OPEB Mitigation Plan/
Section 115 Funding
Policy Review
- 1 .
1'L.1`_CEi A"ll TER
• The City Administrator's performance review in March 2023 identified the City Council's desire for development of an OPEB mitigation strategy to address the City's OPEB liability.
• What is OPEB?
• Other Post -Employment Benefits (OPEB) are defined by the Governmental Accounting Standards Board (GASB)yas benefits (other than pensions) that U.S. state and local governments provide to their retired employees.
These benefits principally involve health care benefits, but also may include life insurance, disability, legal and other services.
The City of Placentia's OPEB liability was created by offexing retirees hired prior to November 21, 1995, payment of up to 100% of :he health plan selected with monthly maximums varying by bargaining unit.
• The City's current OPEB liability is $24,910,487 based on a measurement date of June 30, 2021.
• Decrease of $6.4 million from June 30, 2020 measurement date due to changes in demographic and inflationary assumptions, and the difference between City's expected vs actual experience. • The City currently pays these expenses on a pay-as-you-go basis which does not reduce outstanding long-term liability.
• Financial statements currently reflect 0% funding status
• In addition to OPEB liability, the City also has long-term pension obligations with CaIPERS.
• In August 2022, the City's funded status for all plans was 109.8%- 110.1%, with plan assets exceeding liabilities.
• Due to City's payment of its UAL in 2020 with sale of pension bonds • CaIPERS recent actuarial report distributed in August 2023 incorporated investment losses of 6.1% in FY 2021-22 and reduction in the discount rate from 7.0% to 6.8%.
Current funded status of City's plans is 90.2%-94..3% with an unf .ended actuarial liability (UAL) of $10,797,201.
Fluctuations in UAL
$18,000,000
FY2024/25
$10,797,201
1% Lower ROR
$33,482,372
FY2023/24
-$15,872,775
1% Higher ROR
-$7,446,554
$12,000,000
Superfunded -No UAL
6 • City established a Section 115 Trust on October 20, 2020 • Trusts can only oe usea to prefund/pay Pension and OPEB expenses; help to mitigate impact of Ca1PERS investment losses.
• City Council approved the Pension Rate Stabilization Program and OPEB Funding Policy (Policy No. 431) on September 20, 2022. • Approved transfer of $2.4 million from bond proceeds to the Section 115 Trust. Current value of trust assets are $2.7 million as of July 31, 2023. • City Council approved additional $770,000 in funding of Section 115 Trust as part of the FY 2023-24 budget.
• Current trust assets plus additional $770,000 equ ite to 14% of the City's OPEB liability.
• Approved the migration from the PARS Section 115 Trust to Shuster Advisory Group's Section 115 Trust due to significant savings in fees and more flexible investment options.
• Migration to Shuster Advisory Groups resulted in 35% reduction in fees (35 basis points).
• Projected reduction of $996,419 in OPEB liability.
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
Impact on Trust Assets
Migration to Shuster Advisory Group (1)
Beginning Value Year 1
Year 5
Year 10 Year 15
—5% ROR 6% ROR 7% ROR
Year 20
(1) Based on decrease in fees and assumea cum, r ation of $500,0)0 annually (2) For illustrative purposes only, not a guarantee of specific rate of return Year 25 Year 30
• Staff has identified and is recommending annual funding amount of $500,000 to Section 115 Trust beginning with FY 2024-25. • Included in Ten Year Financial Plan
• Funds would pre -fund OPEB and pension liabilities and count towards funded status in City's Annual Comprehensive Financial Report (AGER).
• City would make recommendations annually as part of the budget process to either use this funding to make UAL payments to PERS and/or pay-as-you-go payments to retirees for OPEB costs to allow the funds to grow in the trust and continue to make these ayments from the General Fund.
• Per current Section 115 funding policy, the City shall prepay the entire annual UAL amount by the end of July to take advantage of the 3% discount.
• The City will make its annual UAL payment of $446,569 by July 31, 2024. • Review Pension Rate Stabilization and OPEB Funding Policy and update City Council on OPEB and UAL status as part of the FY 2024- 25 budget process.
• It is recommended that the City Council take the following actions:
1. Receive and file this report; and,
2. Following discussion, provide staff with additional policy direction.