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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 © 2022 GovInvest Inc.
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. © 2022 GovInvest Inc.
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 © 2022 GovInvest Inc.
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 © 2022 GovInvest Inc.
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
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Review Policy
• At Discretion of City Council
• No less frequently than once every five years
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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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