Finance Highlights 2008 0729 - Laserfiche WebLink

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Retiree Medical-Current Policy Currently, the City funds retiree medical benefits on a "pay as you go basis". This means that the City budgets each year only the amount required to pay the benefit for currently qualified retirees for that year. No funding is provided for those employees that have qualified for the benefit, but not yet retired, hence there is no "pre-payment" of funds that could be used to pay future benefits. Council indicated through the budget process that it wishes to fund the City's OPEB obligation on an actuarial basis. More specifically, Council had an actuarial valuation of the "retiree medical" benefit prepared as of June 30, 2007. The actuarial valuation provides essential information about benefit payments including the computation of any actuarial unfunded liability and the annual required contribution (ARC), both of which are required disclosures for GASB 45. In addition, Council set aside funds in the City's Insurance Fund and currently has $1.5 million available to use in transitioning from a "pay as you go" approach to apre-funded actuarially sound payment plan. Establishment of a Trust A major requirement of moving to apre-funded plan is the establishment of a trust that will receive City contributions, pay benefits, and invest accumulated funds. Further, any contributions to the trust or any earnings of the trust are irrevocable and may only be used to fund the post employment benefit(s). Also, the requirement to operate the trust in compliance with applicable law and the trust document is the responsibility of the Trustees. There are several options available to the City in terms of establishing the trust. The City could identify and appoint trustees, draw up a trust document and provide for the administration of the trust. Staff does not recommend this approach due to the significant commitment of resources required and liability issues. Many agencies, in the alternative, are using "providers" such as Cal PERS, PARS (Public Agency Retirement System, a private company) or other private providers. After reviewing several of these providers, staff is recommending Cal PERS and PARS for additional consideration. Why Cal PERS and PARS Staff reviewed and evaluated services offered by five different providers including Cal PERS and PARS. Areas evaluated included cost or fee structure, level of responsibility assumed by the trust,, estimated rate of return, local control, customer service and support etc. Based on this evaluation, staff has identified Cal PERS and PARS as the two top providers. Staff believes that both organizations could provide a professional and