8F Consent 2009 0518 - Laserfiche WebLink

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Establishment of OPEB Trust May 18, 2009 Staff Recommends PARS An efficient and cost effective way to establish and operate a trust is to use "a provider" such as Ca1PERS, PARS (Public Agency Retirement System, a private company) or other private providers. Earlier, staff reviewed information for several providers and reported to the Finance Committee that it was considering two providers as finalists, CaIPERS and PARS. Staff indicated that it would like to do additional evaluation and then proceed to the City Council with a final recommendation. The Finance Committee indicated its approval. Since then staff has done additional evaluation and spoken with both Ca1PERS and PARS representatives. Based on an evaluation of such areas as cost, trust administration, local control, customer service and support and the availability of a favorable IRS letter of determination for the PARS Plan (not available for the Ca1PERS plan), staff is recommending adoption of the PARS model OPEB Health Care Plan and Trust and for PARS to be the City's Trust Administrator. Actuarial Valuation and Actuarial Considerations As noted earlier, the City had an actuarial valuation prepared for fiscal year 2007-08. For GASB 45 purposes an actuarial valuation may be prepared on a two year cycle. Consequently, the 2007-08 valuation is sufficient for financial reporting purposes for fiscal years 2007-08 and 2008-09. The next actuarial valuation prepared will be for 2009-10. Two key statistics developed by any actuarial valuation are the Unfunded Actuarial Accrued Liability (UAAL) and the Annual Required Contribution (ARC), as defined earlier in this report. The City's actuarial valuation developed these two key amounts under two major assumptions or scenarios. More specifically, at June 30, 2007 the City's OPEB UAAL for one scenario is $21 million and for the other scenario, $l4 million. For the ARC the two scenarios produce estimates of $LSmillion and $l.4 million. In both cases, (UAAL and ARC), the material difference between the two estimates is due to the projected rate of earnings on investments over time. The $21 million UAAL assumes that the plan's discount rate (investment earnings rate) will be 4.25%. The $14 million UAAL assumes a discount rate of 7.75%. The Actuary chose the 7.75% rate for one scenario as it is the rate used by Ca1PERS in its actuarial assumptions. The lower 4.25% represents a more conservative rate that a city might earn using another plan provider. Since investment earnings are used to reduce the liability, the higher the earnings rate, the lower the liability. The ARC also fluctuates based on the earnings rate. Consequently, under the 4.25% earnings rate, the ARC is $1.8 million (less investment earnings, hence the City must make a higher annual contribution). Under the higher 7.75% earnings rate the ARC is $1.4 million. Regardless of the assumed rate of return, the actual rate of return will ultimately determine the liability and the annual contribution. Every other year, when the actuarial valuation is prepared, actual earnings to date are factored into the study and the UAAL and ARC "catch up" with actual results. Consequently, based on actual results, future UAAL's and ARC's may vary significantly between actuarial valuations.