DeKalb County

Legacy Pension Cost Overview

September 4, 2014

Eric J. Atwater, FSA, FCA, MAAA, EA

Vice President and Consulting Actuary

Copyright 2014 by The Segal Group, Inc. All rights reserved.

Background
Segal Consulting was asked in December 2013 to estimate the impact on the
pension fund of DeKalb County city incorporations.
Segal worked with the County staff to understand the Countys processes and to
establish a methodology for allocating legacy unfunded pension liabilities to
exiting cities.
An unfunded liability can vary depending on the actuarial cost method used to
allocate the present value of future benefits between the normal cost and
actuarial accrued liability. Segal has used the methods and assumptions shown
in the actuarial reports for the DeKalb County Pension Plan, as recommended
by the actuary and approved by the Countys Pension Board.
There are also various ways to determine a citys share of unfunded pension
liability. The chosen methodology for allocating legacy unfunded pension
liabilities and cost is based on two primary factors:
Size of tax digest; and
Unfunded pension liabilities at time cities incorporate

Methodology
The methodology used for allocating impact legacy unfunded pension liabilities
and cost is as follows:
1. Determine the total decline in unincorporated tax digest from an incorporated
city, to use as a proxy for the decline due to a city exiting.
2. Apply the percentage from #1 above to the total unfunded liability in the
DeKalb County Pension Plan at the time of exit to determine the citys share
of the liability.
3. Take 1/4th of the exiting citys share of the unfunded liability from #2, since
exiting cities still pay ~3/4th into the Tax or General Fund.
4. Accumulate the citys share of the unfunded liability to today using 7.75%
interest.
5. Amortize the accumulated unfunded liability from #4 over 30 years to
determine the annual amount that the exiting city owes.
This method presumes that the incorporated cities liabilities are not adjusted for
any future gains and losses that impact the Pension Plan. Essentially, the
liability is treated as a mortgage, based on the cost as calculated today. Thus
each city has a cost that is predictable, once established.

Exiting City Impact - Sample

The following is a detailed breakdown of the annual amount owed by Dunwoody for legacy
pension cost:
1. Total decline in Unincorporated tax digest
Change in Unincorporated tax digest between 2008 and 2009
2. Total Unfunded liability attributable to Dunwoody
Percent from #1 multiplied by total Unfunded liability of $467.9 million as of
2009
3. Dunwoodys share of Unfunded at time of exit
25% of total Unfunded since County still paying 3/4th into Tax fund or about
4.0% of total Unfunded
4. Dunwoodys share of Unfunded today
Accumulated with interest from 2009 to today
Based on assumption for investment earnings in pension plan at time of exit
5. Annual amount to pay down Unfunded (i.e., amortize) over 30 years
Based on current assumption (7.50%) for investment earnings in pension plan
Assumes 30 level equal payments made at end of each fiscal year

16.15%
$75,600,000
$18,900,000
$27,500,000
$2,300,000

We went through the same methodology to determine the impact for Brookhaven exiting and have
estimated it will owe about $0.2 million annually.
Thus, Dunwoody and Brookhaven collectively owe the County about $2.5 million per year, or about
5.0% of total pension cost, for legacy Unfunded pension liabilities.