributions with Interest

The assets above are assumed to include employee contributions since June 30, 2017 

which in principle are designated to fund benefit accruals after June 30, 2017. Because the 

perspective of the recovery is to analyze “the recovery of the claim,” both post-June 30, 2017 

pension accruals and member contributions have been excluded.

100 Exhibit 70 of the 2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority As certified by the 

Financial Oversight and Management Board for Puerto Rico on June 28, 2022

101 Ibid, Three times the monthly amount.

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The following member contributions were published in the 2021 Audited Financial 

Statements.

102

Fiscal Year

Member Contributions

($ millions)

2018 23.0

2019 18.2

2020 19.9

Actual Member Contributions were not provided for FY2021 and FY2022. They are 

developed as follows:

It is reported that PREPA had 1,185 employees as of June 30, 2021,

103 down from 5,441 

as of June 30, 2020.

104 Given that 1,185 / 5,441 = 21.8%, it is assumed that the FY2021 member 

contributions were 21.8% of the FY2020 level, or $4.3 million. 

The member contributions are also assumed to be $4.3 million for FY2022.

The following then represents the total Member Contributions that are assumed to exist in 

the expected June 30, 2022 assets.

Fiscal Year

Member Contributions 

($ millions)

2018 23.0

2019 18.2

2020 19.9

2021 4.3

2022 4.3

Total 69.7

Investment returns for FY2018 and FY2019 were reported to be 8.12% and 4.42% 

respectively.

105 Investment returns for FY2020 -FY2022 were not available. Accounting for the 

known returns and assuming mid-year cash flows, the total Member Contributions with Interest 

as of June 30, 2022 is estimated to be $72.1 million. Any investment returns in Fiscal Years 

2020 – Fiscal Year 2022 will impact the Member Contributions with Interest.

102 Puerto Rico Electric Power Authority (A Component Unit of the Commonwealth of Puerto Rico) Audited Basic 

Financial Statements and Required Supplementary Information For the fiscal year ended June 30, 2021, Page 129.

103 Ibid, Page 66. 104 Ibid, Page 69. 105 Employees' Retirement System of Puerto Rico Electric Power Authority Report on the Seventy-Fourth Actuarial 

Valuation As of June 30, 2019, Page 5.

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Exhibit Exhibit C - Expert Report of T. Terry Page 56 of 64
57

Therefore, the Plan Assets as of June 30, 2022 are calculated as follows:

Item Description

Value 

($ millions)

1 Estimated June 30, 2022 assets $478.6

2 Member Contributions with Interest 72.1

3 Estimated Net June 30, 2022 Assets (1) – (2) 406.5

Therefore, the Estimated Net June 30, 2022 Assets are $406.5 million. 

Illiquid Assets as of March 31, 2022 and June 30, 2022

The Illiquid Assets are reported to be $156.0 million as of March 31, 2022.

106 The 

reported value as of June 30, 2022 was not available, so it was assumed that the value remained 

at $156.0 million as of June 30, 2022.

The Illiquid Assets from the Oversight Board’s PREPA Pension Claim and Recovery 

Analysis are assumed to be 156.0 million as of June 30, 2023.

107

Summary of Assets

The following is a summary of the estimated assets as of June 30, 2022.

Item Description

Value 

($ millions) 

1 Total Assets 406.5

2 Illiquid Assets as of June 30, 2022 156.0

3 Liquid Assets as of June 30, 2022 [(1) – (2)] 250.5

Assumed Investment Returns

No investment return is assumed for Fiscal Year 2023. Any investment returns between 

July 1, 2022 and June 30, 2023 will impact the analysis.

Investment returns for the PREPA PayGo Trust are assumed to be 2.0%.

108

The Illiquid Assets are assumed to be paid down at a rate of 5% per year perpetually. No 

interest assumption was disclosed by the Oversight Board’s PREPA Pension Claim and 

106 Exhibit 70 of the 2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority As certified by the 

Financial Oversight and Management Board for Puerto Rico on June 28 , 2022 107 PREPA Pension Claim and Recovery, Appendix B. 108 PREPA Pension Claim and Recovery, Appendix B.

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Recovery analysis.

109 In the Recovery I explicitly assume that Illiquid Assets each 6.24% per 

year, consistent with their return over the last 5 years, and slightly below the return over the last 

ten years.

110

Administrative fee load

Consistent with the PREPA Pension Claim and Recovery, Administrative fee load is 

3.0% of benefit payments.

111

PREPA Contributions 

PREPA Contributions Fiscal Years 2018 – 2023

Consistent with the PREPA Pension Claim and Recovery, the following PREPA 

contributions were used for Fiscal Years 2018 to 2023112:

Fiscal Year

Amount 

($ millions)

2018 82.2

2019 75.3

2020 73.7

2021 72.4

2022 26.7

2023 18.3

PREPA Contributions Fiscal Years 2024 – 2059 

PREPA contributions for Fiscal Years 2024 to 2059 are set each year such that 4 months’ 

worth of benefit payments remain in the plan assets at the end of each fiscal year. 

109 Ibid. 110 Asset Consulting Group, June 30, 2022 report. 111 PREPA Pension Claim and Recovery, Appendix B. 112 Ibid, Claim and Recovery as described in Appendix E.

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Exhibit Exhibit C - Expert Report of T. Terry Page 58 of 64
59

Forecasting of Benefit Payments

Active census forecasting

Benefit payments have been forecasted based on the June 30, 2017 census data file. 

Additional decrements have been applied such that the active population reaches the following 

sizes each year:

Valuation Date Active Headcount

June 30, 2017 6,196

June 30, 2018 5,739

June 30, 2019 5,542

June 30, 2020 5,441

June 30, 2021 1,185

June 30, 2022 1,109

June 30, 2023 996

Given that the perspective is to focus on the “Recovery of the Claim,” no new entrants 

were included, and no benefit accruals after June 30, 2017 were included.

Active benefit modeling

Active benefits were assumed to match the pre-Disclosure Statement plan provisions 

through June 30, 2023. At June 30, 2023 benefit changes were made according to Schedule G –

Summary of Pension Reform as attached to the Disclosure Statement for Modified Second 

Amended Title III Plan of Adjustment.

Retiree forecasting

Retiree benefits were forecasted using the June 30, 2017 census data files. Pension 

increases for fiscal year 2018 were assumed to be included in the census data. Five pension 

increases were applied at fiscal year-end dates 2018 through 2022. No pension increases were 

applied starting on June 30, 2023 and beyond.

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Exhibit Exhibit C - Expert Report of T. Terry Page 59 of 64
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Projections

Reflecting Pension Recovery Corrections - Discounting at 3.58%

Fiscal 

Year End

Investable 

Assets

Investable 

Assets Return

Illiquid 

Assets

Benefit 

Payments

Expense 

Allowance

 Illiquid 

Redemption 

PREPA 

Contribution

2017

2018 (280) (0.6) - 82.2 

2019 (282) (0.6) - 75.3 Asset Return 2%

2020 (282) (0.6) - 73.7 Expense Allowance % BP 0.2%

2021 (283) (0.6) - 72.4 Internally Managed Funds

2022 250.5 (305) (0.6) - 26.7 Annual Interest 6.24%

2023 11 0% 156.0 (257) (0.5) - 18.3 Redemption 10.58%

2024 118 2% 148 (355) (0.7) 18 444 Reserve (Months BPs) 4

2025 96 2% 141 (288) (0.6) 17 248 Shift BPs from FY2023 to FY2024 51

2026 97 2% 134 (291) (0.6) 16 274 

2027 91 2% 127 (274) (0.5) 15 253 Results

2028 92 2% 121 (276) (0.6) 14 260 Discount Rate 3.58%

2029 90 2% 115 (271) (0.5) 14 254 Present Value 3,281

2030 84 2% 109 (251) (0.5) 13 230 

2031 84 2% 103 (253) (0.5) 12 241 

2032 78 2% 98 (233) (0.5) 12 214 

2033 78 2% 93 (235) (0.5) 11 224 

2034 75 2% 89 (226) (0.5) 10 211 

2035 69 2% 84 (206) (0.4) 10 188 

2036 69 2% 80 (206) (0.4) 9 195 

2037 62 2% 76 (187) (0.4) 9 170 

2038 62 2% 72 (186) (0.4) 9 176 

2039 59 2% 69 (176) (0.4) 8 164 

2040 53 2% 65 (158) (0.3) 8 143 

2041 51 2% 62 (153) (0.3) 7 143 

2042 46 2% 59 (139) (0.3) 7 126 

2043 45 2% 56 (134) (0.3) 7 125 

2044 41 2% 53 (122) (0.2) 6 111 

2045 37 2% 50 (112) (0.2) 6 102 

2046 35 2% 48 (105) (0.2) 6 96 

2047 32 2% 46 (96) (0.2) 5 87 

2048 30 2% 43 (89) (0.2) 5 81 

2049 27 2% 41 (81) (0.2) 5 73 

2050 25 2% 39 (74) (0.1) 5 67 

2051 22 2% 37 (67) (0.1) 4 61 

2052 20 2% 35 (61) (0.1) 4 55 

2053 19 2% 33 (56) (0.1) 4 50 

2054 17 2% 32 (50) (0.1) 4 44 

2055 15 2% 30 (45) (0.1) 4 40 

2056 14 2% 29 (41) (0.1) 3 35 

2057 12 2% 27 (36) (0.1) 3 31 

2058 11 2% 26 (32) (0.1) 3 28 

2059 10 2% 25 (29) (0.1) 3 24 

Assets Cash Flows

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 60 of 64
61

Reflecting Pension Recovery Corrections - Discounting at 5.45%

Fiscal 

Year End

Investable 

Assets

Investable 

Assets Return

Illiquid 

Assets

Benefit 

Payments

Expense 

Allowance

 Illiquid 

Redemption 

PREPA 

Contribution

2017

2018 (280) (0.6) - 82.2 

2019 (282) (0.6) - 75.3 Asset Return 2%

2020 (282) (0.6) - 73.7 Expense Allowance % BP 0.2%

2021 (283) (0.6) - 72.4 Internally Managed Funds

2022 250.5 (305) (0.6) - 26.7 Annual Interest 6.24%

2023 11 0% 156.0 (257) (0.5) - 18.3 Redemption 10.58%

2024 118 2% 148 (355) (0.7) 18 444 Reserve (Months BPs) 4

2025 96 2% 141 (288) (0.6) 17 248 Shift BPs from FY2023 to FY2024 51

2026 97 2% 134 (291) (0.6) 16 274 

2027 91 2% 127 (274) (0.5) 15 253 Results

2028 92 2% 121 (276) (0.6) 14 260 Discount Rate 5.45%

2029 90 2% 115 (271) (0.5) 14 254 Present Value 2,582

2030 84 2% 109 (251) (0.5) 13 230 

2031 84 2% 103 (253) (0.5) 12 241 

2032 78 2% 98 (233) (0.5) 12 214 

2033 78 2% 93 (235) (0.5) 11 224 

2034 75 2% 89 (226) (0.5) 10 211 

2035 69 2% 84 (206) (0.4) 10 188 

2036 69 2% 80 (206) (0.4) 9 195 

2037 62 2% 76 (187) (0.4) 9 170 

2038 62 2% 72 (186) (0.4) 9 176 

2039 59 2% 69 (176) (0.4) 8 164 

2040 53 2% 65 (158) (0.3) 8 143 

2041 51 2% 62 (153) (0.3) 7 143 

2042 46 2% 59 (139) (0.3) 7 126 

2043 45 2% 56 (134) (0.3) 7 125 

2044 41 2% 53 (122) (0.2) 6 111 

2045 37 2% 50 (112) (0.2) 6 102 

2046 35 2% 48 (105) (0.2) 6 96 

2047 32 2% 46 (96) (0.2) 5 87 

2048 30 2% 43 (89) (0.2) 5 81 

2049 27 2% 41 (81) (0.2) 5 73 

2050 25 2% 39 (74) (0.1) 5 67 

2051 22 2% 37 (67) (0.1) 4 61 

2052 20 2% 35 (61) (0.1) 4 55 

2053 19 2% 33 (56) (0.1) 4 50 

2054 17 2% 32 (50) (0.1) 4 44 

2055 15 2% 30 (45) (0.1) 4 40 

2056 14 2% 29 (41) (0.1) 3 35 

2057 12 2% 27 (36) (0.1) 3 31 

2058 11 2% 26 (32) (0.1) 3 28 

2059 10 2% 25 (29) (0.1) 3 24 

Assets Cash Flows

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 61 of 64
62

Reflecting Pension Recovery Corrections - Discounting at 6.30%

Fiscal 

Year End

Investable 

Assets

Investable 

Assets Return

Illiquid 

Assets

Benefit 

Payments

Expense 

Allowance

 Illiquid 

Redemption 

PREPA 

Contribution

2017

2018 (280) (0.6) - 82.2 

2019 (282) (0.6) - 75.3 Asset Return 2%

2020 (282) (0.6) - 73.7 Expense Allowance % BP 0.2%

2021 (283) (0.6) - 72.4 Internally Managed Funds

2022 250.5 (305) (0.6) - 26.7 Annual Interest 6.24%

2023 11 0% 156.0 (257) (0.5) - 18.3 Redemption 10.58%

2024 118 2% 148 (355) (0.7) 18 444 Reserve (Months BPs) 4

2025 96 2% 141 (288) (0.6) 17 248 Shift BPs from FY2023 to FY2024 51

2026 97 2% 134 (291) (0.6) 16 274 

2027 91 2% 127 (274) (0.5) 15 253 Results

2028 92 2% 121 (276) (0.6) 14 260 Discount Rate 6.30%

2029 90 2% 115 (271) (0.5) 14 254 Present Value 2,334

2030 84 2% 109 (251) (0.5) 13 230 

2031 84 2% 103 (253) (0.5) 12 241 

2032 78 2% 98 (233) (0.5) 12 214 

2033 78 2% 93 (235) (0.5) 11 224 

2034 75 2% 89 (226) (0.5) 10 211 

2035 69 2% 84 (206) (0.4) 10 188 

2036 69 2% 80 (206) (0.4) 9 195 

2037 62 2% 76 (187) (0.4) 9 170 

2038 62 2% 72 (186) (0.4) 9 176 

2039 59 2% 69 (176) (0.4) 8 164 

2040 53 2% 65 (158) (0.3) 8 143 

2041 51 2% 62 (153) (0.3) 7 143 

2042 46 2% 59 (139) (0.3) 7 126 

2043 45 2% 56 (134) (0.3) 7 125 

2044 41 2% 53 (122) (0.2) 6 111 

2045 37 2% 50 (112) (0.2) 6 102 

2046 35 2% 48 (105) (0.2) 6 96 

2047 32 2% 46 (96) (0.2) 5 87 

2048 30 2% 43 (89) (0.2) 5 81 

2049 27 2% 41 (81) (0.2) 5 73 

2050 25 2% 39 (74) (0.1) 5 67 

2051 22 2% 37 (67) (0.1) 4 61 

2052 20 2% 35 (61) (0.1) 4 55 

2053 19 2% 33 (56) (0.1) 4 50 

2054 17 2% 32 (50) (0.1) 4 44 

2055 15 2% 30 (45) (0.1) 4 40 

2056 14 2% 29 (41) (0.1) 3 35 

2057 12 2% 27 (36) (0.1) 3 31 

2058 11 2% 26 (32) (0.1) 3 28 

2059 10 2% 25 (29) (0.1) 3 24 

Assets Cash Flows

Inputs

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Exhibit Exhibit C - Expert Report of T. Terry Page 62 of 64
63

Appendix G: Participant Loan Repayment Schedule

Cash Flow to Cash Flow to 

Fiscal Year BOY EOY PREPA ERS BOY EOY PREPA ERS Increase in Cash Flow

2017

2018 - - -

2019 - - -

2020 - - -

2021 - - -

2022 - - -

2023 156.0 156.0 - 156.0 165.7 - -

2024 148.2 148.2 7.8 148.2 157.4 17.5 9.7

2025 140.8 140.8 7.4 140.8 149.6 16.7 9.2

2026 133.8 133.7 7.0 133.7 142.1 15.8 8.8

2027 127.1 127.1 6.7 127.1 135.0 15.0 8.3

2028 120.7 120.7 6.4 120.7 128.2 14.3 7.9

2029 114.7 114.7 6.0 114.7 121.8 13.6 7.5

2030 108.9 108.9 5.7 108.9 115.7 12.9 7.2

2031 103.5 103.5 5.4 103.5 109.9 12.2 6.8

2032 98.3 98.3 5.2 98.3 104.5 11.6 6.5

2033 93.4 93.4 4.9 93.4 99.2 11.1 6.1

2034 88.7 88.7 4.7 88.7 94.3 10.5 5.8

2035 84.3 84.3 4.4 84.3 89.6 10.0 5.5

2036 80.1 80.1 4.2 80.1 85.1 9.5 5.3

2037 76.1 76.1 4.0 76.1 80.8 9.0 5.0

2038 72.3 72.3 3.8 72.3 76.8 8.6 4.7

2039 68.7 68.7 3.6 68.7 72.9 8.1 4.5

2040 65.2 65.2 3.4 65.2 69.3 7.7 4.3

2041 62.0 62.0 3.3 62.0 65.8 7.3 4.1

2042 58.9 58.9 3.1 58.9 62.5 7.0 3.9

2043 55.9 55.9 2.9 55.9 59.4 6.6 3.7

2044 53.1 53.1 2.8 53.1 56.4 6.3 3.5

2045 50.5 50.5 2.7 50.5 53.6 6.0 3.3

2046 47.9 47.9 2.5 47.9 50.9 5.7 3.2

2047 45.6 45.5 2.4 45.5 48.4 5.4 3.0

2048 43.3 43.3 2.3 43.3 46.0 5.1 2.8

2049 41.1 41.1 2.2 41.1 43.7 4.9 2.7

2050 39.1 39.1 2.1 39.1 41.5 4.6 2.6

2051 37.1 37.1 2.0 37.1 39.4 4.4 2.4

2052 35.2 35.2 1.9 35.2 37.4 4.2 2.3

2053 33.5 33.5 1.8 33.5 35.6 4.0 2.2

2054 31.8 31.8 1.7 31.8 33.8 3.8 2.1

2055 30.2 30.2 1.6 30.2 32.1 3.6 2.0

2056 28.7 28.7 1.5 28.7 30.5 3.4 1.9

2057 27.3 27.3 1.4 27.3 29.0 3.2 1.8

2058 25.9 25.9 1.4 25.9 27.5 3.1 1.7

2059 24.6 24.6 1.3 24.6 26.1 2.9 1.6

5% Old Maturation Rate

10.58% New Maturation Rate

6.24% Return on loans

 This Report

6.24% interest 

Inputs

 Oversight Board

 (no interest) 

Balance Balance

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Exhibit Exhibit C - Expert Report of T. Terry Page 63 of 64
64

Appendix H: Reliance on Models

This appendix describes our reliance on both external (to The Terry Group) actuarial software as 

well as internally developed models in developing the actuarial findings central to the opinions 

offered in this report.113

The Terry Group uses ProVal, a third-party software program, to assist with actuarial valuations 

and projections related to pension plans. The model is intended to calculate the liabilities 

associated with the provisions of the plan using data and assumptions as of the measurement date 

under the specified funding methods. 

The output from ProVal is used as input to internally developed models, usually developed using 

Microsoft Excel, that apply applicable funding methods and policies to the derived liabilities and 

other inputs, such as plan assets and contributions, to generate various actuarial findings upon 

which my opinions are based.

The Terry Group has an extensive review process in which the results of the liability calculations 

are checked using detailed sample life output. Significant deviations from expectations are 

investigated. Other funding outputs and the internal models are similarly reviewed in detail and 

at a higher level for accuracy, reasonability, and consistency with prior results. The Terry Group 

also reviews ProVal when significant software changes or upgrades are made. This review is 

performed by experts within The Terry Group who are familiar with applicable funding methods, 

as well as the manner in which the model generates its output. If significant changes are made to 

the internal models, extra checking and review are completed.

113 Actuarial Standard of Practice No. 56, Modeling, provides guidance to actuaries when performing actuarial 

services with respect to designing, developing, selecting, modifying, using, reviewing, or evaluating models. Our 

use of models in developing the actuarial findings supporting the opinions offered in this report is in compliance 

with the guidance provided in ASOP no. 56.

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Exhibit Exhibit C - Expert Report of T. Terry Page 64 of 64