HomeMy WebLinkAboutAGENDA REPORT 2015 1007 CCSA REG ITEM 09B ITEM 9.B.
CITY OF MOORPARK.CALIFORNIA
MOORPARK CITY COUNCIL City Council Meeting
AGENDA REPORT of io-a7.2,p,_q
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TO: Honorable City Council
BY: (?V% .
FROM: Ron Ahlers, Finance Director
DATE: September 23, 2015 (City Council Meeting of October 7, 2015)
SUBJECT: Consider Resolution Amending the Fiscal Year 2015/16 Budget to
Appropriate Funding for Other Post-Employment Benefits (OPEB) of
$645,000 in Compliance with Governmental Accounting Standards
Board (GASB) Statement No. 45
BACKGROUND
In June 2004, the Governmental Accounting Standards Board issued Statement No. 45
(GASB 45), the accounting standards for Other Post-Employment Benefits (OPEB).
This statement governs pubic employer accounting of any benefits, other than pensions,
promised by an employer to their employees into retirement. The purpose of GASB 45
is to provide better financial information and to ensure that the costs related to providing
employees with Other Post-Employment Benefits are accounted for over the working
careers of plan members. Implementation dates for GASB 45 are based on the size of
the government as measured by fiscal year 1998/1999 annual revenues. The City of
Moorpark is a phase 2 Government with annual revenues of $10 million to $100 million.
As such, the City was required to implement the new standard as of June 30, 2009;
which we did. On September 3, 2008, the City Council decided to establish an
irrevocable trust with CaIPERS under the California Employer's Retiree Benefit Trust
program (CERBT). CaIPERS accepted the City of Moorpark's application into CEBRT.
DISCUSSION
The City has made deposits totaling $777,000 into CEBRT since 2008. The following
table details the deposits made, investment returns and withdrawals:
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Honorable City Council
October 7, 2015
Page 2
Unfunded Normal Investment With-
Fiscal Year Liability Cost Balance
Returns drawals
Deposit Deposit
2008 - 09 364,000 31,000 31,995 $426,995
2009 - 10 31,000 66,626 $ 524,621
2010 - 11 103,000 26,000 135,288 $ 788,909
2011 - 12 27,000 961 $ 816,870
2012 - 13 27,000 93,929 $ 937,799
2013 - 14 168,000 183,236 (13,148) $ 1,275,887
2014 - 15 (2,641) (13,014) $ 1,260,232
Total $ 635,000 $ 142,000 $ 509,394 ($ 26,162)
GASB 45 requires public employers to report the cost of providing these other post-
employment benefits as well as information on any unfunded liability. GASB 45
requires that the City perform an actuarial study every two years. During fiscal year
2008/09 the City contracted with Bartel & Associates (Bartel), an actuary firm, to
calculate the unfunded liability and annual "normal cost" expense under OPEB. The
City continued the contract with Bartel and Associates for the 2010, 2013 and 2015
actuarial. The following table summarizes these actuarial reports:
6/30/2008 6/30/2010 6/30/2013 6/30/2015
Actuarial Liability 364,000 590,000 863,000 1,493,000
Actuarial Value of Assets 0 487,000 877,000 1,217,000
Unfunded Liability $ 364,000 $ 103,000 ($ 14,000) $ 276,000
Present Value of Benefits 618,000 784,000 1,106,000 1,905,000
Market Value of Assets 0 524,621 937,799 1,260,232
Superfund needs $ 618,000 $ 259,379 $ 168,201 $644,768
Normal Cost $ 31,000 $ 26,000 $ 33,000 $ 56,000
Pay as you go cost 6,000 10,000 15,000 38,000
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Honorable City Council
October 7, 2015
Page 3
As of June 30, 2008, the City's unfunded liability was $364,000 and the annual "normal
cost" was $31,000. The City made the contribution for the unfunded liability of $364,000
in November 2008 to CEBRT. The City paid the "normal cost" of $31,000 for fiscal year
(FY) 2008-09 and earned $31,995 investment return for a balance as of June 30, 2009
of $426,995. The City made another deposit for the unfunded liability of $103,000
during FY 2010-11, along with paying the normal cost for four fiscal years.
The June 30, 2013, actuarial shows the City "overfunded" by $14,000. During
December 2013, the City Council approved "superfunding" the plan by making a
contribution of $168,000; which occurred in January 2014. This allowed the City to
cease making annual contributions and to withdraw funds to pay for the mandatory
minimum medical premium payments ($120+) for each retiree. The City has withdrawn
$13,000 in each of the last two fiscal years to pay for the retirees.
The June 30, 2015 actuarial states the City has $1,217,000 in actuarial assets with
$1,493,000 in actuarial liability for an unfunded liability of $276,000. The actuarial
liability increased by $630,000 (73%) since 2013. The vast majority, $542,000, of this
increase is due to a change in the calculation to include an "implied subsidy". This
"implied subsidy" is the difference between average retiree claims and premiums
charged by the insurer, or by CaIPERS. In reality, current employees are paying a
higher premium and subsidizing the retirees in the medical plan. The retirees are
paying less premiums because of the current active employees. The "implied subsidy"
is not based on cash flow or present value. In fact, the City and current employees are
paying the implied subsidy each month; therefore it is not a future payable. The City
and employees have been paying it every month and will continue to pay it every month
into the future. CaIPERS requires the City and employees to pay cash on a current
basis; therefore, the "implied subsidy" liability is not true. If the "implied subsidy" is
being paid each month in cash there is simply no liability to record. However, the GASB
requirement is to record the liability and so the City complies with this requirement.
Please refer to Attachment 1 for a detailed explanation of"implied subsidy".
If the City desires to "superfund" the OPEB liability, then a deposit of $644,768 is
required. Superfunding would allow the City to cease making the normal cost deposit
each year, currently $56,000. It would also allow us to forgo the "pay as you go cost"
($13,000) plus amortization of the unfunded liability ($25,000) for a total of $38,000
annually. Therefore, by making a deposit of $644,768 the City would save $94,000
annually from the operating budget for the foreseeable future. This equates to a 15%
return on investment, annually. This is contingent upon the following two premises.
First, that there are no significant changes to the City's employee demographics.
Second, that CaIPERS earns the assumed investment return of 7.25% annually.
Future Considerations
CaIPERS continues to review their demographic assumptions and investment return
projections. The OPEB investment return assumption is 7.25%. If this is reduced
further by CaIPERS then the City's unfunded liability would increase.
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Honorable City Council
October 7, 2015
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CaIPERS offers three investment funds for the CERBT. These funds have different
investment options with various returns. The City is currently invested in Option 1 with
an investment return of 7.25%. Options 2 and 3 have returns of 6.75% and 6.25%,
respectively. The City's CEBRT balance is approximately $1.2 million. Option 3 could
be selected in order to reduce the market volatility of the fund. This would increase the
unfunded liability but it should reduce the risk of a substantial loss if the market's
experience another episode like in 2008 and 2009. At this time staff recommends
staying with Option 1 and "superfunding" the OPEB liability.
FISCAL IMPACT
The 2015-16 City budget for OPEB is zero. Therefore, the net increase in the budget is
$644,768. The FY 2015/16 budget appropriation of $644,768 will fully fund the present
value of benefits for OPEB as of June 30, 2015. This would be funded from the General
Fund reserve and various other operating funds reserves.
STAFF RECOMMENDATION (Roll Call Vote)
Adopt Resolution No. 2015 - amending the FY 2015/16 budget to appropriate
$644,768 to fully fund the OPEB present value of benefits.
Attachments:
1. Bartel Associates —What is an implied subsidy and why does it matter?
2. Resolution
39
Attachment 1
What Is an Implied Subsidy and Why Does It Matter?
Before GASB 45, medical costs were accounted for as benefits were paid,known as"pay-as-you-go"
or"pay-go." GASB 45 mandated separate accounting for retirees including accruing for future
benefits while retirees are still working. Retiree benefits are analyzed on their own for GASB
valuations: There are no active benefits to balance retirees'excess of claims over premiums. Implied
Subsidy refers to this excess.
If your agency provides retiree healthcare (OPEB) benefits through Ca1PERS health plans(PEMHCA),
GASB will require recognition of the Implied Subsidy. It will almost certainly increase your
GASB 45 OPEB liability—for some agencies very significantly.
Blended Premiums Create Implied Subsidy
Studies show that healthcare costs generally increase with si. oo Sample Healthcare Claims By Age
age. On average,younger people are relatively healthy,
while older people have more and costlier health 5000
expenses. The chart's blue line shows a typical claim
curve—the healthcare cost at each age.
CaIPERS, in PEMHCA, blends active employees with ! r,400 j_
-
pre-Medicare retirees and charges them the same medical
premium.This is the red line on the chart.The premium is „,-,,;
set so that total premiums paid will equal total medical
claims. However, younger employees on average are S,
charged a premium higher than their claims—subsidizing 20 2S 50 35 40 45 59 55 ,,,
older employees who,on average,have higher claims
—..Pre num
than premiums.
Notice that the Implied Subsidy is the difference between average retiree claims and premiums
charged by the insurer or by Ca1PERS. For PEMHCA,the Implied Subsidy at each age will be the
same for everyone in the same plan. It does not depend on the employer-paid cash subsidy; it will be
the same amount for an employer phasing into the PEMHCA minimum as for an agency paying the
full family premium. But, since the OPEB actuarial accrued liability is much smaller for an agency
providing only PEMHCA minimum benefits,the Implied Subsidy will represent a much greater
percentage increase.
Why Is GASB Requiring This Change and When Will It Be Effective?
GASB has always deferred to actuarial standards of practice to determine how actuarial accrued
liability should be calculated. Until now, those standards have said the implied subsidy need not be
taken into account in large"community-rated"plans such as PEMHCA, where each agency is a small
part of the total pool whose demographics will not affect premium. Proposed new actuarial standards
require Implied Subsidy inclusion in all cases.The standards are not expected to change materially
before being finalized in the coming year, when they will become effective for all GASB OPEB
valuations.
411 Borel Avenue,Suite 101 •San Mateo,California 94402
main 650/377-1600 •fax 650/345-8057 •web www bartel-associates com
Copyright 2013 October 2013 4 0
Attachment 2
RESOLUTION NO. 2015 -
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
MOORPARK, CALIFORNIA, AMENDING THE FISCAL YEAR
2015/16 BUDGET TO APPROVE CERTAIN
APPROPRIATIONS REQUIRED TO FUND OTHER POST-
EMPLOYMENT BENEFITS (OPEB) AS DEFINED HEREIN
WHEREAS, on June 17, 2015, the City Council adopted the Budget for fiscal year
2015/16; and
WHEREAS, on October 7, 2015, a staff report has been presented to the City
Council summarizing the actuarial study relating to (OPEB) in compliance with
Government Accounting Standards Board Statement No. 45 (GASB 45); and
WHEREAS, said staff report has been presented to the City Council providing the
cost to increase the assets to the present value of benefits as of June 30, 2015 of
$644,768; and
WHEREAS, the same staff report has been presented to the City Council
recommending the pre-funding of the present value of benefits into an irrevocable trust
managed by CaIPERS under their California Employers' Retiree Benefit Trust (CERBT);
and
WHEREAS, on October 7, 2015, a staff report has been presented to the City
Council requesting an aggregate appropriation increase of $644,768 in the General Fund
for the pre-funding of the present value of benefits; and
WHEREAS, Exhibit "A", attached hereto and made a part hereof, describes said
budget amendments and its resultant impacts to the budget line item(s).
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK DOES
HEREBY RESOLVE AS FOLLOWS:
SECTION 1. That a Budget Amendment in the aggregate increase of$644,768,
as more particularly described in Exhibit "A", is hereby approved.
SECTION 2. The City Clerk shall certify to the adoption of this resolution and
shall cause a certified resolution to be filed in the book of original resolutions.
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Resolution #2015-
Page 2
PASSED AND ADOPTED this 7th day of October, 2015.
Janice S. Parvin, Mayor
ATTEST:
Maureen Benson, City Clerk
Attachment: Exhibit 'A': Budget Appropriation
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Exhibit A
Budget Amendment to
General Fund and other Funds
for Other Post Employment Benefits (OPEB) Payments
FY 2015/16
A. Fund Allocation
Fund Account Amount
1000-General Fund 1000-5500 $ 372,167
1010-Library Fund 1010-5500 $ 5,545
2000-Traffic Safety Fund 2000-5500 $ 13,153
2001-Traffic System Mgt Fund 2001-5500 $ 2,837
2003-Crossing Guard Fund 2003-5500 $ 2,063
2200-Community Development Fund 2200-5500 $ 71,311
2201-City Affordable Housing Fund 2201-5500 $ 25,468
2300-LLMD 2300-5500 $ 1,225
2301-LLMD 2301-5500 $ 193
2302-LLMD 2302-5500 $ 515
2304-LLMD 2304-5500 $ 64
2305-LLMD 2305-5500 $ 644
2307-LLMD 2307-5500 $ 129
2308-LLMD 2308-5500 $ 193
2309-LLMD 2309-5500 $ 64
2310-LLMD 2310-5500 $ 2,708
2312-LLMD 2312-5500 $ 1,547
2314-LLMD 2314-5500 $ 64
2315-LLMD 2315-5500 $ 1,161
2316-LLMD 2316-5500 $ 64
2318-LLMD 2318-5500 $ 64
2320-LLMD 2320-5500 $ 3,224
2322-LLMD 2322-5500 $ 7,608
2400-Park Maintenance Fund 2400-5500 $ 51,517
2603-Local Transportation 8A Fund 2603-5500 $ 22,502
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Fund Account Amount
2603-Local Transportation 8A Fund 2603-5500 $ 22,502
2605-Gas Tax Fund 2605-5500 $ 19,859
2620-Engineering/PW Fund 2620-5500 $ 16,828
5000-Local Transit Programs 8C Fund 5000-5500 $ 13,411
5001-Solid Waste AB939 Fund 5001-5500 $ 8,640
TOTAL $ 644,768
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B. Distribution of Appropriation to Expenditure Accounts
Account Number Current Revision Amended
Budget Budget
1000-1100-0000-9030 $ 0 $ 4,777 $ 4,777
1000-2100-0000-9030 $ 0 $ 41,459 $ 41,459
1000-2210-0000-9030 $ 0 $ 7,221 $ 7,221
1000-2411-0000-9030 $ 0 22,180 $ 22,180
1000-3100-0000-9030 $ 0 32,109 $ 32,109
1000-3110-0000-9030 $ 0 32,883 $ 32,883
1000-3120-0000-9030 $ 0 33,850 $ 33,850
1000-3160-0000-9030 $ 0 9,285 $ 9,285
1000-5110-0000-9030 $ 0 66,476 $ 66,476
1000-6100-0000-9030 $ 0 6,577 $ 6,577
1000-7100-0000-9030 $ 0 10,574 $ 10,574
1000-7210-0000-9030 $ 0 11,026 $ 11,026
1000-7210-7210-9030 $ 0 11,026 $ 11,026
1000-7610-0000-9030 $ 0 20,246 $ 20,246
1000-7620-0000-9030 $ 0 19,988 $ 19,988
1000-7630-0000-9030 $ 0 34,495 $ 34,495
1000-8100-0000-9030 $ 0 4,965 $ 4,965
1000-8320-0000-9030 $ 0 3,030 $ 3,030
1010-7640-0000-9030 $ 0 5,545 $ 5,545
2000-8210-0000-9030 $ 0 3,095 $ 3,095
2000-8310-0000-9030 $ 0 580 $ 580
2000-8330-0000-9030 $ 0 9,478 $ 9,478
2001-7620-0000-9030 $ 0 2,837 $ 2,837
2003-8210-0000-9030 $ 0 2,063 $ 2,063
2200-6100-0000-9030 $ 0 11,799 $ 11,799
2200-6430-0000-9030 $ 0 16,506 $ 16,506
2200-6440-0000-9030 $ 0 43,006 $ 43,006
2201-2430-0000-9030 $ 0 _ 19,923 $ 19,923
45
Account Number Current Revision Amended
Budget Budget
2201-6430-0000-9030 $ 0 1,999 $ 1,999
2201-7620-0000-9030 $ 0 3,546 $ 3,546
2300-7900-7901-9030 $ 0 1,225 $ 1,225
2301-7900-7901-9030 $ 0 193 $ 193
2302-7900-7901-9030 $ 0 451 $ 451
2302-8320-8902-9030 $ 0 64 $ 64
2304-7900-7901-9030 $ 0 64 $ 64
2305-7900-7901-9030 $ 0 580 $ 580
2305-8320-8902-9030 $ 0 64 $ 64
2307-7900-7901-9030 $ 0 129 $ 129
2308-7900-7901-9030 $ 0 193 $ 193
2309-7900-7901-9030 $ 0 64 $ 64
2310-7900-7901-9030 $ 0 2,192 $ 2,192
2310-8320-8902-9030 $ 0 516 $ 516
2312-7900-7901-9030 $ 0 1,547 $ 1,547
2314-7900-7901-9030 $ 0 64 $ 64
2315-7900-7901-9030 $ 0 1,161 $ 1,161
2316-7900-7901-9030 $ 0 64 $ 64
2318-7900-7901-9030 $ 0 64 $ 64
2320-7900-7901-9030 $ 0 3,224 $ 3,224
2322-7900-7901-9030 $ 0 7,608 $ 7,608
2400-7800-0000-9030 $ 0 51,517 $ 51,517
2603-8310-0000-9030 $ 0 22,502 $ 22,502
2605-8310-0000-9030 $ 0 19,859 $ 19,859
2620-8410-0000-9030 $ 0 16,828 $ 16,828
5000-8510-0000-9030 $ 0 13,411 $ 13,411
5001-3140-3003-9030 $ 0 8,640 $ 8,640
TOTAL ,Th $ 0 $ 644,768 $ 644,768
Finance Approval: (f?,.,
46