HomeMy WebLinkAboutCC AG PKT 2007-12-10 #AA
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December 10, 2007
MEMORANDUM
TO: Honorable Mayor and Members of the City Council
FROM: O:Oavid N. Carmany, City Manager
SUBJECT: Retiree health benefits
INTROD~CTION
The purpose of this report is to introduce this topic as a study item. No Council
action is requested. Following a brief introduction of the topic by city staff,
Actuary John Bartel will provide an overview of the actuarial report and will be
available to answer questions.
DISCUSSION
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The Governmental Accounting Standards Board (GASB) Statement No. 45,
Accounting Standards for Other (than pension) Post Employment Benefits
(OPEB), establishes new financial reporting requirements. The City is required
to implement Statement 45 during the '08 -'09 fiscal year.
Historically, the City has budgeted and accounted for retiree healthcare benefits
as they were paid. Instead, Statement 45 will require the City account for these
promises on an accrual basis (as benefits are earned). In connection with the
recent collective bargaining and in preparation for implementation of Statement
45, the City retained Bartel & Associates to prepare an actuarial study to
determine the City's potential unfunded liability.
Bartel's study has been positively revised to reflect recent changes to the City's
collective bargaining agreements. The City will be meeting with the employee
associations to discuss further changes to the collective bargaining agreements.
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The City of Seal Beach budgeted $232,000 for retiree health care costs in fiscal
2007. Implementation of Statement 45 will result in those expenditures nearly
tripling from the current amount. Completion of this actuarial study now helps
determine the City's exposure and allows time to determine a course of action for
the '08 -'09 and subsequent budgets. The City has the opportunity to address
this unfunded liability by pre-funding using a trust.
If the City Council decides that fully funding the unfunded liability is in the interest
of the City, it may wish to direct staff to explore this further. Attached is "Retiree
Healthcare Plan January 1, 2007 Actuarial Valuation Executive Summary", dated
November 2007, by Bartel Associates LLC.
.
AGENDA ITEM #.4
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RECOMMENDATION
It is recommended that the City Council:
1) Receive and file this informational report on issues relating to
retiree medical benefits
2) Provide follow-up direction to staff as appropriate
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CITY OF SEAL BEACH
RETIREE HEALTHCARE PLAN
January 1,2007 GASB 45 Actuarial Valuation
Preliminary Results
JOHN E. BARTEL
December 10, 2007
Agenda
IQpic Page
What Is GASB 45? 1
Definition of Terms 2
Benefit Summary 3
Participant Statistics 4
Actuarial Methods & Assumptions 5
Valuation Results 6
Projections 7
fYI
o'cbnlt'cdyor_~vaI.~CI\Y'Dl_""II_-.,lIUlIIIII07-11-IO,"
What is GASB 45?
e · OPEB: (Qther than pension Post Employment Benefits)
. Historically accounted for as Pay-As-You-Go:
. Generally ignored until employees stop rendering service
. Pay $1 / Account for $1
. GASB Statement No. 45, Issued June 2004:
. Requires agencies recognize their OPEB cost over the active
s.ervice life of their employees rather than on a pay-as-you-go basis
. Effective date:
. Based on GASB 34 Phase in
. City will be Phase III
. Mandatory implementation for 2009/10 Fiscal Year
. Early implementation encouraged
fyI December 10.2007
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Definition of Terms
e
. Actuarial Accrued Liability (AAL):
. Liability for benefits "earned" for past service using actuarial
assumptions
. Annual Required Contribution (ARC):
. Normal Cost - value of benefits "earned" during the current year,
plus
. Amortization of unfunded AAL
. Net OPEB Obligation (NOO):
. Historical difference between ARC and actual contribution
. Annual Other Post Employment Benefit Cost (AOC):
. Equals ARC adjusted for:
)> Interest on NOO
)> Amortization ofNOO
: ~1 December 10.2007
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Benefit Summary
Eligibility: Full-time employees that retire directly from the City under CalPERS
Benefit:
Police (Recently Negotiated Benefits)
. Tier I-OOR < 1/1/2010: Full cost
of any plan except PERSCare
Service CoveralZe
< IS PEMHCA Min only
15-24 EE + I
~25 Family
. Tier 2 - OOR ~ 1/112010: Average
of 2 lowest cost Southern 'CA plans
Service CoveralZe
< IS PEMHCA Min only
15-19 EE Only
20-24 EE + I
~ 25 Family
. Tier 3 - DOH ~ 1/1/2010:
PEMHCA Min Only
Miscellaneous
. City pays portion of monthly
medical & dental premiums up to
a dollar cap which varies by
bargaining unit.
Service CoveralZe
< 20 PEMHCA Min
(unequal method)
EE Only (Exec - Family)
Family
20-29
~30
Actuarial Methods & Assumptions
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Funding Method
UAAL Amortization
Discount Rate
Inflation
Payroll Increases
Healthcare Trend
Retirement Age
Januarv 1. 2007 Valuation
Entry Age Normal
30 Years as Level Percent of Payroll
. 4.50% No pre-funding, assets invested in General Fund
. 7.75% Pre-funded through CalPERS
3.00"10
3.25%
Year
2008
2009
HMO PPO
Actual premiums
10.3% 10.7%
2017+ 4.5% 4.5%
CalPERS: Mise 2%@55 Average = 60
Police 3%@50 Average = 55
Termination, Mortality CalPERS
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Recently Negotiated Benefits for Police, No Change for Miscellaneous
(Amounts in $OOO's)
Continue
PayGo
4.50%
$ 14,316
Valuation Results
Full
Pre-Funding
7.75%
. Present Value of Benefits
$ 7,938
. Funded Status
. AAL 10,609 6,667
. Assets
. UAAL 10,609 6,667
.2007/08 ARC
- Normal Cost 376 169
. UAAL Amortization 447 431
- ARC 823 600
e . ARC as % of payroll 13.6% 9.9%
. Estimated 2007/08 Payroll $ 6,059 $ 6,059
. I}-1 Occcmb<< 10,2007 6 e
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