September 12, 2023
Finance Department
DATE: September 12, 2023
TO: Mayor Martinez and Members of the City Council
FROM:
Nickie Mastay, Deputy City Manager – Internal Services
Mubeen Qader, Deputy Director of Finance
Subject:
State Audit Corrective Action Plan, OPEB Funding
Analysis, GovInvest
FINANCIAL IMPACT: No Fiscal Impact
PREVIOUS COUNCIL
ACTION:
May 2, 2023, May 16, 2023, June 27, 2023
STATEMENT OF THE
ISSUE:
City staff, with the help from GovInvest, is presenting a comparative analysis on the Other Post-Employment
Benefits (OPEB) Funding Policy Impact
RECOMMENDED ACTION:
RECEIVE a presentation from GovInvest on a
comprehensive analysis regarding the approved funding
policy impact on the Other Post-Employment Benefits
(OPEB) Unfunded Actuarial Accrued Liability (UAAL) –
Finance Department (Nickie Mastay 510-620-6609/
Mubeen Qader 510-412-2077).
DISCUSSION:
On April 4, 2022, the City of Richmond was notified by the California State Auditor that it would be conducting an audit of the City as approved by the Joint Legislative Audit Committee on June 30, 2021. The State Auditor’s local audit program identifies and AGENDA
REPORT
September 12, 2023
supports local government agencies that might be at high risk based upon analysis of the City’s audited financial statements. Richmond’s risk assessment was conducted in February 2021 based upon the City’s June 2020 financial statements.
At the conclusion of the audit, the State Auditors formalized 11 recommendations that were presented to the City Council at the December 20, 2022, City Council meeting.
City staff incorporated the Auditor’s recommendation into a Corrective Action Plan.
The State Auditor’s recommendation number 5 on Other Post-Employment Benefits (“OPEB”) states:
“To improve the city's ability to pay other post-employment benefits, Richmond should, by June 2023 and annually thereafter, implement a policy identifying funds, such as surpluses or one-time revenues that should be contributed to the OPEB trust fund. Staff should conduct an annual analysis to determine whether any funds available to the city are applicable under the city's policy and should present a proposal to the city council to apply those funds to the trust fund.” (California State Audit, 2021-806)
On June 27, 2023, the City Council adopted resolutions for the Cash Reserve Policy, the OPEB Funding Policy, and the Pension Funding Policy. The OPEB Funding Policy contains a section titled Funding Policy Contribution Rate. The Funding Policy Contribution Rate states:
“Coordination of the Plan’s Funding and Investment Policies will attempt to minimize the volatility of the employer’s contribution.
a. The City shall seek to contribute the Actuarially Determined Contribution (ADC) rate annually, though it maintains the flexibility to reduce contributions when fiscally necessary.
b. The City shall place 10% of year-end operating surplus (Total Actual Revenues minus Total Actual Expenditures, including Transfers In and Transfers Out) in the General Fund in excess of the City’s Cash Reserve Policy into the Trusts.
c. For the purposes of the ADC calculation, investment return assumptions shall be evaluated by an independent investment advisor on a regular basis (at a minimum of every two years) and should reflect the nature of the investments held in the Plans, and the historical and projected return rates anticipated for the investments.”
The City Council also directed the City staff to bring back an analysis on how the approved funding policy may impact the OPEB Unfunded Actuarial Accrued Liability (UAAL) funding status. Today’s agenda item is a presentation from the GovInvest Consultants on this topic.
September 12, 2023
Next Steps
City staff will continue to provide OPEB Funding Policy review and updates to the City Council on an annual basis.
DOCUMENTS ATTACHED:
None