HomeMy WebLinkAboutIR 8705INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8705
• the Mayr and Members • the City Council August 9, 200
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SUBJECT: Accounting for Other Post Employment Benefits
fS713 Governmental Accounting Standards Board Statement No. 41
The purpose of this report is to provide information on the City's plan for implementing Governmental
Accounting Standards Board (GASB) Statement No. 45.
GASB Statement No. 45 requires government entities that sponsor Other Post Employment Benefits
(OPEB) to account for these benefits on an accrual basis and disclose the liabilities in their annual
financial reports. Since most public entities currently fund these benefits on a "pay-as-you-go" basis
during their annual budget cycle, disclosing these liabilities will add to fiscal pressures on state and local
governments across the country. However, as is noted in the attached article from The Bond Buyer,
Moody's Investors Service does not expect widespread bond rating changes as a result of this accounting
change.
GASB 45 is similar to Financial Accounting Standard 106 for U.S. corporations, treating other post-
retirement benefits such as retiree medical benefits, like pensions, as a form of deferred compensation.
Accordingly, GASB 45 requires these benefits to be recognized in an organization's financial statement
when earned by employees, rather than when paid out. Therefore, "pay as- you -go" accounting is replaced
,M-vith accrual accounting. However, the City will not be required to adopt GASB 45 until October 1, 2007.
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The City -currently provides healthcare benefits to participating retirees, dependents and survivors.
Additionally, participants on long-term disability and their spouses can qualify for retiree medical benefits.
The City pays 100% of the retiree medical premium for the basic plan for all employees who were hired
on or before October 5. 1988 or who have obtained 25 years of service. These retirees pay a contribution
for a covered spouse. Retirees who were hired after October 5, 1988 and who do not have 25 or more
years of service with the City pay a contribution for their own coverage as well as for any covered
dependent.
Ann, the consultant and actuary for the City's Health Benefit Plan, recently completed a valuation which
indicates that the ,Actuarial Actuarial Accrued Liability (AAL) for the OPEB benefits is $772,427,000 based on a
50 -year period. 4n order to avoid having this liabi'lity increas-e—,-tlie--rity—iii-a-N,-'p-r-e--Ttin—d" —the A7AL by
maiing an Armu"a-1 Required Contribution (ARC) of $83,296,000 to the Health Benefit Plan. This
amount is based on the current plan design and plan offerings, claims experience, retiree eligibility rules,
current contribution scenarios, and actuarial assuiriptions used fin the valuation of the OPEI liability. A
change in any of these factors will have a direct effect on the ARC.
Aonl/and staff will be working with the Council to explore options that may reduce the liability.
�" +xif�nplles of some options include.-
* lrnu,-aaducing a Medicaare-Advantage 11M0 1' r Medicare-eligible renrees. dependents., surviving
p, s ,s, and dis-utbled fives- flinese planis t.-y-pically hiave lower costs lrc�r M ic.ane-ehgible
p a r ti -_ ii pas, is
* lner aming the re-quirements to lbe eligible f r reti-e and d epee detra rnedical Coverage,
ISSUED BY THE C1 TY MANAGER---, , I FORT WORTH, TEXAS
• Increasing retiree contributions for spouse coverage.
The Council will have to determine whether or not any efforts will be made to reduce the liability or to
maintain the current medical benefit/policy for retirees. Below is a schedule of events that will assist the
City in preparing for GASB Statement No. 45.
10/04 Finance and Deloitte, & Touche present GASB overview to the Council's Government and
Neighborhood Relations Committee
12/04 — 4/05 Aon's study of the City's OPEB Liability completed
4/05-6/05 Ann presents report to staff and Employee Benefit Advisory Committee
7/05 Staff presents overview of GASB 45 and liability to Council during, City Council Retreat
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11/05 Council Work Session #1 - Ann actuary will present a report with options for reducing
liability and assist the Council in developing a post employment benefit
philosophy/strategy
3/06 Council Work Session # 2 - Staff will present recommendations on OPEB policy based on
Council benefit philosophy and evaluation of ramifications of any proposed changes.
10/06 Council adopts OPEB policy
10107 Begin accounting for and reporting on OPEB liability
The staff recommends that the Council not increase post employment benefits until the actuarial study
on the costs of options has been completed and a formal policy on the accounting of post employment
medical benefits has been developed.
CA4.,
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Charles R. Boswell
Citv Manaaer
ISSUED BY THE CITY MANAGER
FORT WORTH., TEXAS
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