Appendix C: Page 1 of 18

WESTERN STATES OFFICE AND 

PROFESSIONAL EMPLOYEES PENSION FUND

THIRD SUSPENSION APPLICATION

Appendix C
Western States Office and Professional Employees Pension Fund

Appendix C: Page 2 of 18

INFORMATION ON ACTUARIAL ASSUMPTIONS AND METHODS

Part 1 - Actuarial assumptions and methods used for projections

Investment returns 

In developing the annual investment returns for the projections, we looked at current market based data including:

 Risk-free rates of returns based on the current Treasury spot rates,

 Forward-looking investment return statistics for various asset classes for both the near term and long term based 

on survey information collected by Horizon Actuarial Services’ 2017 Edition of the Survey of Capital Market 

Assumptions, and

 The Plan’s Investment Policy Statement and current strategic asset allocation

The Horizon Survey provides capital market assumptions and statistics (return expectations, standard deviations of 

returns and correlation coefficients) for each major asset class. Using this Horizon Survey data and the Plan’s strategic 

asset allocation, we are able to determine a “best estimate” return for the near term (i.e. a 10-year time period), as well as 

for the longer term (20+ year time period). For the Plan’s current asset allocation, the estimated geometric returns came 

out to be 6.10% for the 10-year time horizon and 7.15% for the longer 20+ year time horizon.

Using these expected return levels for the portfolio over different time periods and the Treasury yield curve spot rates as a

proxy for annual forward-looking risk-free rate, we attempt to determine a reasonable level for the risk premium for each of 

the decades covered by our projections. As is shown on the next page, our estimated risk premium is 3% for the first 10 

years, jumping to 3.5% for years 11 to 20, then declining to 3.25% for years 21 to 30 and finally back down to 3.0% for 

years 31 and higher.

We believe the 3.0% risk-premium for the next 10 years, which is at the lower end of historical averages for a 

predominantly US centered investment portfolio of stocks and bonds is reasonable given the recent decade’s investment 

performance. Using a 3.0% risk premium for this time period produces an estimated 6.23% geometric return, which is 

generally in line with the 6.10% return estimated for that time period by the Horizon Survey results.

Increasing the estimated risk premium to 3.5% for the next 10-year period produces a 20-year geometric return of 6.95% 

which is a little bit lower than the 7.15% return estimated for that time period by the Horizon Survey results. Lowering the 

risk premium in each of the subsequent two decades keeps the projected geometric returns for the portfolio in line with the 

7.15% long-term estimated return by the Horizon Survey and the 7.25% long-term assumption used by the Plan for 

ERISA funding purposes.
Western States Office and Professional Employees Pension Fund

Appendix C: Page 3 of 18

Plan Year Assumed Returns

Treasury Spot 

Rates

Risk Premium 

Rates

Avg. Annualized 

Geometric 

Returns 1

 20181 4.15% 2.53% 3.00%

2019 5.81% 2.81% 3.00%

2020 6.01% 3.01% 3.00%

2021 6.17% 3.17% 3.00%

2022 6.31% 3.31% 3.00%

2023 6.45% 3.45% 3.00%

2024 6.57% 3.57% 3.00%

2025 6.69% 3.69% 3.00%

2026 6.80% 3.80% 3.00%

2027 6.89% 3.89% 3.00% 6.23%

2028 7.47% 3.97% 3.50%

2029 7.53% 4.03% 3.50%

2030 7.59% 4.09% 3.50%

2031 7.64% 4.14% 3.50%

2032 7.67% 4.17% 3.50%

2033 7.70% 4.20% 3.50%

2034 7.73% 4.23% 3.50%

2035 7.75% 4.25% 3.50%

2036 7.77% 4.27% 3.50%

2037 7.79% 4.29% 3.50% 6.95%

2038 7.55% 4.30% 3.25%

2039 7.56% 4.31% 3.25%

2040 7.57% 4.32% 3.25%

2041 7.58% 4.33% 3.25%

2042 7.59% 4.34% 3.25%

2043 7.60% 4.35% 3.25%

2044 7.61% 4.36% 3.25%

2045 7.62% 4.37% 3.25%

2046 7.63% 4.38% 3.25%

2047 7.64% 4.39% 3.25% 7.16%

2048 7.39% 4.39% 3.00%

2049 7.40% 4.40% 3.00%

2050 7.41% 4.41% 3.00%

2051 7.41% 4.41% 3.00%

2052 7.42% 4.42% 3.00%

2053 7.42% 4.42% 3.00%

2054 7.43% 4.43% 3.00%

2055 7.43% 4.43% 3.00%

2056 7.44% 4.44% 3.00%

2057 7.44% 4.44% 3.00% 7.23%

1 Return shown for 2018 is for the period 4/1/2018 through 12/31/2018; 0.49% net return for the first quarter of 2018, 

based on Adminstrator financial statements, is included in the calculation of annualized geometric returns.
Western States Office and Professional Employees Pension Fund

Appendix C: Page 4 of 18

The Treasury High Quality Market (HQM) Corporate Bond Yield Curve

Monthly Average Spot Rates, Percent

These yield curves are based on data from the month listed at the top of the column. 

https://www.irs.gov/retirement-plans/monthly-yield-curve-tables

Maturity Jan Feb Mar Maturity Jan Feb Mar

0.5 1.97 2.13 2.37 20.5 4.00 4.25 4.29

1.0 2.12 2.31 2.53 21.0 4.01 4.26 4.30

1.5 2.26 2.47 2.68 21.5 4.02 4.26 4.31

2.0 2.38 2.62 2.81 22.0 4.03 4.26 4.31

2.5 2.48 2.73 2.92 22.5 4.03 4.27 4.32

3.0 2.57 2.83 3.01 23.0 4.04 4.27 4.32

3.5 2.65 2.91 3.10 23.5 4.04 4.27 4.33

4.0 2.73 2.99 3.17 24.0 4.05 4.27 4.33

4.5 2.80 3.07 3.24 24.5 4.05 4.28 4.34

5.0 2.88 3.15 3.31 25.0 4.06 4.28 4.34

5.5 2.95 3.23 3.38 25.5 4.07 4.28 4.35

6.0 3.03 3.31 3.45 26.0 4.07 4.29 4.35

6.5 3.10 3.39 3.51 26.5 4.08 4.29 4.36

7.0 3.17 3.46 3.57 27.0 4.08 4.29 4.36

7.5 3.24 3.54 3.63 27.5 4.08 4.29 4.37

8.0 3.31 3.61 3.69 28.0 4.09 4.30 4.37

8.5 3.37 3.67 3.75 28.5 4.09 4.30 4.38

9.0 3.43 3.74 3.80 29.0 4.10 4.30 4.38

9.5 3.49 3.80 3.84 29.5 4.10 4.30 4.38

10.0 3.54 3.85 3.89 30.0 4.11 4.31 4.39

10.5 3.59 3.90 3.93 30.5 4.11 4.31 4.39

11.0 3.63 3.94 3.97 31.0 4.11 4.31 4.39

11.5 3.68 3.98 4.00 31.5 4.12 4.31 4.40

12.0 3.71 4.02 4.03 32.0 4.12 4.32 4.40

12.5 3.75 4.05 4.06 32.5 4.12 4.32 4.40

13.0 3.78 4.08 4.09 33.0 4.13 4.32 4.41

13.5 3.80 4.10 4.11 33.5 4.13 4.32 4.41

14.0 3.83 4.13 4.14 34.0 4.13 4.32 4.41

14.5 3.85 4.15 4.15 34.5 4.14 4.33 4.41

15.0 3.87 4.16 4.17 35.0 4.14 4.33 4.42

15.5 3.89 4.18 4.19 35.5 4.14 4.33 4.42

16.0 3.91 4.19 4.20 36.0 4.14 4.33 4.42

16.5 3.92 4.20 4.22 36.5 4.15 4.33 4.42

17.0 3.93 4.21 4.23 37.0 4.15 4.33 4.43

17.5 3.95 4.22 4.24 37.5 4.15 4.34 4.43

18.0 3.96 4.23 4.25 38.0 4.15 4.34 4.43

18.5 3.97 4.23 4.26 38.5 4.16 4.34 4.43

19.0 3.98 4.24 4.27 39.0 4.16 4.34 4.44

19.5 3.99 4.24 4.28 39.5 4.16 4.34 4.44

20.0 4.00 4.25 4.29 40.0 4.16 4.34 4.44

2018 2018
Western States Office and Professional Employees Pension Fund

Appendix C: Page 5 of 18

Rael & Letson Expected Investment Return Calculator Results

10-Year Expected Returns

Client Name

Horizon Survey Year

Date of Asset Allocation

Short/Long Run Expected Returns 0=10yr; 1=20yr

Summary of Calculations

R&L 

Calculation 

Results

Arithmetic Return 6.60%

Geometric Return (estimate) 6.10%

Portfolio Standard Deviation 10.29%

Capital Market Assumptions are derived from Horizon's 2017 Edition of their Survey of Capital Market Assumptions

Western States Office and Professional 

Employees Pension Fund

2017

12/31/2017

0

10-Year Input, Returns, Standard Deviation and Correlation Matrix

Asset Class

Paste 

Values

Asset 

Class 

Names 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6

Names

Correlation 

Matrix 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6

1 25.71% US Equity - Large Cap 7.76% 16.58% 1 1 1

2 5.50% US Equity - Small/Mid Cap 8.81% 20.22% 2 2 0.88 1

3 17.13% Non-US Equity - Developed 8.66% 18.86% 3 3 0.81 0.75 1

4 Non-US Equity - Emerging 10.99% 25.42% 4 4 0.72 0.69 0.79 1

5 21.20% US Corporate Bonds - Core 3.40% 5.50% 5 5 0.13 0.08 0.14 0.13 1

6 2.73% US Corporate Bonds - Long Duration 4.16% 10.44% 6 6 0.11 0.06 0.13 0.12 0.86 1

7 US Corporate Bonds - High Yield 5.61% 10.61% 7 7 0.62 0.61 0.61 0.63 0.36 0.31 1

8 1.63% Non-US Debt - Developed 2.48% 7.36% 8 8 0.15 0.09 0.3 0.22 0.56 0.51 0.21 1

9 Non-US Debt - Emerging 5.97% 11.79% 9 9 0.55 0.5 0.59 0.68 0.45 0.4 0.61 0.39 1

1 0 1.20% US Treasuries (Cash Equivalents) 2.34% 2.97% 1 0 1 0 -0.1 -0.13 -0.08 -0.08 0.35 0.34 -0.05 0.23 0.1 1

1 1 TIPS (Inflation-Protected) 3.05% 6.32% 1 1 1 1 0.06 0.03 0.12 0.19 0.69 0.57 0.29 0.47 0.41 0.35 1

1 2 13.80% Real Estate 7.28% 14.52% 1 2 1 2 0.43 0.43 0.39 0.34 0.07 0.09 0.32 0.05 0.24 0.01 0.11 1

1 3 5.30% Hedge Funds 5.26% 8.00% 1 3 1 3 0.62 0.61 0.64 0.64 0.17 0.09 0.56 0.1 0.47 -0.08 0.16 0.32 1

1 4 Commodities 5.60% 17.89% 1 4 1 4 0.32 0.31 0.41 0.45 0.09 0.03 0.35 0.21 0.35 -0.02 0.27 0.22 0.43 1

1 5 5.80% Infrastructure 7.70% 14.55% 1 5 1 5 0.51 0.47 0.52 0.47 0.23 0.19 0.46 0.28 0.42 -0.04 0.18 0.27 0.42 0.31 1

1 6 Private Equity 11.33% 21.98% 1 6 1 6 0.73 0.71 0.7 0.65 0.04 0.01 0.51 0.07 0.45 -0.1 0.02 0.4 0.62 0.33 0.45 1

Total 100.00% Boundary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Paste 

Values 

Client 

Information

Client 

Specific 

Weightings

Long Run 

Expected 

Return

Standard 

Deviation
Western States Office and Professional Employees Pension Fund

Appendix C: Page 6 of 18

Rael & Letson Expected Investment Return Calculator Results

20-Year Expected Returns

Client Name

Horizon Survey Year

Date of Asset Allocation

Short/Long Run Expected Returns 0=10yr; 1=20yr

Summary of Calculations

R&L 

Calculation 

Results

Arithmetic Return 7.64%

Geometric Return (estimate) 7.15%

Portfolio Standard Deviation 10.29%

Capital Market Assumptions are derived from Horizon's 2017 Edition of their Survey of Capital Market Assumptions

Western States Office and Professional 

Employees Pension Fund

2017

12/31/2017

1

20-Year Input, Returns, Standard Deviation and Correlation Matrix

Asset Class

Paste 

Values

Asset 

Class 

Names 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6

Names

Correlation 

Matrix 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6

1 25.71% US Equity - Large Cap 9.12% 16.58% 1 1 1

2 5.50% US Equity - Small/Mid Cap 10.33% 20.22% 2 2 0.88 1

3 17.13% Non-US Equity - Developed 9.42% 18.86% 3 3 0.81 0.75 1

4 Non-US Equity - Emerging 11.83% 25.42% 4 4 0.72 0.69 0.79 1

5 21.20% US Corporate Bonds - Core 4.59% 5.50% 5 5 0.13 0.08 0.14 0.13 1

6 2.73% US Corporate Bonds - Long Duration 5.40% 10.44% 6 6 0.11 0.06 0.13 0.12 0.86 1

7 US Corporate Bonds - High Yield 6.80% 10.61% 7 7 0.62 0.61 0.61 0.63 0.36 0.31 1

8 1.63% Non-US Debt - Developed 3.74% 7.36% 8 8 0.15 0.09 0.3 0.22 0.56 0.51 0.21 1

9 Non-US Debt - Emerging 6.96% 11.79% 9 9 0.55 0.5 0.59 0.68 0.45 0.4 0.61 0.39 1

1 0 1.20% US Treasuries (Cash Equivalents) 3.25% 2.97% 1 0 1 0 -0.1 -0.13 -0.08 -0.08 0.35 0.34 -0.05 0.23 0.1 1

1 1 TIPS (Inflation-Protected) 4.22% 6.32% 1 1 1 1 0.06 0.03 0.12 0.19 0.69 0.57 0.29 0.47 0.41 0.35 1

1 2 13.80% Real Estate 7.82% 14.52% 1 2 1 2 0.43 0.43 0.39 0.34 0.07 0.09 0.32 0.05 0.24 0.01 0.11 1

1 3 5.30% Hedge Funds 6.33% 8.00% 1 3 1 3 0.62 0.61 0.64 0.64 0.17 0.09 0.56 0.1 0.47 -0.08 0.16 0.32 1

1 4 Commodities 6.53% 17.89% 1 4 1 4 0.32 0.31 0.41 0.45 0.09 0.03 0.35 0.21 0.35 -0.02 0.27 0.22 0.43 1

1 5 5.80% Infrastructure 8.28% 14.55% 1 5 1 5 0.51 0.47 0.52 0.47 0.23 0.19 0.46 0.28 0.42 -0.04 0.18 0.27 0.42 0.31 1

1 6 Private Equity 12.59% 21.98% 1 6 1 6 0.73 0.71 0.7 0.65 0.04 0.01 0.51 0.07 0.45 -0.1 0.02 0.4 0.62 0.33 0.45 1

Total 100.00% Boundary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Paste 

Values 

Client 

Information

Client 

Specific 

Weightings

Long Run 

Expected 

Return

Standard 

Deviation
Western States Office and Professional Employees Pension Fund

Appendix C: Page 7 of 18

Mortality assumptions 

RP-2014 Blue Collar Mortality Table for males and females, adjusted backward to 2006 using MP-2014, then projected 

forward from 2006 with Fully Generational Mortality Improvement under MP-2016

RP-2014 Disabled Retiree Mortality Table for males and females, adjusted backward to 2006 using MP-2014, then 

projected forward from 2006 with Fully Generational Mortality Improvement under MP-2016

Other demographic assumptions 

Termination: Table T-7 (Less 51 GAT) of The Actuary's Pension Handbook; Non-Vested Participants are assumed to 

earn one year of vesting credit annually until vested

Retirement:

Active participants are assumed to retire based on the following rate table:

Age Rate of Retirement

55 20%

56 15%

57-59 12%

60 15%

61 20%

62 40%

63-70 35%

 71+ 100%

Vested inactive participants are assumed to retire based on the following rate table:

Age Rate of Retirement

55 15%

56-61 5%

62 18%

63-64 3%

 65+ 100%

Disability: 1952 Society of Actuaries Table, Period 2, Benefit 5

Assumptions regarding form and commencement age of benefits 

For those not yet in pay status, 55% of participants are assumed to elect a Life Annuity and 45% of participants are 

assumed to elect a 50% Joint and Survivor Annuity.

80% of non-retired male participants and 75% of non-retired female participants are assumed to be married and their

spouses are assumed to be one year younger.

The assumed benefit commencement age for participants who have terminated with deferred benefits is shown separately 

under the Retirement assumption in the “Other demographic assumptions” section above. Participants who are expected

to terminate with deferred benefits in the future are all assumed, on average, to retire at age 62. This is a computational 

shortcut given the extreme programming that would be required to exactly match the retirement assumption used for 

current terminated vested participants. The weighted average retirement age over the preceding four years is 62 for 

retiring terminated vested participants, as shown in the “Demographic experience” section below.

Participants eligible for a disability benefit are assumed to retire and commence benefits immediately upon decrementing 

for disability. 
Western States Office and Professional Employees Pension Fund

Appendix C: Page 8 of 18

Assumptions regarding missing or incomplete data 

All current terminated vested participants are assumed to be alive; an actuarial increase is applied to their benefit to 

reflect a delay in benefit commencement.

If not specified, participants are assumed to be female and the same age as the average of participants with the same 

status code. 

New entrant profile 

New entrants are assumed to enter the Plan such that the active headcounts decline by 4% during each year of our 

projections. New entrants are assumed to be 85% female and 15% male in the following age bands:

Age Range Percent of New Entrants

Below 25 10%

25-30 16%

30-35 16%

25-40 18%

40-45 10%

45-50 9%

Over 50 21%

Contribution rates 

As of January 1, 2018, all current contributing employers are paying supplemental contributions at the maximum rate of 

80% (none are still paying surcharge contributions), except one who abated 9/1/2015 and will be at the 80% level later 

this year. Therefore, the current contribution rate of $3.10 per hour is assumed to remain level for each year during the 

projection period. 

Contribution base units 

As of January 1, 2018, the Plan has 593 active participants. We are not aware of any employer withdrawals occurring 

between January 1, 2018 and March 31, 2018.

For purposes of the projections, we assume that the number of actives will decline by 4% per year. To accomplish this in 

the projections, we assume new entrants replace a portion of the actives that terminate (due to retirement, termination, 

death or due to the employer withdrawing), but only to the extent that it produces an active headcount that is 96% of the 

previous year’s headcount. Actives are assumed to work a consistent number of hours from year to year, so the net 

change in the contribution base units (CBUs) from year to year also results in a 4% decline.

When allocating the 4% decline, we assume that 75% of the 4% decline (i.e. 3% of the gross decline) is associated with 

new employer withdrawals, with a withdrawal liability imposed. Actives from newly withdrawn employers are not assumed 

to be replaced with new entrants. The other 25% of the 4% decline (i.e. 1% of the gross decline) is generally attributable 

to the net change in actives for ongoing, contributing employers. Our expectation is that the employees that terminate 

(regardless of decrement) from ongoing contributing employers will be replaced with a new entrant; though there may be 

some small level of productivity improvement such that not all are replaced fully.
Western States Office and Professional Employees Pension Fund

Appendix C: Page 9 of 18

Withdrawal liability payments 

We have assumed ongoing withdrawal liability payments will be made by employers that have withdrawn prior to the May 

15, 2018 filing date based on the payment schedules in their withdrawal liability assessments. We do not expect 

payments from the 2 employers that have been deemed to have defaulted on their assessments nor from the 4 employers 

that are currently delinquent.

We do make an assumption that a portion of the assumed future decline in hours will trigger withdrawal liability 

assessments in future years.

For both the current assessed group of employers that making scheduled payments, and for future withdrawal liability 

assessments, we have reflected a 4% default rate on the collectability of those scheduled payments due to bankruptcies 

or other financial impairments.

Administrative expenses 

Administrative expenses are assumed to be $1.3 million in 2018 ($1.05 million from April 1, 2018 through December 31, 

2018) and $1.0 million in 2019, increasing by 1.5% each year thereafter for expected inflation and increases in PBGC 

premiums offset by a 4% decline in active hours each year.

Projection methodology 

Data was not grouped – an individual record was valued for each participant in the Plan.

There were no changes to the cash flow projections that would normally be provided by the actuarial software, including 

both changes to the programming that affect the results generated by the software and modifications to the results 

generated by the software. 

Part 2 - Supporting documentation for selection of certain assumptions 

Investment Returns 

Asset Class

Target 

Portfolio

Arithmetic 

Return (20yr)

Geometric 

Return (20yr)

Standard 

Deviation

US Equity - Large Cap 25.71% 9.12% 7.83% 16.58%

US Equity - Small/Mid Cap 5.50% 10.33% 8.40% 20.22%

Non-US Equity - Developed 17.13% 9.42% 7.64% 18.86%

US Corporate Bonds - Core 21.20% 4.59% 4.42% 5.50%

US Corporate Bonds - Long Duration 2.73% 5.40% 4.79% 10.44%

Non-US Debt - Developed 1.63% 3.74% 3.47% 7.36%

US Treasuries (Cash Equivalents) 1.20% 3.25% 3.23% 2.97%

Real Estate 13.80% 7.82% 6.69% 14.52%

Hedge Funds 5.30% 6.33% 5.97% 8.00%

Infrastructure 5.80% 8.28% 7.09% 14.55%

Total 100.00%
Western States Office and Professional Employees Pension Fund

Appendix C: Page 10 of 18

The inflation rate inherent in the net investment returns is 2.25%. 

Demographic experience 

The key demographic assumptions are reviewed with each annual valuation and the associated gain/loss by source is 

analyzed to determine if any trends warrant a change or modification in assumptions. Below is a table of the historical 

gain/loss by source which is reflective of experience prior to several assumption changes that became effective January 

1, 2017:

A more detailed experience review was performed on the following assumptions and changes were made effective 

January 1, 2017 (the current assumptions are outlined as requested in the above sections). 

Retirement Age for Actives who Terminate:

Asset Class 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

US Equity - Large Cap 1

US Equity - Small/Mid Cap 0.88 1

Non-US Equity - Developed 0.81 0.75 1

Non-US Equity - Emerging 0.72 0.69 0.79 1

US Corporate Bonds - Core 0.13 0.08 0.14 0.13 1

US Corporate Bonds - Long Duration 0.11 0.06 0.13 0.12 0.86 1

US Corporate Bonds - High Yield 0.62 0.61 0.61 0.63 0.36 0.31 1

Non-US Debt - Developed 0.15 0.09 0.3 0.22 0.56 0.51 0.21 1

Non-US Debt - Emerging 0.55 0.5 0.59 0.68 0.45 0.4 0.61 0.39 1

US Treasuries (Cash Equivalents) -0.1 -0.13 -0.08 -0.08 0.35 0.34 -0.05 0.23 0.1 1

TIPS (Inflation-Protected) 0.06 0.03 0.12 0.19 0.69 0.57 0.29 0.47 0.41 0.35 1

Real Estate 0.43 0.43 0.39 0.34 0.07 0.09 0.32 0.05 0.24 0.1 0.11 1

Hedge Funds 0.62 0.61 0.64 0.64 0.17 0.09 0.56 0.1 0.47 -0.08 0.16 0.32 1

Commodities 0.32 0.31 0.41 0.45 0.9 0.03 0.35 0.21 0.35 -0.02 0.27 0.22 0.43 1

Infrastructure 0.51 0.47 0.52 0.47 0.23 0.19 0.46 0.28 0.42 -0.04 0.18 0.27 0.42 0.31 1

Private Equity 0.73 0.71 0.7 0.65 0.04 0.01 0.51 0.07 0.45 -0.01 0.02 0.4 0.62 0.33 0.45 1

Total Gain/(Loss) Summary 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

Investments (1,353,294) (3,503,794) 6,155,370 13,070,644 (33,450,978) (40,088,460) (6,266,318) 27,395,188 (126,852,502) 13,188,900

Mortality (1,248,878) 1,762,830 665,209 (21,395) (646,955) 819,175 443,653 3,427,808 2,337,772 609,792

Turnover 175,220 (227,227) (509,163) 52,665 (157,632) (183,334) 182,094 138,998 208,536 3,496,820

Retirement 1,647,552 1,615,254 2,462,900 1,943,164 1,757,478 650,964 510,575 (3,026,254) 1,007,178 129,454

Disability (92,794) (95,159) (94,877) (136,510) (127,345) (4,920) (131,473) N/A N/A N/A

Miscellaneous (149,325) (58,520) (404,437) (344,116) (407,394) (372,466) (338,597) (589,859) 193,667 128,169

Total Liability Gain / (Loss) 331,775 2,997,178 2,119,632 1,493,808 418,152 909,419 666,252 (49,307) 3,747,153 4,364,235

Total Gain / (Loss) (1,021,519) (506,616) 8,275,002 14,564,452 (33,032,826) (39,179,041) (5,600,066) 27,345,881 (123,105,349) 17,553,135

Terminated Vested Retirement Age Count

61.0 120

60.5 146

63.0 122

62.3 143

61.6

Weighted Ret Age 1/1/14

Weighted Ret Age 1/1/15

Weighted Ret Age 1/1/16

Weighted Ret Age 1/1/17

Weighted Ret Age All 4 Years
Western States Office and Professional Employees Pension Fund

Appendix C: Page 11 of 18

Retirement Age for Terminated Vested Participants:

Form of Benefit:

 

The spouse age difference for all retirees who elected a joint and survivor form of benefit was reviewed for 1,428 retirees 

as of January 1, 2017 and the resulting age difference was one year younger for male spouses and one year younger for 

female spouses.

The marital status is not provided in the valuation data for the Plan. 

Age 2016 2015 2014 2016 2015 2014 Assumption

≤ 55 13 29 14 11% 20% 12% 15%

56 2 10 4 2% 7% 3% 5%

57 3 9 7 2% 6% 6% 5%

58 5 13 9 4% 9% 8% 5%

59 3 4 6 2% 3% 5% 5%

60 7 4 3 6% 3% 3% 5%

61 4 3 6 3% 2% 5% 5%

62 17 28 28 14% 19% 23% 18%

63 3 4 7 2% 3% 6% 3%

64 8 4 7 7% 3% 6% 3%

65 30 26 11 25% 18% 9% 100%

66 8 3 5 7% 2% 4%

67 2 3 2 2% 2% 2%

68 4 1 0 3% 1% 0%

69 1 2 1 1% 1% 1%

70 3 1 2 2% 1% 2%

71 9 2 8 7% 1% 7%

≥ 72 0 0 0 0% 0% 0%

122 146 120

Benefit Form Elected Frequency

Life Annuity 69

50% J&S Annuity 28

(2/3)% J&S Annuity 5

100% J&S Annuity 17

50% Pop Up J&S 9

(2/3)% Pop Up J&S 3

100% Pop Up J&S 9

Total 140

Total New Retirees Electing LA 274

Total New Retirees 501

Percentage electing LA 54.7%

Total New Retirees Electing J&S 227

Total New Retirees 501

Percentage electing J&S 45.3%
Western States Office and Professional Employees Pension Fund

Appendix C: Page 12 of 18

The distribution of each optional form of benefit selected at retirement for the last five years is provided in the chart below:

Mortality assumptions 

The mortality assumption for healthy lives is based on the blue-collar rates in the RP-2014 Mortality Tables Report issued 

by the Society of Actuaries (located at https://www.soa.org/Research/Experience-Study/pension/research-2014-rp.aspx). 

The rates were adjusted backward to 2006 using MP-2014 then projected forward from 2006 with Fully Generational 

Mortality Improvement under MP-2016. We feel these tables are representative of the expected mortality experience for 

participants in the Plan.

The mortality assumption for disabled lives is based on the disabled rates in the same RP-2014 Mortality Tables Report 

issued by the Society of Actuaries. The rates were similarly adjusted backward to 2006 using MP-2014 then projected 

forward from 2006 with Fully Generational Mortality Improvement under MP-2016. We feel these tables are 

representative of the expected mortality experience for participants in the Plan.

The process used to construct the mortality rates is described in the RP-2014 Mortality Tables Report.

Benefit Form at Retirement 2016 2015 2014 2013 2012

Life Annuity 88 69 107 98 54

50% J&S Annuity 40 28 41 22 31

(2/3)% J&S Annuity 2 5 1 3 1

100% J&S Annuity 19 17 20 13 13

50% Pop Up J&S 12 9 11 5 9

(2/3)% Pop Up J&S 0 3 3 3 1

100% Pop Up J&S 19 9 19 15 15

Total 180 140 202 159 124

2016 2015 2014 2013 2012 2016 2015 2014 2013 2012

55 2.94% 5.88% 1.40% 1.64% 4.79% 5.00% 1.12%

56 8.82% 5.88% 3.85% 9.09% 8.20% 16.44% 6.67% 5.62%

57 2.94% 3.50% 1.64% 6.16% 3.33% 5.62%

58 3.85% 2.56% 6.06% 1.40% 4.10% 5.48% 8.33% 6.74%

59 1.92% 7.69% 1.40% 3.28% 8.22% 5.00% 4.49%

60 2.94% 11.76% 3.85% 7.69% 6.06% 6.99% 3.28% 3.42% 5.00% 5.62%

61 2.94% 15.38% 7.69% 6.06% 6.99% 4.92% 3.42% 3.33% 7.87%

62 15.38% 12.82% 3.03% 16.78% 5.74% 6.85% 14.17% 5.62%

63 8.82% 23.53% 7.69% 15.38% 21.21% 18.18% 9.02% 13.01% 11.67% 16.85%

64 11.76% 5.77% 3.03% 4.90% 5.74% 4.11% 8.33% 3.37%

65 14.71% 11.76% 1.92% 10.26% 9.09% 10.49% 10.66% 6.85% 7.50% 15.73%

66 20.59% 17.65% 15.38% 20.51% 15.15% 13.29% 19.67% 10.27% 7.50% 13.48%

67 14.71% 5.88% 5.77% 7.69% 3.03% 1.40% 5.74% 4.11% 3.33% 3.37%

68 2.94% 5.88% 5.77% 2.56% 9.09% 0.70% 2.46% 2.74% 1.67% 1.12%

69 1.92% 2.56% 3.03% 0.70% 2.46% 0.68% 1.12%

70 2.94% 5.88% 1.92% 9.09% 1.64% 1.37% 1.12%

≥ 70 2.94% 5.88% 9.62% 2.56% 6.06% 2.80% 9.84% 2.05% 9.17% 1.12%

Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Retirement 

Age

Active to Retired Terminated Vested to Retired
Western States Office and Professional Employees Pension Fund

Appendix C: Page 13 of 18

New entrant profile 

New entrants are assumed to replace participants who terminated employment during the year from contributing 

employers and to have a demographic mix consistent with recent entrants during the past six plan years with an average 

age of 39. A distribution of the ages of all new entrants is shown in the chart below:

Age Range Percentage of New 

Entrants

Below 20 0%

20 – 24 10%

25 – 29 16%

30 – 34 16%

35 – 39 18%

40 – 44 10%

45 – 49 9%

50 – 54 8%

55 – 59 7%

60 and over 5%

New entrants are assumed to be 85% female and 15% male based on the distribution of new participants over the past 

six years.

New Entrant Sex Count % (Excluding Missing) Assumption

Male 58 16% 15%

Female 300 84% 85%

Missing 3

361

In developing the new entrant profile, we did consider whether “rehires” (i.e. participants returning to work with prior 

credited & vesting service) should be considered as part of the new entrant profile. In looking back over the prior 6 plan 

years, less than 9% of the new entrants were rehires (35 of 396). Only 14 of the 35 remain as active participants as of 

1/1/2018. During the most recent 3 years, on 5% of the new entrants were rehires having prior vesting or benefit service. 

As such, we did not consider the rehires to be significant enough to warrant an adjustment to the new hire profile.
Western States Office and Professional Employees Pension Fund

Appendix C: Page 14 of 18

Contribution base units and employer withdrawals 

Following is a table of employers that contributed 5% or more of the annual contributions to the Plan in each plan year 

beginning with 2009, per the corresponding Schedule R attachments to the Form 5500. The table includes the base, 

supplemental and surcharge contributions, total contributions, CBUs (hours) and average contribution rate for each 

employer.

The assumption that CBU levels will decline at a lower rate than recent history would indicate is supported by the 

following rationale:

1. The Board of Trustees believes that the factors that resulted in a decline in CBUs in the past have ceased.

2. Past fluctuations in CBUs were primarily the result of:

a) the Plan declaring Red Zone status in 2009;

b) employers reacting to the additional costs of the employer surcharge followed by supplemental employer 

contributions under the Rehabilitation Plan; and

c) the Great Recession (2007–2012), which limited employer financial resources. The Pension Protection 

Act shifted the economic burden of funding Red Zone plans onto employers (supplemental employer 

contributions) and participants (wage concessions), which was particularly painful during a recession.

Employer Plan Year Base

Supplemental 

 + Surcharge Total Hours

ATPA 2009 $709,925 $13,998 $723,923 223,084 $3.25

Cascade Regional Blood Services 2009 421,051 8,663 429,714 233,763 $1.84

NW Natural Gas 2009 422,395 8,834 431,228 1,407,966 $0.31

WPAS 2009 844,648 17,488 862,135 305,836 $2.82

ATPA 2010 650,850 72,036 722,886 205,211 $3.52

Cascade Regional Blood Services 2010 388,152 38,815 426,967 215,640 $1.98

NW Natural Gas 2010 385,069 38,512 423,581 1,283,547 $0.33

WPAS 2010 840,813 84,081 924,894 288,455 $3.21

ATPA 2011 651,080 92,245 743,325 205,734 $3.61

NW Natural Gas 2011 377,902 37,795 415,697 1,259,656 $0.33

WPAS 2011 857,317 85,731 943,049 290,615 $3.25

ATPA 2012 639,605 109,279 748,884 201,687 $3.71

NW Natural Gas 2012 376,353 37,639 413,992 1,254,491 $0.33

WPAS 2012 835,883 83,588 919,471 283,349 $3.25

ATPA 2013 656,007 131,910 787,917 206,918 $3.81

NW Natural Gas 2013 387,039 38,710 425,749 1,290,111 $0.33

WPAS 2013 819,672 81,969 901,641 277,854 $3.25

ATPA 2014 391,502 382,300 773,802 123,866 $6.25

WPAS 2014 824,649 82,466 907,115 279,540 $3.25

WPAS 2015 801,138 80,068 881,206 271,571 $3.24

ILWU-PMA Welfare Plan 2016 221,519 177,215 398,733 54,696 $7.29

Contribututions Average 

Contribution 

 Rate
Western States Office and Professional Employees Pension Fund

Appendix C: Page 15 of 18

Under the PPA rules, employers had until the expiration date of their bargaining agreement that was in place at 

the time the Rehabilitation Plan was approved to adopt a bargaining agreement that complied with the terms of 

the Rehabilitation Plan. Many employers elected to withdraw rather than agree to the Rehabilitation Plan for 

some or all of the following reasons:

a) Did not want to be obligated to pay the higher Rehabilitation Plan contributions on an ongoing basis;

b) Did not want to increase their future Withdrawal Liability payment schedule by agreeing to the higher 

contributions while still an active employer if they were considering withdrawal or concerned about mass 

withdrawal in the future; and

c) Did not expect the plan would recover given the pre-MPRA tools available.

3. At this time, the Board believes that the economic burden imposed by the Pension Protection Act has now been 

absorbed by the ongoing employers and their associated participants as of January 1, 2018. This should reduce 

the rate of decline in CBU levels (and for the participating employers, stable costs) going forward. Specifically:

a) as of 1/1/2018, all employers have adopted the Rehabilitation Plan;

b) as of 1/1/2018 all employers, except one who abated 9/1/2015, are paying at the maximum rate under the 

Rehabilitation Plan (80%); and

c) the economy is in the second longest bull market in history.

All of these factors support more stability in CBU levels in the future. Below is a chart showing the hours and 

contribution history for the ongoing active employers as of January 1, 2018:

As is demonstrated above, the hours progression for the ongoing active employers as of January 1, 2018 has 

remained relatively steady over the past three years and even when looking at the 8-year history the hours 

decline has not been very dramatic. As the Rehabilitation Plan contributions have now been fully phased in, we 

anticipate that future hours for current active employers that remain in the Plan will stay relatively flat (our 

projection assumptions reflect a 1% decline in CBU levels not related to employer withdrawals). 

4. The nature of the remaining contributing employers also leads us to believe these employers will continue to 

participate, and not incur a meaningful drop in future hours. As of January 1, 2018, the Plan currently has 

approximately 168 contributing employers covering 593 active participants. The overwhelming majority of these 

employers are local unions in the western US, and the people covered by the Plan by these employers are the 

OPEIU secretarial and office staff supporting the union’s staff of officers and business agents. About 70% of 

these local union employers have between 1-3 OPEIU employees supporting their much larger staffs. As such, 

the economic burden of continuing payment of the Rehabilitation Plan costs (which have been frozen) is not 

overly severe. 

Year Base

Supplemental 

+ Surcharge Total Hours

Average 

Total Rate

2009 $3,213,999 $68,977 $3,282,976 1,037,930 $3.16

2010 3,072,535 386,038 3,458,572 977,347 $3.54

2011 3,058,603 650,866 3,709,470 959,326 $3.87

2012 3,058,507 1,056,917 4,115,424 957,156 $4.30

2013 3,069,215 1,731,598 4,800,813 946,090 $5.07

2014 3,034,284 2,331,347 5,365,631 926,908 $5.79

2015 3,047,697 2,458,845 5,506,543 909,173 $6.06

2016 3,027,696 2,434,413 5,462,109 901,280 $6.06

Contributions

Current Contributing Employers (168 Employers / 593 Actives)
Western States Office and Professional Employees Pension Fund

Appendix C: Page 16 of 18

Even the largest employers contributing to the Plan at this point are not overly large. Of the approximately 168 

employers only eight have more than 20,000 CBUs (approximately 10 employees) and only 2 of those have more 

than 30,000 CBUs. These largest employers are at the highest supplemental percentage under the Rehabilitation 

Plan and their hours have remained constant or have grown over the last three years.

5. The Board also believes that approval of the benefit suspension plan is critical to retaining employers, and 

maintaining the assumed CBU levels. Some employers have informed the Board that they will stay in the Plan if 

the benefit suspension is approved, since the suspension provides a path to a more financially stable plan and the 

suspension cuts do not apply to newly accrued benefits. Approval of the benefit suspension helps support the 

minimal decline is the CBU levels that are assumed. 

6. The Board has adopted two administrative policies that support the assumption that actives terminating for 

reasons other than employer withdrawal will generally be replaced with new entrants. First, the Board requires 

that employer contribution rates cannot be less than the rate in effect when the Board declared Red Zone status. 

This rule applies to any CBA, even after adoption of the Rehabilitation Plan. Second, the Board enforces an “all 

or nothing” rule. This means that employers must make contributions to the Plan for all new hires covered by the 

CBA. Employers cannot, for example, contribute to a 401(k) plan for new hires.

7. Many of the arguments above would possibly lead to a level future contribution base units assumption for the 

future, however, we do fully expect there to be some level of ongoing withdrawals. That said, we do not anticipate 

the rate of future withdrawals will approach the levels we have seen during the 2008-2017 time period.

Backup Support for Withdrawal Liability Payment Assumptions

The actuary’s projections reflect all known withdrawals as of the application date and incorporate expected withdrawal 

liability payments for each of the withdrawn employers based on their payment schedule, most of which are capped at 20 

years. All employers that have withdrawn prior to January 1, 2018 have been assessed withdrawal liability. We have 

attached an exhibit at the end of this document showing the assessments for each employer and the current status of that 

assessment. Some withdrawn employers have paid a lump sum settlement of their withdrawal liability assessment, and 

that payment is reflected accordingly as a replacement for their scheduled quarterly payments.

To date, the Plan has had 135 employers withdraw from the Plan from 2008 through 2017. Of those 135 assessments, 

only 2 employers defaulted on their withdrawal liability assessments and had those assessments deemed uncollectible. 

We believe that these 2 situations were unique and will not generally apply to the other WL assessments the Plan has 

made against other current and future withdrawn employers. That said, circumstances change and thus, we have 

included an assumption that 4% of the existing and future withdrawal liability payment schedules will become distressed 

and be deemed uncollectible. The following is rationale to support this assumption:

1. The two companies that the Plan has been unable to collect from were both in the third party administration or 

“TPA” business. TPAs administer retirement plans and health and welfare plans on behalf of the Plan sponsor. 

TPA firms administer plans on a nondiscretionary basis so they are not ERISA plan administrators, but rather 

contract administrators. The majority of their employees were represented by an OPEIU local and participated in 

the Plan, and their management employees participated in the Plan under a special agreement. TPA companies 

have few hard assets, other than goodwill, office furniture, computer systems and hardware.

a) The first company went out of business because a client obtained a substantial judgment against the 

company that exceeded its insurance coverage. The company did not properly implement investment 

changes requested by participants, who incurred damages. As noted above, TPA companies have few 

hard assets. In order to protect his personal assets, the owner, without telling his other clients or the 

Plan, moved his assets to Texas. Texas laws shielded his personal assets from creditors. The Plan 

deposed the owner and determined that he had no collectible personal assets and were unable to collect 

the withdrawal liability amount assessed. 
Western States Office and Professional Employees Pension Fund

Appendix C: Page 17 of 18

b) The second company went out of business and became bankrupt due to executive fraud and 

mismanagement that led to the loss of too many clients. The TPA business can be competitive and plans 

often “shop around” for the best deal, in order to save plan assets. Once a few clients left that TPA, other 

clients began to shop for TPA services. After losing additional clients the company could no longer stay 

in business.

2. Two other TPA companies participate in the Plan.

a) The biggest TPA employer withdrew in 2016 and there is no reason to believe that they will not pay their 

withdrawal liability. This firm was not required to bargain the Rehabilitation Plan Schedule until 

12/31/2016 and withdrew before that occurred. As such, their Withdrawal Liability payment schedule is 

effectively at the same level as their base contribution rate and is “affordable” as an ongoing cost item. 

This firm was also a large beneficiary of the bankrupt TPA’s loss of clients and is well positioned 

financially going forward.

b) The other TPA employer has some offices that have withdrawn and some offices that continue to 

participate in the Plan (represented by different locals). Again, there is no reason to believe that the 

offices that have withdrawn will not pay their withdrawal liability.

3. The Board believes that the two TPA companies that did not pay their withdrawal liability are unique situations. 

The first company’s negligence resulted in a judgment that exceeded its insurance coverage. That is a rare and 

unique event. The second company fell victim to mismanagement and cost cutting after the Great Recession. 

Again, the Board believes this is a unique situation highlighted by the fact that two other TPA firms participate in 

the Plan and continue to make all required payments.

4. Through the 2018 benefit suspension filing date, there have been 135 employer withdrawals. The vast majority is 

current with their withdrawal liability payment schedules or has made a settlement offer / payment that the 

Trustees have accepted. Other than the two TPA companies noted above all other withdrawn employers, except 

for 4, are currently paying, paid their withdrawal liability in full or agreed to a lump sum settlement. The Board has 

no reason to believe that those making quarterly payments will stop making payments in the future.

5. The projections in this application do not reflect any withdrawal liability payments for the 4 withdrawn employers 

that are not currently paying their withdrawal liability assessments. However, these four employers have been 

referred to collection counsel and the Plan will likely collect some or all of the withdrawal liability owed from each 

of these employers in the future.

6. Other than the withdrawal liability defaults discussed above, our 3 largest assessments are as follows:

a) WPAS is described in item 2a. above.

b) NWNG is a gas-delivery utility based in Oregon. Their withdrawal liability payment schedule is very small 

relative to their corporate revenue and expenses. We are not aware of any financial impairment that 

would affect their credit rating.

c) Cascade Regional Blood Services is a nonprofit entity that withdrew in 2012 and has been making 

quarterly withdrawal liability payments since they were assessed in 2013.

7. The Board has a robust collections procedure in the event an employer does not pay withdrawal liability. The 

Plan has never had to file suit to collect.

The projections provided with the application assume a 4% annual decline in the active participant group (and therefore 

contribution base units). 75% of this decline is expected to be the result of future employer withdrawals, with a resulting 

assessment of withdrawal liability. For the employers that withdraw, the ongoing withdrawal liability payments would 

replace (and in most circumstances exceed) the level of contributions currently being received for that employer, albeit 

subject to the 20-year limitation on the payment schedule. That limitation on the payment schedule is reflected in the 

projections and we have also included the same assumption of a 4% rate of default on these future assessments.
Western States Office and Professional Employees Pension Fund

Appendix C: Page 18 of 18

For this purpose, we have determined the withdrawal liability payment schedule for all existing active employers (as if they 

withdraw immediately). An exhibit has been attached at the end of this document to show the recent contribution history 

for these employers and an estimate of their annual withdrawal liability payment should they withdraw. Assuming a 3% 

annual decline in active participants is due to withdrawals, we add in 3% of the estimated withdrawal liability payments for 

these existing employers commencing the plan year following the year of the associated decline, and then reduce that 

schedule by a 4% assumed default rate for non-collectability.

Take-up rate with respect to selection of benefit/contribution schedules 

The Rehabilitation Plan was created in the fall of 2009 and included a drop in the accrual rate as well as reductions in 

adjustable benefits along with significant contribution increases. The contribution increases needed to help the Plan 

emerge from critical status were so high that some employers elected to withdraw from the Plan while others negotiated 

the rates into their Collective Bargaining Agreements (CBAs). A few employers extended their current CBAs prior to the 

effective date of the Rehabilitation Plan and locked in the lower surcharge rate for a longer period of time. A number of 

employers that agreed to the Rehab Plan schedules have subsequently withdrawn and their payment schedules reflect 

the supplemental contribution rates negotiated. As of January 1, 2018, all current contributing employers are paying the 

maximum 80% supplemental contributions under the forestall insolvency Rehabilitation Plan. 

Projection methodology 

We did not use any approximation techniques in our projections. 

The benefit payment cash flow items in our projections are taken directly from the ProVal output. We did not make any

changes to the programming that would affect the results generated by the software nor did we modify the results 

generated by the software. 

Part 3 – Additional disclosures relating to use of different assumptions 

The same actuarial assumptions were used for all illustrations and deterministic projections under Revenue Procedure 

2017-43.