CITY OF PATTERSON, CALIFORNIA
FINANCE ADMINISTRATIVE DIRECTIVE
Subject:
Other Posts-Employment Benefits
(OPEB) Funding Policy
Directive No. 018 Page No. 1 of 3
Effective Date:
3/15/2022
Revised date:
Overview
The City of Patterson has developed an Other Post-Employment Benefit (OPEB) Funding Policy to guide the City Council and Staff in making decisions related to the funding of OPEB benefits.
This document outlines that policy.
1. Purpose Section
The City of Patterson’s OPEB Funding Policy documents the method the City of Patterson will use to determine its annual OPEB contributions. The annual OPEB contributions fund the longterm cost of benefits to the plan participants and annuitants. The policy also:
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how OPEB plans will be funded Nothing in this funding policy shall constitute an obligation upon the City of Patterson, nor an implied contract. The City of Patterson Council may revoke or amend this policy in the best interests of the City of Patterson.
2. Background Section
The City of Patterson provides Retiree Health Benefits to former employees who retire directly from the City through the CalPERS Health Program. These benefits allow retirees to elect medical coverage and have a portion of their premium paid by the City.
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The OPEB plan consists of both an Explicit and an Implicit benefit. The Explicit Benefit consists of the portion of the premium paid by the City for the retirees and their beneficiaries. The Implicit Benefit is the higher premium rate paid by the City for its current active employees due to the CalPERS Health Program charging the same premium rate for active employees as it does for retirees, as required under the Public Employees’ Medical & Hospital Care Act (PEMHCA).
The financial objective of funding an OPEB plan is to fund the long-term cost of benefits provided to the plan members. In order to ensure that the plan is financially sustainable, the plan should accumulate adequate resources in a systematic and disciplined manner over the active service life of benefitting employees. This funding policy outlines the method the City of Patterson will utilize to determine its contribution to fund the long-term cost of benefits to the plan members and annuitants.
3. Policy Section
A. Goals of Funding Policy
1: The City of Patterson’s goal is to reach 80% funding of the Actuarial Liability of the Explicit Benefits by June 30, 2040.
2: The City of Patterson intends to begin funding by June 30, 2022. The City will make an initial payment of $750,000 into a Section 115 OPEB Trust. 3: The City of Patterson will continue to pay its Explicit Benefit obligation from the General Fund until the plan reaches its funding goal. If the City Council determines that General Fund Revenues for the year are not sufficient to make such payments, the City Council may elect to pay some or all of such payments for that year from the Section 115 Trust.
4: The City of Patterson intends to make additional annual contributions to a Section 115 Pension Trust, as specified in Section 3B.
B. OPEB Funding
The City of Patterson will fund its OPEB obligations as follows:
Trust Contribution Options:
1: The City of Patterson intends to make regular additional contributions to the Section 115 Trust each year in the amount of $250,000. These additional contributions will be made when revenue from the current year Sales Tax increase by 15% from prior year Sales Tax. 2: In the event of a projected deficit in the General Fund for the fiscal year, City Manager and Finance Director will review in good faith of the City’s overall fiscal condition and
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reach a determination on whether all or a portion of the additional contributions can be made for that year.
115 Trust Usage Options:
3: Prior to attaining the funding goal described in Section 3A, the City of Patterson may use accumulated 115 Trust funds to make some or all of the City’s Explicit Benefit contributions when the City Council determines that General Fund Revenues for the year are not sufficient to make those required contributions. 4: After reaching the funding goal described in Section 3A, the City of Patterson will specify how the funds will be used to pay the City’s Explicit Benefit contributions from the Section 115 Trust on a regular basis.
C. Transparency and Reporting
Funding of the City of Patterson’s OPEB plans should be transparent to vested parties including plan members, annuitants, the City of Patterson Council and City of Patterson residents (or other stakeholders). To achieve this transparency, the following information shall be available:
• Copies of the annual actuarial valuations for the City of Patterson’s OPEB plan(s) shall be made available to the City of Patterson Council. • The City of Patterson’s Annual Comprehensive Financial Report shall be published on its website. This report includes information on the City of Patterson’s annual contributions to the OPEB plan(s) and their funded status. • The City of Patterson’s Funding Policy shall be published on its website.
D. Review of Funding Policy
Funding an OPEB plan requires a long-term horizon. As such, the City Council will review this policy no less frequently than once every five years to determine if changes to this policy are needed to ensure adequate resources are being accumulated.
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OPEB Funding Policy
City of Patterson
March 15, 2022
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Current Funding Approach
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Pay As You Go Funding
• The City current approach is to pay each year’s benefit payments from the General Fund
• This approach does NOT accumulate any funds in a trust 3 7.2.d
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Benefit Payment Projection
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The City’s Unfunded Liability is projected to
Double from $8 Million to $16 Million by 2040
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Proposed Funding Policy
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Why are Funding Policies Important
• OPEB obligations are expensive and can become a serious financial threat to agencies without regular and appropriate attention;
• OPEBs require long-term management therefore it is important to develop OPEB management strategies memorialize practices;
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how OPEBs will be funded.
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Three Sections
• Why is this Policy being put in
place?
• Basic information related to
setting funding policy
• How the Policy will work
8 Purpose Background Policy
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Purpose
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Purpose
• Documents method the City will use to determine its annual OPEB contributions;
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how OPEBs will be funded 10 7.2.d
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Background
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Background
• City provides retiree health benefits through CalPERS Health • All full-time employees of the City who retire directly from the City are eligible to elect to receive these benefits
• Funding goal – Fund the long-term cost of explicit benefits provided to the plan members
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Explicit versus Implicit Benefits
• Explicit Benefits are the portion of the retiree health care premium paid by the City for the retirees and their beneficiaries. • Implicit Benefits are the higher premium rate paid by the City for its current active employees due to the CalPERS Health Program charging the same premium rate for active employees as it does for retirees, as required under the Public Employees’ Medical & Hospital Care Act (PEMHCA).
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Policy
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Goals
• Make contributions to a Section 115 Trust to reach 80% funding of Explicit Benefit Liability by 2040
• Continue to pay benefit from the General Fund on an annual basis until the fund reaches the 80% funding target
• Make additional contributions, when possible, to Section 115 Trust to allow for future contribution flexibility
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Section 115 OPEB Trust –
Contributions Into Trust
• At Discretion of City Council
• Begin funding - one-time contribution of $750 Thousand before June 30, 2022
• Additional funding - approximately $250 thousand per year when revenue from the recent Sales Tax increase by 15% from prior year • Section 115 OPEB Trust will be invested with a moderate level of risk designed to earn an expected annual return of at least 6% 16 7.2.d
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Contribution Projection
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The Plan’s Funded Percentage is Projected to
Improve to 80% by 2040
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The City’s Unfunded Liability is projected to Decrease from $8 Million to $2 Million by 2040
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Section 115 OPEB Trust –
Payments from Trust
• At Discretion of City Council
• Some or All Required Contributions – When General Fund revenues insufficient to make payments
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Transparency and Reporting • Annual Actuarial Valuation Reports to City Council • Annual Operating Budget lists OPEB contributions • On website: • Funding Policy • Annual Comprehensive Financial Report 21 7.2.d
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Review Policy • At Discretion of City Council • No less frequently than once every five years 22 7.2.d
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Questions
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While tested against actuarial valuation results, the software results will not necessarily match actuarial valuation results, as no two actuarial models are identical. The software offers financially sound projections and analysis; however, outputs do not guarantee compliance with standards under the Government Accounting Standards Board or Generally Accepted Accounting Principles. The software and this presentation are not prepared in accordance with standards as promulgated by the American Academy of Actuaries, nor do outputs or this presentation constitute Statements of Actuarial Opinion. GovInvest has used census data, plan provisions, and actuarial assumptions provided by Customer and/or Customer’s actuary to develop the software for Customer. GovInvest has relied on this information without audit.
Disclaimer
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