2 5
7 DATE: March 24, 2025
TO: Mayor and Members of the City Council President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, City/District Manager
FROM: Nate Cruz, Finance Director
Waqas Hassan, Assistant Finance Director
DEPARTMENT: Finance
SUBJECT: LONGEVITY RECOGNITION BENEFITS PLAN AND PUBLIC
EMPLOYEES' MEDICAL AND HOSPITAL CARE ACT (PEMHCA)
BENEFITS PLAN INTERNAL SERVICE FUNDS
RECOMMENDATION
It is recommended that the City Council/EMID Board of Directors (“City Council”) receive and accept this report on the City/EMID’s (“City”) Longevity Recognition Benefits Plan and the Public Employees Medical and Hospital Care Act (PEMHCA) Benefits Plan Internal Service Funds.
EXECUTIVE SUMMARY
The City has internal service funds for both its Longevity Recognition Benefits and its PEMHCA Benefits Plans. The fund balances in each of these funds are set-aside for post-employment liability, so there are no excess amounts available. The current practice is to assess estimated annual benefit charges to applicable departments. Fiscal year 2025-26 Longevity and PEMHCA assessment charges to the General Fund are $221,820 and $205,595 respectively. In addition, PEMHCA assessments to the Water and Wastewater Enterprise Funds, and the Vehicle, Information Technology, and Building Maintenance Internal Service Funds are $19,690; $13,984; $2,330; $7,608; and $4,232 respectively; resulting in an aggregate total of $253,439 of PEMHCA assessment charges.
2 5
7 BACKGROUND
The City offers its employees two types of post-employment benefits other than the pension plans offered through CalPERS. The two benefits plans are as follows:
1. Longevity Recognition – This benefit plan, negotiated under memoranda of understanding with the City’s externally represented bargaining groups and the compensation and benefits plan for Management Employees, provides monthly benefit payments based upon an employee’s length of service with the City at the time of their retirement from the City and in recognition that the City does not otherwise provide for post-employment medical benefits other than the minimum amounts required under PEMHCA (see below). In FY 2007-08, all AFSCME and non-public safety management employees employed with the City voluntarily eliminated the Longevity Recognition plan from their employee agreements.
Current FCPOA, legacy IAFF (International Association of Fire Fighters), and public safety management employees will continue to participate in the program, but new employees in those groups hired after January 1, 2012, are no longer eligible to participate in the program.
2. PEMHCA Plan – City employees participate in a medical benefits plan provided through CalPERS under the PEMHCA medical benefit plan. In accordance with the provisions of the state law, employers must contribute a minimum fixed monthly amount towards the medical benefits costs for current and retired employees participating in the plan. Effective January 1, 2025, the minimum monthly employer contribution is $158 for each retiree, an increase of $1 from calendar year 2024. The contribution amount is subject to cost of living increases as determined by the State Legislature.
In order to fund each plan’s benefits, the City Council had previously established Internal Service Funds and authorized initial transfers from the General Fund, Enterprise Funds, and other Internal Service Funds to the Longevity Recognition Benefits and PEMHCA Benefits Internal Service Funds. Currently, internal service charges are assessed to the applicable departments “receiving” Longevity and/or PEMHCA benefits.
ANALYSIS
Every two years, both the Longevity Recognition and the PEMHCA plans are subject to individual actuarial studies, with “roll-forward” work for the interim years. The studies determine the actuarially calculated liabilities, normal costs, and contributions of each plan which under Government Accounting Standards are required to be disclosed in the City/District annual financial statements. As of June 30, 2024, the City’s Longevity Benefit Plan liability and PEMHCA OPEB (Other Post-Employment Benefits) liability were $3.06 million and $8.98 million respectively compared to the Internal Service Fund balances of $2.82 million and $6.66 million respectively. Accounting standards do not 2 5
7 allow Internal Service Fund assets to be used as offsets against our Longevity and PEMHCA OPEB liabilities. Therefore, the City’s Balance Sheet includes the “full” obligations.
On October 21, 2024, the City Council approved the establishment of tax-exempt IRC Section 115 irrevocable trust for the City’s PEMHCA benefits, selecting Public Agency Retirement Services (PARS) as the Trust administrator. It was determined that establishing a trust, through its investment returns, will result in lowering the unfunded liability of PEMHCA benefits plan. During this process, the City Council also approved the Target Index-Based “Growth” investment strategy and a funding strategy which was prepared by the City’s actuary, Precision Actuarial Inc. The staff report and related resolutions can be referred at Item 9.1 of October 21, 2024 meeting. As per the funding strategy, staff recommends contribution of $302,875 to the Trust during FY 2025-26.
Additionally, the PEMHCA assessment will not be charged to various departments since the City will be utilizing the available fund balance in Fund 508 (PEMHCA) to pay yearly charges.
California Environmental Quality Act
Not Applicable
FISCAL IMPACT
The proposed FY 2025-26 expenditure budget for the Longevity Recognition and PEMHCA Benefit Internal Service Funds are $231,820 and $263,439 respectively, inclusive of actuarial valuations preparation expenditures. The proposed Internal Service charges for the Longevity Recognition benefit to City departments are $221,820 (Attachment 2), representing a decrease of $900 from the prior year.
With the establishment of IRC Section 115 Trust, assessment for the PEMHCA benefits (Attachment 3) in the amount of $253,439 will not be charged to other departments since the City will be utilizing the available fund balance in Fund 508 (PEMHCA) to pay yearly charges. As per the approved funding strategy, staff recommends contribution of $302,875 to the Trust during FY 2025-26.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Innovation and Sustainability
ATTACHMENTS:
Attachment 1 - Longevity Recognition and PEMHCA Benefit Fund Budget Comparison Attachment 2 - Longevity Assessment Charges to Departments Attachment 3 - PEMHCA Assessment Charges to Departments