Administrative Support Skills: Building the Budget
Download
Report
Transcript Administrative Support Skills: Building the Budget
Retiree Medical Actuarial Study
City Council
August 3, 2009
Retiree Medical Actuarial Study
Discussion Topics
Government Accounting Standards Board (GASB)
Statement No. 45 Requirements
Trust Fund
Actuarial Study and Variance
Council Direction
2
Retiree Medical Actuarial Study
GASB 45 Requirements
GASB Statement No. 45 – Accounting and Financial Reporting by Employers
for Post Employment Benefits (OPEB) Other than Pensions
Required Reporting in the Comprehensive Annual Financial Report (CAFR)
Earned retiree medical costs
Over or under funding
Plan description and funding policy
Actuarial assumptions
Actuarial Valuation of OPEB
Required every two years
Determine the present value of projected future benefits
Considers plan assets (“cash in trust”)
Determine annual required contribution amount (ARC)
3
Retiree Medical Actuarial Study
Irrevocable Trust Fund
In FY 2008 the City established an irrevocable trust fund
California Employers Retirees Benefit Trust (CERBT)
CalPERS has averaged 7.75% return over last 20 years for pensions
Benefits of Irrevocable Trust
Irrevocable trust is considered a plan asset
Lowers the liability and lowers the annual required contribution
Low administrative costs
Irrevocable trust cannot be used for other purposes or taken by the State
Liability and ARC
At 7.75%: $102.2 million and $7.7 million
At 4.5%: $159.2 million and $11.9 million compared
A difference of $57 million and $4.2 million
Established trust in 2008 with $33.8 million, contributions from all funds
Trust Balance as of 3/31/09 is $21.7 million
GF contributions was $20.2 million or 59.6%
Loss of $12.1 million since inception of the trust in 2008
Expect improved performance for 6/30/09
Gains & loss on investment are not included in CAFR
4
Retiree Medical Components
Total Liability (1/1/09)
$129.7
$105.1
Unfunded Liability
(Actuarial through
1/1/11)
Plan Assets (6/30/08)
$33.8
Plan Assets (1/1/09)
$24.6
Plan Assets (3/31/09)
$21.7
Annual Required Contribution (1/1/09)
$9.8
$12.1
Investment Loss
City’s annual cost
through 6/30/11
5
Retiree Medical Actuarial Study
Liability by Fund
Fund
Liability
1/1/2007
(in millions)
Liability
1/1/2009
Variance
% Change
General Fund
$73.6
$91.2
$17.6
24%
Enterprise Funds
$24.8
$33.2
$8.4
34%
$3.8
$5.3
$1.5
39%
$102.2
$129.7
$27.5
27%
Less Plan Assets
$27.1
$24.6
-$2.5
-9%
Unfunded Liability
$75.1
$105.1
$30.0
40%
All Other Funds
Total Liability
6
Retiree Medical Actuarial Study
Liability by Bargaining Group
Group
Liability
1/1/2007
Liability
1/1/2009
(in millions)
Variance
%
Change
% of
Total
Liability
Service Employees
International Union
$47.5
$60.7
$13.2
28%
48%
Management &
Professionals
$27.6
$34.2
$6.6
24%
24%
International
Association of Fire
Fighters
$15.2
$19.6
$4.3
28%
16%
Palo Alto Police
Officer’s Association
$11.6
$14.9
$3.3
28%
12%
$0.3
$ 0.3
$0.0
-4%
0%
$102.2
$129.7
$27.5
27%
100%
Fire Chief’s Association
Total
7
Retiree Medical Actuarial Study
Annual Required Contribution (ARC) by Fund
Fund
ARC
1/1/07
ARC
1/1/09
Variance
%
Change
(in millions)
ARC
Funding
in the FY
2010
Budget
Budget
Adjustment
in BAO
General
Fund
$5.6
$6.8
$1.2
21%
$6.1
Enterprise
Funds
$1.8
$2.5
$0.7
39%
$1.9
$0.6
All Other
Funds
$0.3
$0.5
$0.2
66%
$0.4
$0.1
Total
Funds
$7.7
$9.8
$2.1
27%
$8.4
$0.7
8
Retiree Medical Actuarial Study
Actuarial Study – Actuarial Liability Increase of $27.5 Million
Cost of benefit accruals, increase of $14 million
Interest on prior liability = $102 million * 7.75% for two years = $16 million
Cost of employee service for two years = $6 million
Less benefit payments for two years = $8 million
Changes in City’s employee demographic composition, $12
million
115 new retirees since Jan. 2007 valuation
expected retirees were 55 based on retirement rate
Changes in medical premiums and expected growth rate of
future premiums, $1.5 million
9
Steps Taken to Reduce Costs
Two-Tiered Retiree Medical Benefit Plan
All groups included by 2005
Increased vesting requirements from 5 to 20 years
Medical costs: going forward all new retirees will be on a lower
cost health plan
All groups included 2007
The medical cost for retirees decreases to Medicare rates at age 65
These changes are expected to help slow the growth in the
retiree medical liability over time
Under the current plan the City is expected to have it’s liability
fully funded by 2038 (30-year amortization starting 2008)
By 2038 the City’s annual costs will be cut by more than half
Example: if the liability was fully funded in 2010 the annual costs
would $3.5 million vs. $9.8
10
Retiree Medical Actuarial Study
Staff Recommends Adoption
of BAO
Enterprise and other funds for FY
2010
The City Manager will return by
year’s end with an update on the
GF performance
11
Retiree Medical Actuarial Study
Questions and Comments
12