January 11, 2022
Finance Department
DATE: January 11, 2022
TO: Mayor Butt and Members of the City Council
FROM:
(List all relevant/responsive staff
persons)
Belinda Brown, Finance Director
Delmy Cuellar, Accounting Manager
Subject:
(This will appear on the agenda)
Resolution approving Other Post -Employment Benefits
(OPEB) funding policy
FINANCIAL IMPACT: The adoption of and adherence to the OPEB Funding Policy can be measured by factors such as:
Meeting the Ci ty’s objective of placing into Trusts half of any one-time revenues;
Placing half of any year -end surplus in excess of
the City’s Minimum Reserve Policy into the Trusts;
Paying down the City’s unfunded liability annually.
PREVIOUS COUNCIL
ACTION:
(List all dates items were heard or
council action took place)
N/A
STATEMENT OF THE
ISSUE:
Staff is requesting that the City Council adopt a resolution approving the Other Post -Employment Benefits (OPEB)
Funding Policy
AGENDA
REPORT
January 11, 2022
RECOMMENDED ACTION:
(This will appear on the agenda)
ADOPT a resolution approving the Fiscal Year 2021-2022
Other Post-Employment Benefits (OPEB) Funding Policy
– Finance Department (Belinda Brown 510-620-6740).
DISCUSSION:
The City provides medical benefits to retirees. The benefit is paid monthly to the retiree, subject to proof of coverage and attestation of premium payment, and generally ceases upon death of the retiree. Unlike the expenses associated with pension benefits, the City has historically chosen to pay its OPEB expenses as they come due (the monthly reimbursements to retirees) rather than as they are earned. These annual “pay -as-you- go” benefit expenses have increased over the last five years, and are expected to continue growing at that pace as more active employees retire and as healthcare costs increase.
Payment of OPEB expenses as they come due, rather than as they are earned, results in the accumulation of unfunded liability for the future benefit. To est imate that liability, and to calculate the annual contribution required to pay down that liability over a specified amortization period (the actuarial determined contribution, ADC), the City’s actuary prepares an OPEB valuation annually.
Effective as of Ja nuary 17, 2017 the City and Richmond Police Officers Association (RPOA) agreed on separating and maintaining two separate OPEB Plans. The RPOA OPEB plan was established in June 2019 with CalPERS. All current RPOA employees and future retirees after January 17, 2017 belong to the RPOA OPEB Plan. All other City active members and Retirees belong to the City OPEB Plan with Public Agency Retirement Services (PARS).
The City’s OPEB valuation, as of July 1, 2021, estimated an unfunded actuarial accrued liability (UAAL) of $103.79M, $90.80M for City OPEB plan and $12.99M for RPOA OPEB plan. In May 2021, the City’s Actuary estimated and projected an ADC of $12.24 M consisting of $10.15M for the City Plan and $2.09M for the RPOA plan for FY2021-2022.
Based on the City’s current efforts to pay down the UAAL by contributing annually to the OPEB trusts established with PARS and CalPERS, the City has managed to have an ending balance of $32.4M in PARS and $6.3M in CalPERS as of June 30, 2021.
OPEB Funding Policy
If the City continues the current pay-as-you-go policy, the unfunded liability will increase.
Conversely, if the City adopts a policy of making pre -funding payments into an OPEB Trust, in addition to the pay-as-you-go benefit payments, the unfunded liability will decline.
Moreover, because the actuary can assume that the OPEB Trust will be held in a
January 11, 2022
diversified portfolio of long-term investment and earn a significantly higher rate of return than the City’s cash pool, the UAAL will be lower than in the pay-as-you go scenario.
Staff recommends that the City Council continue pre-funding the City’s OPEB liabilities by directing the City Manager to place half of any one-time revenues, and placing half of any year-end surplus in excess of the City’s Minimum Reserve Policy into the Trusts and to pay down the City’s unfunded liability annually.
DOCUMENTS ATTACHED:
Attachment 1 – Resolution for the OPEB Funding Policy
Attachment 2 – Fiscal Year 2021-22 OPEB Funding Policy