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
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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)
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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
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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
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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
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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
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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
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Retiree Medical Actuarial Study
Actuarial Study – Actuarial Liability Increase of $27.5 Million

Cost of benefit accruals, increase of $14 million
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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

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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
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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
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Retiree Medical Actuarial Study
Questions and Comments
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