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Regular-General Government # 17.
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| Board of Supervisors |
Financial Services |
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| Subject |
9:30 a.m. - Auditor-Controller/Treasurer-Tax Collector
Reporting of Post-Employment Health Benefit Liability in Compliance with Government Accounting Standards Board Statement #45. (No general fund impact) (Nunes) |
| Recommended Action(s) |
| Receive and file the attached report of Post-Employment Health Benefit Liability and instruct staff to continue to explore options to reduce this liability and report back to the Board with the presentation of the 2011-12 budget. |
| Strategic Plan Goal(s) |
| Financially sustainable county government |
| Fiscal Impact |
| There is no immediate General Fund impact as a result of this report. However, there is potentially significant long-term impact on the General Fund. The actuarial liability for past and projected future benefits is estimated to be in excess of $141,000,000. The annual contribution needed to fully fund the liability would be about $16.8 million, an increase of $12.3 million over our current “pay as you go” appropriation for retiree health benefits of $3.5 million annually. GASB 45 does not require jurisdictions to fully fund this liability, but it does require that the liability be disclosed and recorded on our financial statements. In absence of funding the liability, recording it will have the effect of reducing our debt ceiling and, potentially, lowering our credit rating and increasing the cost of borrowing. |
| Reason for Recommended Action/Background |
The Government Accounting Standards Board (GASB) regulates accounting for public sector jurisdictions, as such, we are required to comply with their rules. Your Board previously directed the Auditor-Controller and Human Resources to secure the services of an actuary to estimate the liability associated with GASB 45, we have done so; the actuarial valuation prepared by Bartel & Associates is attached.
Note that GASB 45 concerns liability for retiree health insurance benefits, not retiree pensions. Retiree pensions are provided through CalPERS and are not affected by this rule. The basic premise of GASB 45 is that a promise to provide future benefits, such as health insurance for retirees, creates a significant liability that must be disclosed to insure that financial statements are complete and accurately reflect the organization’s financial condition.
Summary of Liability for OPEB (Other Post Employment Benefits, i.e., not pension (Gasb 45)) as demonstrated on the attached valuation:
• In 2009-10, the County paid $2.8 million toward retiree health benefits. There were 593 retirees receiving medical/dental benefits and 300 participating in dental-only. The annual amount is rising by nearly 20% a year.
• By contract with CalPERS, the County contributes toward health premiums and due to legislation enacted in 2007 this amount is escalating annually until it equals the amount contributed for active employee health care premiums.
• The County, like most government entities, has paid this expense on pay-as-you-go basis and has set aside $1.1 million in reserves toward the unfunded liability.
One of the requirements of joining CalPERS health plan is that a contribution toward the premium for the retiree health benefit must be provided. Legislation enacted in 2007 set the minimum level for this premium contribution to be equal to the contribution for active employees. CalPERS also requires, as a condition of health plan membership, that once a premium contribution to a retiree health benefit is provided, it cannot be reduced or eliminated.
As a member of CalPERS health plan, we do not have the ability to two-tier our plan (e.g., provide no retiree health benefit or premium contribution for new hires), though Shasta County is exploring legislation solutions that could provide this option. In order to have increased options for this benefit, under current law, however, we would have to pull out of CalPERS health and find another provider(s). Despite CalPERS shortcomings, other jurisdictions have had very limited success in finding viable alternatives to CalPERS health.
Given that both the future liability and annual “pay as you go” amount is likely to continue to grow at a rapid pace, the County will be collaborating with labor groups to develop options designed to reduce both this and the CalPERS retirement unfunded liabilities. It is anticipated that this working group will identify options that the Board can consider during the current calendar year. In addition, the Auditor's Office is working with the CAO's Office to explore alternative ways to prepay these liabilities when funds, particularly one time restricted revenues, are available. Lastly, CSAC is currently studying medical and health insurance alternatives and will be developing statewide options for consideration. |
| Other Agency Involvement |
The Auditor-Controller, County Administrator, and Human Resources continue to collaborate on
this issue. |
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