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Table 2 shows two scenarios that highlight the UAAL and the associated ARC. Columns A through C, which assume a 4.25% rate of return and no pre- funding, results in a total UAAL of $125.7 million that will require an annual payments of $10,865 million to cover the unfunded liability. Columns D through F, which assume a 4% rate of return for the first two years the trust is established and 7.75% thereafter, results in a UAAL of $78.8 million and an initial payment of $7,744 million (less current year benefit payments) to meet the ARC requirement. This second scenario results in a lower liability and lower annual contributions due to the higher investment earning assumption where more of the cost is paid through investment income. As a result the present value of future benefits is lower with the pre- funding scenario. Unfunded Actuarial Liability and Annual Required Contribution in millions 000's Omitted) A B C D E F Discount Rate (rate of return) Unfunded Accrued Actuarial Liability (UAAL) Funded Status (ratio of assets to AAL) Annual Required Contribution (ARC) Table 2 NO PRE FUNDING SCENARIO 4.25% Non -Fire Fire Total 87,382 38,400 125,782 40% 35% 39% 7,560 3,305 10,865 Page 6 of 13 PREFUNDING SCENARIO 4% for 2 yrs 7.75% thereafter Non -Fire Fire Total 54,965 23,887 78,852 64% 56% 62% 5,196 2,548 7,744 While the pre- funding Scenario indicates an ARC of $7,744, in actuality, the ARC wil change over time to reflect the cost of health premiums and the ongoing cost of the program. The net annual investment in a trust will be an amount equal to the ARC less the annual out -of- pocket benefit cost for retirees. According to #GASB 45 the amount of pre- funding put into a trust in any given year is equal to the ARC less any out -of- pocket benefit costs. Table 3 below provides a projection of the net annual investment for 2009 through 2011.