1 CITY OF SAN LEANDRO
OPEB Funding Policy
INTRODUCTION
The City of San Leandro (City) provides a healthcare benefit for all eligible employees. The healthcare plan pays all, or a portion of, health insurance premiums for qualified retirees and their survivors and dependents. Healthcare benefits are also referred to as Other Post-Employment Benefits or OPEB.
PURPOSE
To ensure that the City’s Other Post-Employment Benefits (OPEB) program is financially sustainable, the program should accumulate adequate resources in a systematic and disciplined manner over the active service life of benefitting employees. The City’s OPEB Funding Policy documents the method the City will use to determine its actuarially determined contributions (ADC) to fund the long-term cost of benefits to City employees and retirees. The policy also:
• Demonstrates prudent financial management practices; and • Promotes long-term planning and strategic planning; and • Provides guidance in making annual budget decisions; and • Demonstrates to employees and the public how OPEB will be funded to ensure adequate funding for negotiated benefits.
BACKGROUND
1. Obligations
City of San Leandro (the “City”) administers a multiple-employer defined-benefit postemployment healthcare plan. The plan was established by City Council in fiscal year 2009- 10 and provides reimbursements to retirees for qualified medical and dental expenses.
Dependents are eligible to enroll, and benefits continue to surviving spouses. Retirees who have between five and fifteen years of service and meet certain criteria based upon retirement date, household income in the most recent calendar year, and age are entitled to reimbursements for qualified expenses. All other retirees are only eligible for the Public Employees' Medical & Hospital Care Act (PHEMCA) minimum employer contribution as adjusted annually by CPI. Amendments to benefit provisions are negotiated by various bargaining units at the City and must be approved by Council.
In fiscal year 2008-09, the City established an irrevocable exclusive agent multiemployer benefit trust which is administered by Public Agency Retirement Services (PARS). The trust will be used to accumulate and invest assets necessary to reimburse retirees. No separate financial reports are issued by PARS for the OPEB plan.
DRAFT
2 2. Contributions
The City shall endeavor to contribute the actuarial determined contribution (ADC). The ADC is the recommended contribution that, if paid on an ongoing basis, is expected to provide sufficient resources to fund (a) future normal cost (cost for new service) and (b) the amortized unfunded liability (cost for past service).
A. OPEB Actuarially Determined Contribution (ADC)
The City will engage an OPEB actuary to determine the City’s ADC based on biennial actuarial valuations. The ADC will include the normal cost for current service and amortization of the unfunded OPEB liability over a closed-end period not-to-exceed 15 to 20 years. The normal cost will be calculated using the entry age normal cost method using appropriate economic and noneconomic assumptions.
The City will review the actuarial valuations to validate the completeness and accuracy of the employee census data and the reasonableness of the actuarial assumptions. Actuarial valuations involve estimates and assumptions about the probability of occurrence of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future.
POLICY
It is the policy of the City to fulfill its obligation to maintain fiscally responsible management practices and to ensure that the promised pension benefits are funded. To that end, the City will meet its pension funding obligations as follows:
1. OPEB Prefunding Trust (Trust)
As is best practice, the City endeavors to appropriate the ADC each year during the annual budget process and contribute an equal amount to the OPEB Trust. Optionally, to avoid potential investment risk, the City may contribute to the Trust an amount equal to the ADC but net of the current year estimated retiree benefit payments and implied subsidy to the Trust. At its discretion, the City may reimburse itself from the Trust for all benefits paid to retirees and beneficiaries as well as any implied subsidy contributed to the Trust.
2. Pay-Go Funding
From time to time, budgetary hurdles may impede the City’s ability to contribute the full ADC the Trust. However, at a minimum, the City is fully committed to fully funding its ongoing promised benefit to eligible retirees and their beneficiaries on a Pay-Go basis.
3. Surplus Proceeds
Nothing in this policy shall preclude the City from making additional discretionary contributions to the trust to increase the funded status of the long-term OPEB obligation. 3 GOVERNANCE PROCEDURES:
Funding of the City’s OPEB liability should be transparent to all parties including City employees, retirees, recognized employee organizations, the City Council and San Leandro residents. To achieve this level of transparency, the following information shall be available:
1. The City’s Annual Comprehensive Financial Report shall be published on its website. This report includes information on the City’s OPEB plan, contributions to the OPEB Trust, and the funded status of the plan.
2. The City’s annual operating budget shall include appropriations for ADC contributions to the OPEB Trust or pay-go costs, at a minimum, to fund promised retiree benefits
3. City staff shall periodically provide actuarial valuations and funded status updates to Committee or Council.