HomeMy WebLinkAboutAGENDA REPORT 2008 0903 CC REG ITEM 10PTO:
FROM:
BY:
DATE:
MOORPARK CITY COUNCIL
AGENDA REPORT
Honorable City Council
rrEM 1 G.
city Council Meeting
of 2 -3 -0100 8
ACTION: 1" 06%Ar -
Hugh Riley, Assistant City Mater get- - - -��
Steven Klotzsche, InjerhTfFinance Direc or
August 14, 2008 (City Council Meeting of September 3, 2008)
SUBJECT: Consider Establishing an Irrevocable Trust to Comply with
Governmental Accounting Standards Board (GASB) #45 and
Agreement to Participate in the California Employer's Retiree Benefit
Trust Fund Program (CERBT)
BACKGROUND
The City of Moorpark has, in its past dealings with their employees through
Memorandums of Understandings (MOU's) and informal agreements with its non -
represented and management employees, provided a number of benefits that may carry
on beyond their employment years with the City, and for the life of the employee. These
benefits are retirement pensions and medical insurance and are accrued as a condition
of employment. Retirement benefits through the CalPERS system have been well
documented and future liabilities for these benefits are accurately portrayed on the
City's Comprehensive Annual Financial Report (CAFR).
Medical insurance benefits for past and future retirees; however, like most cities have
not been addressed in the City's Comprehensive Annual Financial Reports (CAFR).
The City of Moorpark like most cities addressed this cost on what is called a "pay -as-
you-go" system. In June of 2004 GASB issued Statement #45 requiring all
governmental agencies to recognize on their financial statements, past, present and
future employees' retirement medical insurance liabilities on an actuarial predetermined
basis. Failure to address this issue on the City's financial statement will adversely affect
its credit and financial standing. On that basis the City hired the firm of Bartel
Associates, LLC to perform the actuarial study and provide various options to comply
with GASB #45.
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Honorable City Council
September 3, 2008
Page 2
DISCUSSION
The City of Moorpark currently pays $97 per month, adjusted annually by the CPI index,
towards the medical insurance premiums for all eligible retired employees. To be
eligible the employee has to retire directly from the City, be at least 50 years old, and
have at least 5 years in the CalPERS retirement system. There are currently 5 retired
employees who meet this eligibility requirement. In addition the City currently employs
63 employees with an average age of 45 and with at least 8 years of service in
CalPERS. Using the above demographics, established life expectancy tables and
CalPERS investment rate of return, the actuary has been able to fairly predict the "net
present value" of the City's liability towards this benefit. Naturally there is one caveat
with this "prediction" and that is once every two years they or a comparable actuarial
firm needs to revisit these calculations and make any necessary adjustments.
The cost per employee does not appear to be significant, but taken as an aggregate
over the entire lifetime of all employees then the numbers rise to a higher level. Not
every employee will retire from the City of Moorpark, many will move on to other jobs,
but using for example one employee retiring at the average age of 60 and is expected to
live to an average age of 80 will cost the City $24,000, unadjusted for inflation or
premium rate increases (20 X 12 X $100), multiply this with 10 retirees and you are at
$240,000 on a pay -as- you -go basis.
Options considered to administer the irrevocable trust for prefunding future liabilities
include CERBT and the Public Agency Retirement Service (PARS) program. CERBT is
managed by CalPERS, and has a better history of overall superior investment earnings.
For this reason CERBT is recommended.
The actuary, using the current employee demographics and a 7.75% discount rate, has
established the amount of $618,000 as the present value of the City provided medical
insurance benefits for current and future retirees. Of this total amount $364,000 has
been determined to be an "accrued liability ", or benefits earned by current retirees and
current employees to date. This "accrued liability is also considered to be an "unfunded
liability" on the City's financial statements. The City has the option of prefunding this
"unfunded liability" by setting aside $364,000 in an irrevocable trust to cover future
medical insurance premiums or amortize this unfunded liability over a 30 year period at
an annual cost of $23,000. The prefunding of $364,000 will have the effect of losing, in
future years, approximately $15,000 of General Fund interest revenue; the trust
however will make this up in interest earnings and thus reducing the City's future
contributions to the trust.
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Honorable City Council
September 3, 2008
Page 3
Up to this point we have addressed benefits already earned. In addition the City must
continue to pay on an annual basis the "normal cost" for future benefits to this
irrevocable trust. This annual amount has been established at $31,000. All future
payments for retiree medical insurance will from this point come from this irrevocable
trust and will no longer be considered as a pay -as- you -go basis.
The last remaining cost will be the bi- annual actuarial review which is expected to cost
$10,000 unadjusted for future inflation.
FISCAL IMPACT
Cost Summary:
1. $364,000 — One time initial investment with irrevocable trust.
2. $31,000 — Annual cost with irrevocable trust.
3. $107000 — Bi- annual cost for actuarial review of irrevocable trust.
STAFF RECOMMENDATION
Approve prefunding of the unfunded liability of $364,000 with an irrevocable trust
managed by CalPERS under their California Employers' Retiree Benefit Trust ( CERBT),
and authorize the Mayor to sign the CERBT Agreement and Delegation of Authority to
Request Disbursements Form.
ATTACHMENTS
Exhibit "A ". Agreement and Election of the City of Moorpark to Prefund Other Post
Employment benefits through CalPERS.
Exhibit "B ". Delegation of Authority to Request Disbursements.
9S
EXHIBIT "A"
CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ( "CERBT ")
AGREEMENT AND ELECTION
OF
CITY OF MOORPARK
(NAME OF EMPLOYER)
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CaIPERS
WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the
Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for
annuitants (Prefunding Plan); and
WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to (i) receiving contributions
from participating employers and establishing separate Employer Prefunding Accounts
in the Prefunding Plan for the performance of an essential governmental function (ii)
investing contributed amounts and income thereon, if any, in order to receive yield on
the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for
costs of administration of the Prefunding Plan and to pay for health care costs or other
post employment benefits in accordance with the terms of participating employers'
plans; and
WHEREAS (3) CITY OF MOOR ARK
(NAME OF EMPLOYER)
(Employer) desires to participate in the Prefunding Plan upon the terms and conditions
set by the Board and as set forth herein; and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by
the Board and (ii) filing a duly adopted and executed Agreement and Election to Prefund
Other Post Employment Benefits (Agreement) as provided in the terms and conditions
of the Agreement; and
WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an
essential governmental function within the meaning of Section 115 of the Internal
Revenue Code as an agent multiple - employer plan as defined in Governmental
Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of
single - employer plans, with pooled administrative and investment functions;
Rev 07/01/2008 }
NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND
EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS:
A. Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of
California or an entity whose income is excluded from gross income under Section 115
(1) of the Internal Revenue Code.
B. Adoption and Approval of the Agreement; Effective Date; Amendment
(1) Employer's governing body shall elect to participate in the Prefunding Plan by
adopting this Agreement and filing with the CalPERS Board a true and correct original
or certified copy of this Agreement as follows:
Filing by mail, send to: CalPERS
Constituent Relations Office
CERBT (OPEB)
P.O. Box 942709
Sacramento, CA 94229 -2709
Filing in person, deliver to:
CalPERS Mailroom
Attn: Employer Services Division
400 Q Street
Sacramento, CA 95814
(2) Upon receipt of the executed Agreement, and after approval by the Board, the
Board shall fix an effective date and shall promptly notify Employer of the effective date
of the Agreement.
(3) The terms of this Agreement may be amended only in writing upon the agreement
of both CalPERS and Employer, except as otherwise provided herein. Any such
amendment or modification to this Agreement shall be adopted and executed in the
same manner as required for the Agreement. Upon receipt of the executed amendment
or modification, the Board shall fix the effective date of the amendment or modification.
(4) The Board shall institute such procedures and processes as it deems necessary to
administer the Prefunding Plan, to carry out the purposes of this Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
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C. Actuarial Valuation and Employer Contributions
(1) Employer shall provide to the Board an actuarial valuation report on the basis of the
actuarial assumptions and methods prescribed by the Board. Such report shall be for
the Board's use in financial reporting, shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
(a) prepared and signed by a Fellow or Associate of the Society of Actuaries
who is also a Member of the American Academy of Actuaries or a person
with equivalent qualifications acceptable to the Board;
(b) prepared in accordance with generally accepted actuarial practice and
GASB Statement Nos. 43 and 45; and,
(c) provided to the Board prior to the Board's acceptance of contributions for
the valuation period or as otherwise required by the Board.
(2) The Board may reject any actuarial valuation report submitted to it, but shall not
unreasonably do so. In the event that the Board determines, in its sole discretion, that
the actuarial valuation report is not suitable for use in the Board's financial statements or
if Employer fails to provide a required actuarial valuation, the Board may obtain, at
Employer's expense, an actuarial valuation that meets the Board's financial reporting
needs. The Board may recover from Employer the cost of obtaining such actuarial
valuation by billing and collecting from Employer or by deducting the amount from
Employer's account in the Prefunding Plan.
(3) Employer shall notify the Board of the amount and time of contributions which
contributions shall be made in the manner established by the Board.
(4) Employer contributions to the Prefunding Plan may be limited to the amount
necessary to fully fund Employer's actuarial present value of total projected benefits, as
supported by the actuarial valuation acceptable to the Board. As used throughout this
document, the meaning of the term "actuarial present value of total projected benefits"
is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in
the Prefunding Plan to exceed the amount required to fully fund the actuarial present
value of total projected benefits, the Board may refuse to accept the contribution.
(5) The minimum Employer contribution will be at least $5000 or be equal to Employer's
Annual Required Contribution, whichever is less, as that term is defined in GASB
Statement No. 45. Contributions can be made at any time following the seventh day
after the effective date of the Agreement provided that Employer has first complied with
the requirements of Paragraph C.
Rev 07/01/2008 3
•
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D. Administration of Accounts, Investments, Allocation of Income
(1) The Board has established the Prefunding Plan as an agent plan consisting of an
aggregation of single - employer plans, with pooled administrative and investment
functions, under the terms of which separate accounts will be maintained for each
employer so that Employer's assets will provide benefits only under employer's plan.
(2) All Employer contributions and assets attributable to Employer contributions shall be
separately accounted for in the Prefunding Plan (Employer's Prefunding Account).
(3) Employer's Prefunding Account assets may be aggregated with prefunding account
assets of other employers and may be co- invested by the Board in any asset classes
appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the
investment income or Employer's Prefunding Account in a manner determined by the
Board.
(5) Investment income shall be allocated among employers and posted to Employer's
Prefunding Account as determined by the Board but no less frequently than annually.
(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund
the actuarial present value of total projected benefits, the Board, in compliance with
applicable accounting and legal requirements, may return such excess to Employer.
E. Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and
containing the information prescribed by the Board.
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account
at least annually reflecting the balance in Employer's Prefunding Account, contributions
made during the period and income allocated during the period, and such other
information as the Board determines.
F. Disbursements
(1) Employer may receive disbursements not to exceed the annual premium and other
costs of post employment healthcare benefits and other post employment benefits as
defined in GASB 43.
(2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the
persons authorized to request disbursements from the Prefunding Plan on behalf of
Employer.
Rev 07/01/2008 4
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will
be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3)
that are received on or after the first of a month will be processed by the 15th of the
following month. (For example, a disbursement request received on or between March
1 stand March 31 st will be processed by April 15th; and a disbursement request
received on or between April 1 st and April 30th will be processed by May 15th.)
(5) CalPERS shall not be liable for amounts disbursed in error if it has acted upon the
written instruction of an individual authorized by Employer to request disbursements. In
the event of any other erroneous disbursement, the extent of CaIPERS' liability shall be
the actual dollar amount of the disbursement, plus interest at the actual earnings rate
but not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the
balance in Employer's Prefunding Account.
G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as
determined by the Board.
H. Termination of Employer Participation in Prefunding Plan
(1) The Board may terminate Employer's participation in the Prefunding Plan if:
(a) Employer gives written notice to the Board of its election to terminate;
(b) The Board finds that Employer fails to satisfy the terms and conditions of
this Agreement or of the Board's rules or regulations.
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing
reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding
Plan, except as otherwise provided below, and shall continue to be invested and accrue
income as provided in Paragraph D.
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not
make contributions to the Prefunding Plan.
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(4) After Employer's participation in the Prefunding Plan terminates, disbursements
from Employer's Prefunding Account may continue upon Employer's instruction or
otherwise in accordance with the terms of this Agreement.
(5) After thirty -six (36) months have elapsed from the effective date of this Agreement:
(a) Employer may request a trustee to trustee transfer of the assets in
Employer's Prefunding Account. Upon satisfactory showing to the Board
that the transfer will satisfy applicable requirements of the Internal
Revenue Code and the Board's fiduciary duties, then the Board shall
effect the transfer within one hundred twenty (120) days. The amount to
be transferred shall be the amount in the Employer's Prefunding Account
as of the disbursement date and shall include investment earnings up to
the investment earnings allocation date immediately preceding the
disbursement date. In no event shall the investment earnings allocation
date precede the transfer by more than 120 days.
(b) Employer may request a disbursement of the assets in Employer's
Prefunding Account. Upon satisfactory showing to the Board that all of
Employer's obligations for payment of post employment health care
benefits and other post employment benefits and reasonable
administrative costs of the Board have been satisfied, then the Board shall
effect the disbursement within one hundred twenty (120) days. The
amount to be disbursed shall be the amount in the Employer's Prefunding
Account as of the disbursement date and shall include investment
earnings up to the investment earnings allocation date immediately
preceding the disbursement date. In no event shall the investment
earnings allocation date precede the disbursement by more than 120
days.
(6) After Employer's participation in the Prefunding Plan terminates and at such time
that no assets remain in Employer's Prefunding Account, this Agreement shall
terminate.
(7) If, for any reason, the Board terminates the Prefunding Plan, the assets in
Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts
sufficient to pay post employment health care benefits and other post employment
benefits to annuitants for current and future annuitants described by the employer's
current substantive plan (as defined in GASB 43), and (ii) amounts sufficient to pay
reasonable administrative costs of the Board.
(8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if
no provision has been made by Employer for ongoing payments to pay post
employment health care benefits and other post employment benefits to annuitants for
current and future annuitants, the Board is authorized to and shall appoint a third party
administrator to carry out Employer's Prefunding Plan. Any and all costs associated
Rev 07/01/2008 6
with such appointment shall be paid from the assets attributable to contributions by
Employer.
(9) If Employer should breach the representation and warranty set forth in Paragraph
A., the Board shall take whatever action it deems necessary to preserve the tax - exempt
status of the Prefunding Plan.
I. General Provisions
(1) Books and Records.
Employer shall keep accurate books and records connected with the performance of
this Agreement. Employer shall ensure that books and records of subcontractors,
suppliers, and other providers shall also be accurately maintained. Such books and
records shall be kept in a secure location at the Employer's office(s) and shall be
available for inspection and copying by CalPERS and its representatives.
(2) Audit.
(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CalPERS, and its authorized
representatives, and such consultants and specialists as needed, at all
reasonable times during normal business hours to inspect and copy, at the
expense of CaIPERS, books and records of Employer relating to its
performance of this Agreement.
(b) Employer shall be subject to examination and audit by the Bureau of State
Audits, CaIPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of this Agreement
and for three years after final payment under this Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of this Agreement, including, but not limited to, the costs of
administering this Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CaIPERS, and its authorized representatives, and
such consultants and specialists as needed, in connection with any
examination or audit. All adjustments, payments, and /or reimbursements
determined to be necessary by any examination or audit shall be made
promptly by the appropriate party.
(3) Notice.
(a) Any notice, approval, or other communication required or permitted under
this Agreement will be given in the English language and will be deemed
received as follows:
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1. Personal delivery. When personally delivered to the recipient.
Notice is effective on delivery.
2. First Class Mail. When mailed first class to the last address of the
recipient known to the party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
3. Certified mail. When mailed certified mail, return receipt requested.
Notice is effective on receipt, if delivery is confirmed by a return
receipt.
4. Overnight Delivery. When delivered by an overnight delivery
service, charges prepaid or charged to the sender's account, Notice
is effective on delivery, if delivery is confirmed by the delivery
service.
5. Telex or Facsimile Transmission. When sent by telex or fax to the
last telex or fax number of the recipient known to the party giving
notice. Notice is effective on receipt, provided that (i) a duplicate
copy of the notice is promptly given by first -class or certified mail or
by overnight delivery, or (ii) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be
deemed received on the next business day if it is received after
5:00 p.m. (recipient's time) or on a nonbusiness day.
6. E -mail transmission. When sent by e-mail using software that
provides unmodifiable proof (i) that the message was sent, (ii) that
the message was delivered to the recipient's information processing
system, and (iii) of the time and date the message was delivered to
the recipient along with a verifiable electronic record of the exact
content of the message sent.
Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger
or overnight delivery service.
(c) Any party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement.
Rev 07/01/2008
(d) All notices, requests, demands, amendments, modifications or other
communications under this Agreement shall be in writing. Notice shall be
sufficient for all such purposes if personally delivered, sent by first class,
registered or certified mail, return receipt requested, delivery by courier
with receipt of delivery, facsimile transmission with written confirmation of
receipt by recipient, or e-mail delivery with verifiable and unmodifiable
proof of content and time and date of sending by sender and delivery to
recipient. Notice is effective on confirmed receipt by recipient or 3
business days after sending, whichever is sooner.
(4) Modification
This Agreement may be supplemented, amended, or modified only by the mutual
agreement of the parties. No supplement, amendment, or modification of this
Agreement shall be binding unless it is in writing and signed by the party to be charged.
(5) Survival
All representations, warranties, and covenants contained in this Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of this Agreement until such time as all
amounts in Employer's Prefunding Account have been disbursed.
(6) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained in or
granted by the provisions of this Agreement shall be effective unless it is in writing and
signed by the party waiving the breach, failure, right, or remedy. No waiver of any
breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure,
right, or remedy, whether or not similar, nor shall any waiver constitute a continuing
waiver unless the writing so specifies.
(7) Necessary Acts, Further Assurances
The parties shall at their own cost and expense execute and deliver such further
documents and instruments and shall take such other actions as may be reasonably
required or appropriate to evidence or carry out the intent and purposes of this
Agreement.
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A majority vote of Employer's Governing Body at a public meeting held on the 3rd
day of the month of September in the year 2 0 0 8 , authorized entering
into this Agreement.
Signature of the Presiding Officer:
Printed Name of the Presiding Officer: Patrick Hunter - Mayor
Name of Governing Body: city cQ In i i
Name of Employer: CITY OF MOORPARK
Date:
BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BY
KENNETH W. MARZION
ACTUARIAL AND EMPLOYER SERVICES BRANCH
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CaIPERS
The effective date of this Agreement is:
Rev 07/01 /2008 10 s , J
Ca1PERS
DELEGATION OF AUTHORITY
TO REQUEST DISBURSEMENTS
RESOLUTION
OF THE
City ( -nunri 1
(GOVERNING BODY)
OF THE
CITY OF MOORPARK
(NAME OF EMPLOYER)
EXHIBIT "B"
The City Council delegates to the incumbents in
(GOVERNING BODY)
the positions of City ManacjPr and
(TITLE)
Assistant City Manager authority to request on behalf
(TITLE)
of the Employer disbursements from the Other Post Employment Prefunding
Plan and to certify as to the purpose for which the disbursed funds will be used.
M
Title Mavor
Witness
Date
OPEB Delegation of Authority (2/07)
j`� €. f, S