HomeMy WebLinkAboutCC Resolution 14371 (Grand Jury Response on Retiree Health Care)RESOLUTION NO. 14371
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL
APPROVING AND AUTHORIZING THE MAYOR TO EXECUTE THE CITY'S
RESPONSE TO THE MAY 10, 2017 MARIN COUNTY GRAND JURY REPORT
ENTITLED "MARIN'S RETIREMENT HEALTH CARE BENEFITS: THE MONEY
STILL ISN'T THERE"
WHEREAS, pursuant to Penal Code section 933, a public agency which receives a Grand
Jury Report addressing aspects of the public agency's operations must, within ninety (90) days,
provide a written response to the Presiding Judge of the Superior Court with a copy to the
Foreperson of the Grand Jury, responding to the Report's findings and recommendations; and
WHEREAS, Penal Code section 933 specifically requires that the "governing body" of the
public agency provide said response and, in order to lawfully comply, the governing body must
consider and adopt the response at a noticed public meeting pursuant to the Brown Act; and
WHEREAS, the City Council of the City of San Rafael has received and reviewed the
Marin County Grand Jury Report, dated May 10, 2017, entitled "Marin's Retirement Health Care
Benefits: The Money Still Isn't There;" and
WHEREAS, the findings and recommendations presented in the Grand Jury report were
discussed at a Special Joint City Council Pension-OPEB Subcommittee and City Council Finance
Committee meeting held on June 6, 2017; and
WHEREAS, the final recommended response has been prepared and submitted to the
City Council for review and action.
NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San Rafael
hereby:
1. Approves and authorizes the Mayor to execute the City's response to the Marin
County Grand Jury's May 10, 2017 report, entitled "Marin's Retirement Health Care Benefits: The
Money Still Isn't There," a copy of which response is attached hereto and incorporated herein by
reference.
2. Directs the City Clerk to forward the City's response forthwith to the Presiding
Judge of the Marin County Superior Court and to the Foreperson of the Marin County Grand Jury.
I, Esther Beirne, Clerk of the City of San Rafael, hereby certify that the foregoing
Resolution was duly and regularly introduced and adopted at a regular meeting of the San Rafael
City Council held on the 17th day of July 2017, by the following vote to wit:
AYES: Councilmembers
NOES: Councilmembers:
ABSENT: Councilmembers:
Bushey, Colin, Gamblin, McCullough & Mayor Phillips
None
None
c--- . /2Qe2,-Q ,
ESTHER C. BEIRNE, City Clerk
RAFq�`
yo
C'rY WITH A'XA
July 27, 2017
The Honorable Judge Kelly V. Simmons
Marin County Superior Court
P.O. Box 4988
San Rafael, CA 94913-4988
Honorable Judge Simmons
Mr. Hamilton -Roth
Jay Hamilton -Roth, Foreperson
Marin County Civil Grand Jury
3501 Civic Center Drive, Room #275
San Rafael, CA 94903
Re: Marin County Civil Grand Jury Report Entitled: "Marin's Retirement Health
Care Benefits: The Money Still Isn't There"
We are forwarding to you the following documents:
• A certified copy of Resolution No. 14371 adopted by the San Rafael City Council on
July 17, 2017, approving and authorizing the Mayor to execute the City's response;
• Original of the "Response to Grand Jury Report Form," executed by Mayor Phillips
on July 27, 2017;
• Copy of City Council Staff Report dated July 17, 2017.
Should you need further assistance, please contact me at (415) 485-3065.
Sincerely,
ESTHER C. BEIRNE
City Clerk
cc: Gary 0. Phillips, Mayor of the City of San Rafael
Jim Schutz, City Manager
Robert Epstein, City Attorney
Mark Moses, Finance Director
CITY OF SAN RAFAEL 1 1400 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901 1 CITYOFSANRAFAEL.ORG
Gary O. Phillips, Mayor • Maribeth Bushey, Vice Mayor • Kate Colin, Councilmember • John Gamblin, Councilmember • Andrew Cuyugan McCullough, Councilmember
2016-2017 MARIN COUNTY CIVIL GRAND JURY
Marin's Retirement
Health Care Benefits
The Money Still Isn 't There
Report Date: May 10, 2017
Public Release Date: May 17, 2017
COUNTY
Marin County Civil Grand Jury
Marin's Retirement Health Care Benefits
The Money Still Isn't There
SUMMARY
Four years ago, the Grand Jury released a report titled Marin's Retirement Health Care Benefits:
The Money Isn't There,' that discussed the funding of public agency liabilities for retiree health
benefits. They discovered that most agencies were neither saving adequately nor implementing
best practice cost containment strategies, and warned of the consequences.
Since then, some agencies have started paying more attention to their unfunded benefit liabilities
and are choosing to prepay at least a portion of their liabilities, as financial advisors recommend.
However, while 16 of the 39 agencies we studied in this report collectively decreased their
unfunded liability by $108.1 million (the County of Marin reduced its unfunded liability by
$88.3 million), the remaining 23 agencies collectively increased their unfunded liability by $41.9
million. This problem has been escalating for years and will not be magically gone tomorrow.
Left unchecked, the growing liabilities may eventually challenge agencies' fiscal health.
The Grand Jury recognizes that all agencies face day-to-day operational challenges and that
retiree health liabilities are likely not top -of -mind for many agencies. Officials and board
members may not be expert at interpreting financial documents nor aware of the long-term
implications of retiree health liabilities for their agency's viability — but they need to be. In this
report, we offer strategies to help Marin agencies deal with their Other Postemployment Benefits
liability (primarily health benefits) and make it easier for the average person to understand the
scope and potential effects of such liabilities on our communities.
1 "Marin's Retirement Health Care Benefits: The Money Isn't There." Marin County Civil Grand Jury. 3 June 2013.
Marin's Retirement Health Care Benefits: The Money Still Isn't There
BACKGROUND
Public employees are typically granted two retirement benefits: a pension and "Other
Postemployment Benefits" (OPEB) — primarily retiree health care. This report is a follow-up to
previous OPEB-related Marin County Grand Jury Reports from: 2004-2005,2 2006-2007,3 and
2012-2013.4 We wanted to see how local public agencies' OPEB liabilities have changed since
the 2012-2013 Report, and examine the impact of OPEB on agencies' financial health.
METHODOLOGY
The Grand Jury, in order to understand the financial and historical details of OPEB plans:
■ Reviewed Marin County Civil Grand Jury OPEB-related reports and agency responses:
2004-2005, 2006-2007, and 2012-2013.
■ Distributed detailed financial questionnaires (and analyzed responses) to the same public
agencies surveyed in the 2012-2013 Grand Jury Report (see Appendix A: OPEB
Questionnaire to Public Agencies).
■ Researched OPEB legal issues.
■ Reviewed OPEB-related Governmental Accounting Standards Board Statements 43, 45,
74, and 75 (GASB 43, GASB 45, GASB 74, and GASB 75) and related literature.
■ Analyzed all Comprehensive Annual Financial Reports (CAFRs) and audits of public
agencies since Fiscal Year 2012.
■ Analyzed GASB 45 Actuarial Valuations of OPEB benefits and liabilities, prepared for
public agencies.
■ Watched city/town council audit and financial presentations.
■ Interviewed agency staff and consultants involved with the actuarial process.
■ Surveyed literature for examples and best practices of OPEB.
2 "The Bloated Retirement Plans of Marin Countv. Its Cities and Towns." Marin County Civil Grand Jury. 9 May 2005.
3 "Retiree Health Care Costs: I Think I'm Gonna Be Sick." Marin County Civil Grand Jury. 19 March 2007.
4 "Marin's Retirement Health Care Benefits: The Monev Isn't There." Marin County Civil Grand Jury. 3 June 2013.
May 10, 2017 Marin County Civil Grand Jury Page 2 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
DISCUSSION
If a public agency provides an employee with Other Postemployment Benefits (OPEB), and the
employee meets specified periods of service and age, the agency will pay these benefits upon
retirement to the employee (and to his/her spouse and/or dependents under some OPEB plans).
The liability for providing these benefits is determined by an actuary and reported in an
actuarial valuation. In accounting terminology, such a future financial obligation is called an
Actuarial Accrued Liability (AAL). If an agency does not annually prepay their actuarial -
determined Annual Required Contribution (ARC), the agency creates an Unfunded Actuarial
Accrued Liability (UAAL).
Retiree Health Care
OPEB "principally involve health care benefits, but also may include life insurance, disability,
legal and other services .„5
Health care insurance costs continue to rise. These increased costs affect both the active
employees and retirees. Public agencies blend employees and retirees into a single health care
plan to calculate a premium that applies to both groups. The blending causes active employees,
who are statistically healthier, to pay more for their health care to defray some of the additional
costs of retiree health care. The additional cost of retiree claims is called an implied rate subsidy.
If retiree health insurance costs rise, and employees are not charged sufficient premiums, then
the public agency will have increased liabilities from the implied rate subsidy shortfall.
$1,200
/Subsidy
S 1,000
$800
L L
a
a$500 Group
U Premium
a
t
o $400
$200
$0
35 40 45 50 55 60 65
Age
From: "Retiree Health Care: A Cost Containment How -To Guide.” League of California Cities. Sep. 2016
5 "Other Postemnlovment Benefits (OPEB)." Governmental Accounting Standards Board.
May 10, 2017 Marin County Civil Grand Jury Page 3 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
Prefunding vs. Pay -As -You -Go
Public agencies can choose to either prefund their Actuarial Accrued Liability (AAL) or pay the
annual retiree benefits as they come due (pay-as-you-go or pay -go). Prefunding into an OPEB
trust fund allows the contributions to be invested, which can further reduce both the agency's
AAL and Unfunded Actuarial Accrued Liability (URAL). While prefunding is a smart long-term
strategy, it may affect an agency's ability to pay its short-term bills. That is why some agencies
choose pay -go - they do not have a sufficient budget or adequate cash flow. Basic aid school
districts for example, depend upon local property tax distribution to cover both their short-term
and long-term obligations.
Nevertheless, prefunding OPEB liabilities is a widely accepted best practice. As the Government
Finance Officers Association (GFOA) states, "It is widely acknowledged that the appropriate
way to attain reasonable assurance that benefits will remain sustainable is for a government to
accumulate resources for future benefit payments in a systematic and disciplined manner during
the active service life of the benefitting employees." 7 The following graph shows a hypothetical
example of the annual cost for an agency's OPEB payments$ for a closed group (no new
employees) and illustrates how pref ending could be less expensive than pay -go, using 7.25% as
the assumed rate of return on investments:
6,000,000-
5,000,000-
4,000,000-
3,000,000
,000,000 -5,000,000-4,000,000-3,000,000 —
2,000,000-
1,000,000-
0-
2014
,000,000-1,000,00002014 2024
Employer payments
Investment income (7.2510)
Total cost of benefits
2034 2044 2054
WITHOUT A TRUST WITH A TRUST
$160,000,000 $98,000,000
0 62,000,000
160,000,000 160,000,000
r�
N Pay-as-you-go Funding
(Without a Trust)
Actuarial Prefunding
(With a Trust)
2064 2074 2084
6 Weston, Margaret. "Basic Aid School Districts." Public Policy Institute of California. September 2013.
7 "Sustainable Funding Practices for Defined Benefit Pensions and Other Postemplovment Benefits (OPEB)." Government
Finance Officers Association. January 2016.
s "Establishing an OPEB trust fund." Milliman, Inc. 2014.
May 10, 2017 Marin County Civil Grand Jury Page 4 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
The Actuarial Valuation Process
Actuaries prepare their valuations using Actuarial Standards of Practice and applicable standards
of the Governmental Accounting Standards Board (GASB). The accounting standards are issued
as implementation guides. During the 2012-2016 time period, actuaries followed the GASB 459
implementation. The purposes of a GASB 45 actuarial valuation include:
■ Informing an agency of its retiree benefits' financial future obligations,
■ Determining how much an agency should consistently prefund to ensure there will be
sufficient funding for the retirees' benefits, and
■ Determining and measuring the funded status and funding progress of an OPEB plan.
The agency initiates the actuarial valuation process by providing basic data to the actuarial
consultant, including:
■ Agency overview: agency directions and intentions for the valuation.
■ Valuation data: employee data, updates to health & welfare benefits and/or
Memorandums of Understanding (MOUS), new resolutions about agency contributions,
plan summaries and rates, and retiree benefits and other contributions paid recently.
■ Assumptions: rates of retirement, termination, disability, mortality, prefunding, and
discount rates.
Within a few months, the actuary arrives at a draft actuarial valuation report. The draft is shared
with the finance or budget director, who can correct misunderstandings or misinterpretations.
The final (GASB 45) valuation report is then used in the preparation of annual Comprehensive
Annual Financial Reports (CAFRs) (See Appendix B: Example Actuarial Valuation
Certification.) For agencies that have 200 or more employees, GASB 45 requires actuarial
valuations at least biennially, and for smaller agencies at least triennially.
9 "Statement No. 45 of the Governmental Accountine Standards Board: Accountine and Financial Reuortine by Emnlovers for
Postemnlovment Benefits Other Than Pensions." Governmental Accounting Standards Board. June 2004.
May 10, 2017 Marin County Civil Grand Jury Page 5 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
What Has Changed Since the 2012-2013 Report?
In the 2012-2013 report "Marin's Retirement Health Care Benefits: The Money Isn't There,"10
the 2012-2013 Marin County Grand Jury reviewed the OPEB funding status of 40 local
government agencies. Since one agency (Sewerage Agency of Southern Marin) responded that it
was staffed by City of Mill Valley employees, only 39 agencies were examined. This year's
Grand Jury compared the financial information published in agencies' Audits and
Comprehensive Annual Financial Reports (CAFRs) for Fiscal Year 2012 (FY 2012) and FY
2016. (For an example of locating OPEB financial data, please see Appendix C: Finding Key
OPEB Information in CAFRs or Audits.) By this comparison, the Grand Jury discovered:
OPEB Highlights
# of agencies that funded over 5% of their liability
# of agencies that funded between 1-5% of their liability
# of agencies that had not funded any of their liability
Collective 39 -agency liability (AAL)
Collectively set aside (OPEB plan assets)
Collective Unfunded Actuarial Accrued Liability (UAAL)
Collective Unfunded Actuarial Accrued Liability (UAAL)
excluding County of Marin
FY2012 I FY 2016
11
18
2
0
26
21
$630.7 Million $650.2 Million
$24.6 Million $110.2 Million
$606.1 Million $540.0 Million
$223.4 Million $245.7 Million
Because agencies have very different budgets, we chose to compare liabilities as the percentage
Unfunded Actuarial Accrued Liability (UAAL) change from Fiscal Year FY 2012 to FY 2016.
As of April 19, 2017, the City of Larkspur, the Town of Fairfax, and the Central Marin Police
Authority had not released their FY 2016 CAFRs. For those agencies, we therefore needed to use
their "older" FY 2015 financial data and applicable GASB 45 actuarial valuation data instead.
Those agencies are indicated with an asterisk [*] following their names throughout this report.
io "Marin's Retirement Health Care Benefits: The Monev Isn't There." Marin County Civil Grand Jury. 22 May 2013.
May 10, 2017 Marin County Civil Grand Jury Page 6 of 37
City of Belvedere
City of Larksl
City of Mill Valley
City of Novato
City of San Rafael
City of Sausalito
County of Marin
Town of Corte Madera
Town of Fairfax"
Town of Ross
Town of San Anselmo
Town of Tiburon
-200.00% -10000% 0.00% 100.00%
Liability Decrease Liability Increase
(Better) 1 (Worse)
% UAAL Change For School Districts (FY 2012 to FY 2016)
Marin's Retirement Health Care Benefits: The Money Still Isn't There
% UAAL Change For Local Governments (FY 2012 to FY 2016)
Dix]e Elementary
Kentfeld
Larkspur-Corle Madera
Marlin Community College
Mill Valley
Novato Unified
Reed Union
Ross School
Ross Valley
San Rafael Elam
San Rafael HS
Shoreline Unified
Tamalpais Union HIS
-200.00%v -100.00% 0.00% 100.00%
Liability Decrease Liability Increase
(Better) l (Worse)
% UAAL Change For Special Districts (FY 2012 to FY 2016)
Central Marin Police'
Central Marin Sanitation
Kentfield Fire
Las Gallinas Valley Sanitary
Mann Municipal Water
MannlSonoma Mosquito
Marinwood CSD
North Marin Water
Novato Fire Protection
Novato Sanitary
Ross Valley Fire
Ross Valley Sanitary
Southam Marin Fire
Tiburon Fire
-200.00%
-900.000/. 0.00% 100.00%
Liability Decrease Liability Increase
(Better) l (Worse)
200.00%
200.00%
By reviewing agencies' published financial documents, we were able to prove that the agencies
reduced their unfunded liability by a combination of actions:
May 10, 2017 Marin County Civil Grand Jury Page 7 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
■ Fully contributing their Annual Required Contribution (ARC) and establishing an
investment account. By keeping up-to-date with actuarial payments, future financial
obligations are kept in check.
■ Setting aside "substantial assets" for OPEB liability. Putting aside more money into a
trust account for future OPEB benefits reduces the unfunded liability.
Since FY 2012, the overall unfunded liability of $606.1 million (UAAL) was reduced to $540.0
million. However, for agencies that have increased their UAAL, we found two basic causes:
■ Underfunding the Annual Required Contribution (ARC). Agencies that opt to use
pay -go and not completely fund their ARC, compound their UAAL each year (i.e., it
grows).
■ Not Reporting Implied Rate Subsidies. As described previously, the implied rate
subsidy effectively requires public agencies to calculate an implied liability whenever
their retirees participate in group medical plans, but pay the same premiums as active
employees. Effective March 31, 2015, all actuarial valuations must include the implicit
subsidy liability."
The Liability Fear
Newspapers regularly cover the looming unfunded pension crisis across America. Where will the
money come from to pay the retirees' pension? Less commonly reported is the looming unfunded
OPEB crisis. "The logic has been that the OPEB funding problem is 25 years old, so it can wait
another year or two even though procrastinating simply makes the liabilities mushroom ...
The problem of zero -funded OPEB plans is often ignored." 12 In Marin County, for the 39
agencies we studied, the unfunded pension liability is $956.3 Million and the unfunded OPEB
liability (UAAL) is $540.0 Million.
Agencies need to look at their future budgets to decide if they will be able to pay an increasingly
larger UAAL obligation. If they can, then the unfunded liability is simply an anticipated expense.
If they cannot, then the unfunded liability is a much more urgent issue. To give some insight into
the agency's potential challenge paying off its UAAL obligation, we compared each agency's
most recent Annual Required Contribution (ARC) with its most recent total revenue. See
Appendices D (municipalities), E (school districts), and F (special districts) for details.
If an agency does not plan sufficiently for paying their OPEB liability, citizens may be asked to
make hard choices:
■ Agencies may try to find the money. Agencies may reduce services ("crowd -out"),
increase fees, attempt to raise taxes or issue bonds (with voter approval). If an agency
proposes new taxes or bonds which may be used to reduce OPEB debt, the Grand Jury
11 "Actuarial Standard of Practice No. 6." Actuarial Standards Board. May 2014.
12 Miller, Girard and Link, Jim. "`New Normal" Retirement Plan Desiens.' Government Finance Review. Aug. 2009.
May 10, 2017 Marin County Civil Grand Jury Page 8 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
believes it should fully disclose that purpose, and not use language that is "virtually
impenetrable, written by lawyers for lawyers who are also accountants." 13
■ Retiree benefits may be reduced. "However, unlike pensions, OPEBs are typically not
guaranteed or protected by state law. State and local governments have much more
latitude to scale back OPEBs and share OPEB-related costs with retirees. Many have
implemented several changes to that effect." 14
Approaching Cost Containment
Over the years, many organizations have investigated reducing OPEB liabilities through cost
containment strategies. Because of legal and political issues, these strategies may not be
appropriate for every public agency. Rather than limit agencies to specific strategies, the Grand
Jury wants to ensure that decision makers in the agencies are aware of the breadth and depth of
these options to better inform any future liability -reducing actions.
In 2006, Governor Schwarzenegger established the Public Employee Post -Employment Benefits
Commission 15 to identify the extent of unfunded OPEB liabilities and evaluate approaches for
addressing the liabilities. The 34 recommendations contained in the Commission's final report
addressed both pension and OPEB funding. While some of these recommendations are now
legally required or obsolete, the Grand Jury believes two recommendations are still warranted
today:
✓ Public agencies providing OPEB benefits should adopt prefunding as their policy.
As a policy, prefunding OPEB benefits is just as important as prefunding pensions. The
ultimate goal of a prefunding policy should be to achieve full funding.
✓ Any employer considering the use of OPEB bonds should fully understand, and
make public, the potential risks they bring. Such risks include: shifting costs to future
generations and converting a future estimated OPEB liability into fixed indebtedness.
In 2015, Smart Business Magazine highlighted cost containment strategies 16 for company
employee benefits, including:
✓ Consumer -Directed Health Plans (CDHPs). Combines a high -deductible plan with a
health savings account.
✓ Adding Voluntary Benefits. Employees can add benefits as -needed with pre-tax dollars.
✓ Self -Funding the Health Plan. Employers directly pay for health care claims, and
reduce their financial risk by purchasing stop loss insurance from an insurance carrier.
13 Herhold, Scott. "How ballot questions for bonds mislead voters." The Mercury News. 22 Aug. 2016.
14 "Effective Advocacy & Key City Issues." League of California Cities. 20 Jan. 2016.
15 "Fundine Pensions & Retiree Health Care for Public Emnlovees." Public Employee Post -Employment Benefits Commission.
Jan. 2008.
16 Pritts, Craig. `Benefit Renewals: Cost containment strategies that can control vour health care costs." Smart Business
Pittsburgh. Sep. 2015.
May 10, 2017 Marin County Civil Grand Jury Page 9 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
✓ Expanding Wellness Programs. Reportedly, 75% of health costs are preventable.
✓ Reduce Spousal Subsidies or Add Spousal Surcharges.
In 2016, the League of California Cities OPEB Task Forcer listed a number of strategies that
agencies could consider to reduce OPEB costs. The Grand Jury agrees that these strategies
should be examined:
✓ Benefit Changes for Future Employees. Reduce benefits for new hires.
✓ Benefit Changes for Existing Employees. Reduce benefits for current employees (not
retirees).
✓ Change Contributions to Fixed Amounts. Instead of paying a percentage of premiums,
agencies would pay a fixed dollar amount as premiums increase.
✓ Limit Duration of Retiree Medical Benefit. Medical benefits would only extend until
the retiree is eligible for Medicare.
✓ Close the Benefit to New Employees. Remove the benefit for new hires.
✓ Adopt or Increase Tenure Requirements. Require longer employment tenure before
being eligible for benefits.
✓ Cover Only Retirees. Currently public agencies may cover the retiree's dependents as
well.
✓ Make Agency Insurance Secondary. If the retiree has access to additional health care
(from a spouse, previous employer, or veteran's program), use that primarily.
✓ Eliminate Retiree Health Care for New Employees. As pensions have become more
generous, require retirees to pay for their own health care.
✓ Buy Down/Buy Out Benefits. Public agencies would pay a lump sum to reduce or
eliminate their health care benefit.
✓ Adjust Health Care Plans. Changing the health care plans offered can reduce both
employee and retiree health costs.
✓ League Health Benefits Marketplace (Exchange). This plan "provides cities the
flexibility lacking in other group coverage medical plan designs to decouple and
unbundle active employee and retiree costs, which is key to reducing OPEB liabilities." 18
✓ Audit Retiree Medical Benefits. Ensure benefits are both compliant and not duplicative.
✓ Enroll Retirees in Medicare Part A. To the extent that some retirees are ineligible for
full Medicare coverage and must pay for Medicare Part A, it may be more cost effective
to pay for their enrollment in Part A.
17 "Retiree Health Care: A Cost Containment How -To Guide." League of California Cities. Sep. 2016
18 "Health Benefits Marketplace." League of California Cities. Accessed Feb 2017.
May 10, 2017 Marin County Civil Grand Jury Page 10 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
✓ Utilize Federally Subsidized Prescription Plan for Medicare Retirees. As possible,
use available subsidies.
The Grand Jury recognizes that there is no one -size -fits -all acceptable solution to reduce
unfunded OPEB liabilities, and that changing benefits requires a dialogue not only with agency
staff but also union representatives. Therefore, we encourage agencies to clearly articulate the
risk that the promised retiree benefits may not be able to be funded and to work with unions and
staff to create a solution that is sustainable and fair for all parties, including the public.
Making a Dent
The Grand Jury found that some agencies have made notable reductions in their unfunded
liability (UAAL) and are implementing best practice cost containment strategies. Their efforts
are highlighted below, as reported in their financial statements and actuarial valuations. The
valuation dates shown in the charts are from the agencies' actual valuation reports.
Marin Community College District's UAAL
UAAL OPEB Plan Assets
June 30, 2012
June 30, 2016
$0 $2,000,000 $4,000,000 $6,000,000 $8,000,000
Marin Community College District ("College of Marin") decreased its UAAL by changing its
OPEB funding policy. Through FY 2012, the district operated its OPEB plan solely on a pay-as-
you-go basis ("pay -go"). However, during FY 2013, it established an irrevocable trust with the
California Employers' Retiree Benefit Trust (CERBT) to prefund its OPEB costs through
Ca1PERS, in addition to its regular pay -go costs.
June 30, 2012
June 30, 2016
County of Marin's UAAL
= UAAL OPEB Plan Assets
$0 $100,000,000 $200,000,000 $300,000,000 $400,000,000
According to the CAFRs and actuarial valuations, the County of Marin accomplished its
improvements primarily by changing its OPEB funding policy. Through FY 2012, the County
was a pay -go funder but had also contributed to a reserve intended to be used to fund its OPEB
plan. In February 2013, the County entered into an irrevocable trust agreement with the CERBT
to prefund the County's OPEB costs through Ca1PERS, in addition to the regular pay -go
contributions. The County transferred the reserve balance to the CERBT and began prefunding
its full ARC during FY 2013. From FY 2013 through FY 2016, the County contributed 103.57%
of its total ARC for that period. The most recent actuarial valuation reflects that the County also
May 10, 2017 Marin County Civil Grand Jury Page 11 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
decreased its AAL by another factor within its control. It did not increase the maximum benefit
for retirees eligible for its OPEB "Plan 3": retirees hired between October 1, 1993 and December
31, 2007 and those hired earlier who elect Plan 3.
Central Marin Sanitation Agency's UAAL
UAAL OPER Plan Assets
July 1, 2011
July 1, 2015
$0 $1,250,000 $2,500,000 $3,750,000 $5,000,000
Before FY 2012, the Central Marin Sanitation Agency (CMSA) contracted with Ca1PERS to
administer its OPEB plan and entered into an irrevocable trust agreement with the CERBT to
prefund future OPEB costs.
June 30, 2012
July 1, 2014
City of Mill Valley's UAAL
UAAL OPER Plan Assets
$0 $7,500,000 $15,000,000 $22,500,000 $30,000,000
Through FY 2014, the City of Mill Valley's CAFRs reflect that the City was funding its OPEB
on a pay -go basis, plus some amounts to its trust account to prefund future OPEB costs. The
most recent actuarial valuation noted the City's increased trust account contributions and the
City's intent to consistently make total OPEB contributions greater than or equal to ARC each
year. During 2013, Mill Valley implemented two OPEB cost-containment methods for new
employees: (1) it increased their length of service required to be eligible for OPEB from 15 years
to 20 years; and (2) it restricted any OPEB benefit to the employee only. In March 2017, the City
started public discussions to eliminate OPEB benefits for American Federation of State, County
and Municipal Employees (AFSCME) union members hired after January 1, 2017 and
establishing a Retiree Health Savings Account, which is estimated to save $3,000/year for each
employee.
May 10, 2017 Marin County Civil Grand Jury Page 12 of 37
June 30, 2012
June 30, 2015
Marin's Retirement Health Care Benefits: The Money Still Isn't There
Novato Fire Protection District's UAAL
JAAL DPEB Plan Assets
$0 $5,000,000 $10,000,000 $15,0()0,000 $20,000,000
Starting in FY 2012, the Novato Fire Protection District (NFPD) has contributed 110.49% of
its total ARC. The District implemented a cost-containment method providing that a retiree
reaching age 65 must change to Medicare, pay its premiums, and has the option to select a
Medicare supplement plan through the district. However, NFPD will only pay a maximum of
80% of the applicable Kaiser Medicare supplemental rate.
A Fund Which Would Make a Dent
The Grand Jury also found that at least three school districts in Marin County have established
substantial Special Reserve Funds for DPEB:
Mill Valley School District's UAAL
= UAAL = Reserve Fund Balance
June 30, 2016
$0 $1,000,000 $2,000,000 $3,000.000 $4,000.000 $5.000,000
San Rafael Elementary School District's UAAL
URAL Reserve Fund Balance
June 30, 2016
$0 $1,000,000 $2,000,000 $4,000,000 $5,000,000
San Rafael City High School School District's UAAL
UAAL Reserve Fund Balance
June 30, 2016 '
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000
California law authorizes these funds and many school districts throughout the state have them.
They are commonly referred to as a Fund 20, Special Reserve Fund for Postemployment
Benefits. Such Funds may be an important step in financing future benefits, and these school
districts should be commended for establishing a Fund 20. However, funds set aside for future
benefits (as opposed to pay -go costs) should be considered contributions to an OPEB plan only
"if the vehicle established is one that is capable of building assets that are separate from and
independent of the control of the employer and legally protected from its creditors. Furthermore,
the sole purpose of the assets should be to provide benefits under the plan. These conditions
May 10, 2017 Marin County Civil Grand Jury Page 13 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
generally require the establishment of a legal trust."19 The Mill Valley School District should
also be commended for establishing a trust with CERBT. Yet, if a school district deposits its
Fund 20 balance into a trust, the district will reduce (or further reduce) its UAAL.
GASB 75
Most Marin agencies began implementing Governmental Accounting Standards (GASB)
Statement 45 for their OPEB financial reporting on July 1, 2009. Beginning July 1, 2017,
agencies will switch to using GASB 75. The changes to OPEB reporting are similar to changes
in the GASB reporting of net pension liability (GASB 67 and 68). It states, "Employers that
participate in a defined benefit pension plan administered as a trust or equivalent arrangement are
required to record the net pension liability, pension expense, and deferred outflows/deferred
inflows of resources related to pensions in their financial statements as part of their financial
position. ,20 These changes have increased financial scrutiny, and triggered public agencies
across the United States to make changes to their pension funding strategies.21 The primary
objective of GASB 75 is to improve governmental accounting and financial reporting for OPEB,
by improving the consistency, comparability and transparency of the information reported.22 The
new reporting standards will cause actuaries to change how they prepare their OPEB valuations
and cause agencies to change their financial reporting. (See Appendix G: GASB 45 vs. 75
Overview for more details.) Three important changes are GASB 75's requirements for biennial
actuarial valuations, balance sheet liability reporting, and single blended discount rate.
Biennial Actuarial Valuations. GASB 75 requires all agencies to obtain OPEB actuarial
valuations biennially. In contrast, GASB 45 allowed agencies having fewer than 200 OPEB plan
members to obtain such valuations triennially. This change affects several Marin agencies.
Balance Sheet Liability Reporting. GASB 75 requires agencies to report their Net OPEB
Liability (NOL) for agencies with an OPEB trust, or Total OPEB Liability (TOL) for agencies
that do not have an OPEB trust, upfront on the face of their balance sheets. NOL and TOL are
the equivalent of UAAL and AAL under GASB 45 with some technical differences. GASB 75
also requires disclosure of how and why OPEB liability changed from year to year.
Single Blended Discount Rate. The discount rate is the rate used to discount future benefit
payments (i.e. actuarial accrued liability) to a present value. A lower rate increases that liability,
and a higher rate decreases that liability. Both GASB 45 and GASB 75 permit having higher
long-term discount rates with full pref ending over the amortization period and plan assets exist.
" "City of Mill Valley, Actuarial Valuation of Other Post -Employment Benefit Proerams As of July 1, 2014" Bickmore. Aug.
2015
20 "Notes to the Aeent Multiple-Emnlover Defined Benefit Pension Plan GASB 68 Accounting Valuation Reports." California
Public Employees Retirement System. 30 Jun. 2016.
21 Farmer, Liz and Maciag, Mike. "Whv Some Public Pensions Could Soon Look Much Worse." Governing. 17 Mar. 2015.
22 "Summary of Statement No. 75: Accountine and Financial Reportine for Postemnlovment Benefits Other Than Pensions."
Governmental Accounting Standards Board. June 2015.
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Marin's Retirement Health Care Benefits: The Money Still Isn't There
However, GASB 75 requires a single blended discount rate if the plan has some assets, but is
projected to be insufficient to make benefit payments at some future point. The single rate
combines the long-term rate when assets are projected to cover the payments and a municipal
bond (lower) rate when assets are projected to be insufficient.
The Grand Jury also notes that actuaries determined an Annual Required Contribution (ARC)
under GASB 45, while GASB 75 uses the term Actuarially Determined Contribution (ADC).
However, both terms have a similar meaning. The ARC represents a target contribution required
to ensure there are sufficient savings to finance and cover the promised OPEB .23 GASB 75
similarly defines the ADC as also representing a target contribution to an OPEB plan,
determined in conformity with Actuarial Standards of Practice (ASOP). ASOP No. 6, adopted in
2014, defines the ADC as a potential payment to prefund an OPEB plan, using a contribution
allocation procedure that may include an amortization method .24 The ARC method may be used
for the ADC.25
The Grand Jury believes that GASB 75 will cause a local public agency's financial situation to
look much worse. The agency "should expect a larger total OPEB liability because the single
blended rate calculated under [GASB] 75 is likely to be lower than the discount rate under
existing standards."26 "The recognition of the Net OPEB Liability in the employer's financial
statements will likely be a significant increase in the amount of liability that was reported under
prior GASB standards."27 This change will likely increase scrutiny of the agencies' balance sheet
OPEB obligations, and force agencies to focus on addressing these liabilities. For example, the
previous section ("Making a Dent") shows that agencies following full prefunding policies with
plan assets achieve the goal of reducing their unfunded OPEB liabilities. Under GASB 75, an
agency can reach that goal with a prefunding policy and practice supporting a projection that
plan assets will be sufficient to make all projected benefit payments.
"It's Hard to Wrap Your Head Around This!"
— Marin County Elected Official
"One of the most important responsibilities a local elected official has is oversight of the
agency's spending. ,28 However, understanding the ins -and -outs of financial and actuarial
standards imposed on public agencies is not easy, as evidenced by the (above) official's
exclamation. Even if an elected official has business financial expertise, the standards that guide
public agencies differ significantly. If an elected official has trouble understanding these
23 "Guide to Implementation of GASB Statements 43 and 45 on Other Postemployment Benefits." Governmental Accounting
Standards Board. 2005.
24 "Actuarial Standard of Practice No. 6." Actuarial Standards Board. May 2014.
25 "GASB Approves New OPEB Employer Accounting Standard (No. 75)." Bartel Associates. July 2015.
26 McAllister, Brian and Spinellli, Connie and Belger, Diane. "Getting familiar with OPEB." Journal of Accountancy. 1 Aug.
2016.
27 "GASB Issues Two Other PostemDlovment Benefit (OPEB) Related Exposure Drafts." Milliman. Aug. 2014.
28 "Budgeting and Finance." Institute for Local Government. Accessed Feb. 2017.
May 10, 2017 Marin County Civil Grand Jury Page 15 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
concepts, how can the average citizen hope to understand the annual Comprehensive Annual
Financial Reports (CAFRs), budgets, or Audits?
"Relatively few educational opportunities are provided to help trustees and policy makers
understand how liabilities are calculated, in the role and sensitivity of actuarial assumptions, the
impact that amortization periods and actuarial smoothing have on the retirement plan's short-
term and long-term contribution rates, and of the full meaning of a plan's funded status."29
Therefore, the Grand Jury recommends that public agencies improve both their financial literacy
and transparency:
■ Elected officials should take (and invite the public to attend) a financial literacy class
such as one offered by: League of California Cities,3o,31 UC Davis '32 ICMA University,33
Government Finance Officers Association, 34 or the California State Association of
Counties. 35
■ Financial documents issued by public agencies should be made easier to understand by
the average resident.
■ Public financial presentations both by and to public agencies should be easier to
understand.
For example, the Government Finance Officers Association has established best practices for
budget documents, 36 and annually recognizes agencies with "Distinguished Presentation
Awards." Governing Magazine's "Guide to Financial Literacy: Connecting Money, Policy and
Priorities,"37 explains not only the terminology and purpose of various financial documents, it
also offers essential questions that leaders should know to ask. Additional examples of classes
and presentations can also be found in Appendix H (Example Financial Literacy Classes and
Presentations).
29 Kehler, David. "Public Pension Plan Financing: The Devil's in the Actuarial Details." Society of Actuaries. 2010.
30 "New Mavors & Council Members Academv." League of California Cities. Accessed Mar. 2017.
31 "Municipal Finance Institute." League of California Cities. Accessed Mar. 2017.
32 Brinkley, Dr. Catherine. "Community Governance." UC Davis. Spring 2016.
33 "Local Government 101 Online Certificate Program." ICMA University.
34 "Government Finance Officers Association Training." Government Finance Officers Association.
35 "California State Association of Counties Upcoming Courses." California State Association of Counties.
36 "Making the Budget Document Easier to Understand." Government Finance Officers Association. Feb 2014.
37 Marlowe, Justin. "Guide to Financial Literacv: Connecting Monev. Policv and Priorities." Governing. 2014.
May 10, 2017 Marin County Civil Grand Jury Page 16 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
We Are Not Alone
Marin County's public agencies are not unique in facing the challenges of OPEB liabilities.
"Total unfunded state other postemployment (OPEB) liabilities have increased, according to
S&P Global Ratings' latest survey of U.S. states. For states that have completed new OPEB
actuarial studies since our last survey (which used 2013 or prior studies), total liabilities
increased $59.4 billion, or 12% over a span of two years."38
In January 2016, California Controller Betty Yee "pegged the state's unfunded liability for other
post -employment benefits (OPEB) at $74.1 billion. That's how much it will cost to allow
workers to stay on their health plans after they retire until they're eligible for Medicare, subsidize
their premiums, and then provide them with supplemental benefits after Medicare kicks in. The
benefit's value can exceed $16,000 in the case of married couples and $20,000 in the case of
retirees with children."39
The City of San Luis Obispo (California) reduced their 2009 estimated $5.9 million OPEB
liability to $4.2 million by changing their amortization period and changing from pay -go to
prefunding their Annual Required Contribution (ARC). In January 2010, the City of Beverly
Hills (California) eliminated OPEB liabilities for new non -safety hires by shifting from a defined
benefit health plan to a defined contribution retiree health plan .40 South Lake Tahoe (California)
collaborated with its stakeholders to reduce OPEB liability by 73 percent by creating a new
insurance plan. 41
Sharing Our Data
Despite the fact that agencies' OPEB financial documents are publicly available, the Grand Jury
spent an enormous effort to gather the documents (not all of the documents were available
online, nor text -searchable), extract the data, and analyze it. With the rise of the Open Data
Movement (examples include: Data.gov, the Data Foundation, OpenGov, Marin County's Open
Data Portal, and the City of Sausalito's Budget Transparency Tool), we wanted other
organizations — including future Grand Juries — to be able to leverage our public data. Therefore,
we have created a data portal consisting of all the Comprehensive Annual Financial Reports
(CAFRs) and Audits for the 39 agencies we researched for FY 2011— FY 2016 along with a
spreadsheet containing validated data extracted from those and other financial reports (including
Annual Required Contributions (ARCs), discount rates, amortization periods, and the change of
assets, liabilities, and unfunded liability). This information is available online, for free access
here: htti)s://2oo.al/fSaOfX.
38 Spain, Carol. "Rising U.S. State Post -Employment Benefit Liabilities Signal An Unsustainable Trend." Standard and Poors. 7
Sep. 2016.
39 Eide, Stephen and Disalvo, Daniel. "Phase out costiv perks for retired state workers." San Diego Union Tribune. 1 Apr 2016.
ao "Retiree Health Care: A Cost Containment How -To Guide." League of California Cities. Sep. 2016
ai Kerry, Nancy. "Reducing Unfunded Liabilities for Other Post-Emnlovment Benefits." Western City. May 2015.
May 10, 2017 Marin County Civil Grand Jury Page 17 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
CONCLUSION
Other Postemployment Benefits (OPEB) are just one of many financial obligations that public
agencies face. Since the amount of the Annual Required Contribution (ARC) is a relatively small
percentage for many agencies' annual total revenue, it is easy for them to not be too concerned
(especially when faced by a much larger underfunded pension benefit). However, unlike
pensions, agencies have more opportunities to reduce their OPEB obligations. The Grand Jury
sees the delicate balance that agencies are facing: attracting new employees, negotiating with
existing employees and retirees, and responsibly managing expenses in the public's interest.
While some Marin agencies continue to reduce their unfunded OPEB liability, we are concerned
that many agencies still have not yet done so. We hope that this report will give the agencies the
additional reminders and tools to address this looming financial burden before more drastic
measures need to be taken.
FINDINGS
Fl. Many of the municipalities have decreased their UAAL obligation since FY 2012.
F2. Some of the schools that have increased their UAAL obligation (since FY 2012) are
setting aside OPEB contributions into reserve funds (rather than irrevocable trust funds).
F3. Many of the special districts have increased their UAAL obligation since FY 2012.
F4. Some of the agencies that stated they comply with their actuarial funding guidelines, are
not in compliance as shown in their CAFRs.
F5. GASB 45 has increased the agency's reporting transparency, but the information in these
financial reports is difficult for the average person to understand.
F6. GASB 45 permits an agency with a full ARC funding policy in its GASB 45 valuation to
increase its discount rate, thereby decreasing its OPEB liability and ARC payments.
F7. Upcoming GASB 75 reporting will further improve an agency's OPEB reporting
transparency.
RECOMMENDATIONS
RL Each agency should adopt a formal, written policy for contributions to its OPEB plan.
R2. Each agency's standard practice should be to consistently satisfy its formal, written
OPEB contribution policy.
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Marin's Retirement Health Care Benefits: The Money Still Isn't There
R3. Each agency's OPEB contribution policy and practice should support a projection under
GASB 75 that its OPEB plan assets will be sufficient to make all projected OPEB benefit
payments.
R4. Each agency that uses special reserve funds for Postemployment Benefits should
transition to a trust meeting the criteria of GASB 75.
R5. Each term of service, elected or appointed officials of each agency should take a public
agency financial class.
R6. Each agency should make its CAFRs, Audits, and GASB valuations more readily
understandable by the general public.
R7. Each agency should ensure that all of its public financial presentations are more readily
understandable and scheduled during hours convenient for the public.
R8. Each agency should have the following downloadable and text -searchable documents
readily accessible on their website: the last five years of CAFRs/Audits and the last three
actuarial reports.
R9. Before the next round of bargaining begins, each agency should prioritize the cost
containment strategies to be used, including reducing or eliminating OPEB benefits for
future employees.
REQUEST FOR RESPONSES
Pursuant to Penal code section 933.05, the grand jury requests responses as follows:
From the following governing bodies:
Municipalities
■ City of Belvedere (RI -R9)
■ City of Larkspur (R1 -R9)
■ City of Mill Valley (R1 -R9)
■ City of Novato (R1 -R9)
■ City of San Rafael (R1 -R9)
■ City of Sausalito (R1 -R9)
■ County of Marin (R1 -R9)
■ Town of Corte Madera (R1 -R9)
■ Town of Fairfax (R1 -R9)
■ Town of Ross (R1 -R9)
■ Town of San Anselmo (R1 -R9)
■ Town of Tiburon (R1 -R9)
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Marin's Retirement Health Care Benefits: The Money Still Isn't There
School Districts
■ Dixie Elementary School District (R 1-R9)
■ Kentfield School District (R1 -R9)
■ Larkspur -Corte Madera School District (R1 -R9)
■ Marin Community College District (R1 -R9)
■ Mill Valley School District (R1 -R9)
■ Novato Unified School District (R1 -R9)
■ Reed Union School District (R1 -R9)
■ Ross School District (R1 -R9)
■ Ross Valley School District (R1 -R9)
■ San Rafael City Schools (R1 -R9)
■ Shoreline Unified School District (R1 -R9)
■ Tamalpais Union High School District (R1 -R9)
Special Districts
■ Central Marin Police Authority (R1 -R9)
■ Central Marin Sanitation Agency (R1 -R9)
■ Kentfield Fire Protection District (R1 -R9)
■ Las Gallinas Valley Sanitary District (R1 -R9)
■ Marin Municipal Water District (R1 -R9)
■ Marin/Sonoma Mosquito & Vector Control District (R1 -R9)
■ Marinwood Community Services District (R1 -R9)
■ North Marin Water District (R1 -R9)
■ Novato Fire Protection District (R1 -R9)
■ Novato Sanitary District (R1 -R9)
■ Ross Valley Fire Department (R1 -R9)
■ Ross Valley Sanitary District (R1 -R9)
■ Southern Marin Fire Protection District (R1 -R9)
■ Tiburon Fire Protection District (R1 -R9)
The governing bodies indicated above should be aware that the comment or response of the
governing body must be conducted in accordance with Penal Code section 933 (c) and subject to
the notice, agenda and open meeting requirements of the Brown Act.
Note: At the time this report was prepared information was available at the websites listed.
Reports issued by the Civil Grand Jury do not identify individuals interviewed. Penal Code Section 929 requires that reports of
the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to
the Civil Grand Jury. The California State Legislature has stated that it intends the provisions of Penal Code Section 929
prohibiting disclosure of witness identities to encourage full candor in testimony in Grand Jury investigations by protecting the
privacy and confidentiality of those who participate in any Civil Grand Jury investigation.
May 10, 2017 Marin County Civil Grand Jury Page 20 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
GLOSSARY
Actuary: A professional dealing with the assessment and management of risk for financial
investments, insurance policies, and any other ventures involving a measure of uncertainty. 42
Actuarial Accrued Liability (AAL): The portion of the actuarial present value benefits
allocated to prior years of employment—and thus not provided for by future normal costs.43
Actuarially Determined Contribution (ADC): "A target or recommended contribution to a
defined benefit OPEB plan for the reporting period, determined in conformity with Actuarial
Standards of Practice based on the most recent measurement available when the contribution for
the reporting period was adopted. 44
Annual Required Contribution (ARC): The ARC is the employer's periodic required
contribution to a defined benefit OPEB plan. The ARC is the sum of two parts: (1) the normal
cost, which is the cost for OPEB benefits attributable to the current year of service, and (2) an
amortization payment, which is a catch-up payment for past service costs to fund the Unfunded
Actuarial Accrued Liability (UAAL) over the next 30 years. 45 Despite the name "Annual
Required Contribution," the contribution is not legally required.
California Employers' Retiree Benefit Trust (CERBT): This trust fund is dedicated to
prefunding Other Post Employment Benefits (OPEB) for all eligible California public agencies.
Even those not contracted with Ca1PERS health benefits can prefund future retiree benefits such
as health, vision, dental, and life insurance.46
California Public Employees' Retirement System (Ca1PERS): An agency in the California
executive branch that serves more than 1.7 million members in its retirement system and
administers benefits for nearly 1.4 million members and their families in its health program. 47
Discount Rate: A percentage rate required to calculate the present value of a future cash flow. 48
Governmental Accounting Standards Board (GASB): "The independent organization that
establishes and improves standards of accounting and financial reporting for U.S. state and local
governments. Established in 1984 by agreement of the Financial Accounting Foundation (FAF)
and 10 national associations of state and local government officials, the GASB is recognized by
governments, the accounting industry, and the capital markets as the official source of generally
accepted accounting principles (GAAP) for state and local governments."49
42 "Definition of'Actuarv'." Investopedia.
43 "Other Postemulovment Benefits: A Plain-Laneua¢e Summary of GASB Statements No. 43 and No. 45." Governmental
Accounting Standards Board.
44 "Statement No. 75 of the Governmental Accountine Standards Board." Governmental Accounting Standards Board. No. 350.
June 2015.
45 "GASBheln." Governmental Accounting Standards Board.
46 "California Emulovers' Retiree Benefit Trust (CERBT) Fund." CaIPERS. Accessed March 2017.
47 "CalPERS Storv." CaIPERS. Accessed March 2017.
48 "Fixed Income Bond Terms." Corporate Finance Institute.
41 "FACTS about GASB." Governmental Accounting Standards Board. 2012-2014.
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Marin's Retirement Health Care Benefits: The Money Still Isn't There
Implied Rate Subsidy: The implicit rate is an inherent subsidy of retiree health care costs by
active employee health care costs when health care premiums paid by retirees and actives are the
same. 50
Net OPEB liability: Introduced in GASB 75, the liability of employers and nonemployer
contributing entities to employees for benefits provided through a defined benefit OPEB plan
that is administered through a trust .51 GASB 45 uses Unfunded Actuarial Accrued Liability
(UAAL) to connote a similar liability.
Other Postemployment Benefits (OPEB): Benefits (other than pensions) that U.S. state and
local governments provide to their retired employees. These benefits principally involve health
care benefits, but also may include life insurance, disability, legal and other services.52
Pay -As -You -Go Funding (Pay -go): With pay-as-you-go funding, plan contributions are made
as benefit payments become due and funds necessary for future liability are not accumulated.
That is, contributions made are for current retirees only, causing the majority of retiree health
benefits liability to be considered unfunded .51
Public Employees' Retirement System (PERS): The retirement and disability fund for public
employees in California.
Unfunded Actuarial Accrued Liability (UAAL): The excess of the Actuarial Accrued Liability
(AAL) over the actuarial value of assets. 54
50 "Glossary: Implied Rate Subsidy." Milliman.
51 "Summary of Statement No. 75: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions."
Governmental Accounting Standards Board. June 2015.
52 "Other Postemplovment Benefits (OPEB)." Governmental Accounting Standards Board.
53 "Glossary: Pav-as-you-go funding." Milliman.
54 "Other Postemplovment Benefits: A Plain -Language Summary of GASB Statements No. 43 and No. 45." Governmental
Accounting Standards Board.
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APPENDIX A: OPEB Questionnaire to Public Agencies
OPEB Ouestionnaire
Definitions
A. Other Post Em»lovment Benefits OPER): Benefits (other than pensions) that U.S. state
and local governments provide to their retired employees. These benefits principally involve
health care benefits, but also may include life insurance, disability, legal and other services.
B. Actuarial Accrued Liabilitv (AAL): Excess of the present value of a OPEB fund's total
of future benefits (payable to the OPEB beneficiaries) and fund administration expenses over the
present value of the future normal cost of those benefits.
C. Actuarial Value of Assets (AVA): The value of OPEB investments and other property
used by the actuary for the purpose of an actuarial valuation (sometimes referred to as valuation
assets). Actuaries often select an asset valuation method that smoothes the effects of short-term
volatility in the market value of assets.
D. Unfunded Actuarial Accrued Liabilitv (UAAL): The UAAL is the Actuarial Accrued
Liability (AAL) minus the value of any assets (AVA) that have been irrevocably set aside to
fund future benefits.
E. Annual Required Contribution (ARC): The annual required contribution, or ARC, refers
to the amount needed to be contributed by employers to adequately fund an OPEB plan. The
ARC is the sum of two factors: a) the cost of OPEB benefits being accrued in the current year
(known as the normal cost), plus b) the cost to amortize, or pay off, the OPEB plan's unfunded
liability. The ARC is the required employer contribution after accounting for other revenue,
chiefly expected investment earnings and contributions from employee participants.
F. Discount Rate: The interest rate used to bring future cash flows to the present to account
for the time value of money
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APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
Auencv Identification
1. Name of Responding Agency.
Separate Investment Accounts
Please respond to this set of questions with regard to the existence of a separate investment
account into which you may deposit each year's funds for amortizing your retiree health care
benefits' URAL?
2. Do you have such a separate investment account?
3. If you have a separate investment account, when did you set up that account?
4. If you do have such a separate investment account, what, is its current value?
5. If you do have a separate investment account, what is the value of your deposits into that
account for each of the fiscal years 2011-2012 to the present?
(1) Fiscal Year 2011-2012
(2) Fiscal Year 2012-2013
(3) Fiscal Year 2013-2014
(4) Fiscal Year 2014-2015
(5) Fiscal Year 2015-2016
6. If you have any other accounts to fund retiree health care benefits, please identify the nature,
purpose and current value of those account(s).
7. If you do not have an investment account to fund retiree healthcare benefits why not?
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APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
Annual Required Contribution ("ARC")
8. What is your ARC for each of the fiscal years 2011-2012 to the present?
(1)
Fiscal Year 2011-2012
(2)
Fiscal Year 2012-2013
(3)
Fiscal Year 2013-2014
(4)
Fiscal Year 2014-2015
(5)
Fiscal Year 2015-2016
9. Have you committed to fully fund each year's ARC?
10. If you have you committed to fully fund each year's ARC, when did you make that
commitment?
11. If you have you committed to fully fund each year's ARC in what amount did you fund each
year's ARC for fiscal years 2011-2012 to the present?
(1) Fiscal Year 2011-2012
(2) Fiscal Year 2012-2013
(3) Fiscal Year 2013-2014
(4) Fiscal Year 2014-2015
(5) Fiscal Year 2015-2016
12. If you have you not committed to fully fund each year's ARC, in what amount did you fund
each year's ARC for fiscal years 2011-2012 to the present?
(1) Fiscal Year 2011-2012
(2) Fiscal Year 2012-2013
(3) Fiscal Year 2013-2014
(4) Fiscal Year 2014-2015
(5) Fiscal Year 2015-2016
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APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
13. What discount rate(s) have you used to calculate your ARC for each year for fiscal years
2011-2012 to the present?
(1)
Fiscal Year 2011-2012
(2)
Fiscal Year 2012-2013
(3)
Fiscal Year 2013-2014
(4)
Fiscal Year 2014-2015
(5)
Fiscal Year 2015-2016
14. Please explain how you arrived at such discount rate(s) for fiscal years 2011-2012 to the
present.
15. Please specify the amortization period which you have used for each year fiscal year from
2011-2012 to the present to calculate your ARC and to fund your retiree health care benefits
UAAL.
(1)
Fiscal Year 2011-2012
(2)
Fiscal Year 2012-2013
(3)
Fiscal Year 2013-2014
(4)
Fiscal Year 2014-2015
(5)
Fiscal Year 2015-2016
Negotiations to Reduce OPEB Obligations
16. If from fiscal years 2011-2012 to the present you have negotiated any caps with any
employee group(s) or negotiating group(s) on the amounts you commit to pay existing or
new employees for retiree health care benefits, please specify the following for each
negotiating group:
(1) The employee group(s) or negotiating group(s):
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APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
(2) The nature of the cap:
(3) The date such cap was negotiated:
(4) Whether applicable to both new and existing employees:
(5) if there is no negotiated cap, what is your cap?
17. If from fiscal years 2011-2012 to the present you have negotiated with any employee group
or negotiating group a higher retirement age on the amounts you commit to pay existing or
new employees for retiree health care benefits, please specify the following for each
employee group(s) and negotiating group(s):
(1) The employee group(s) or negotiating group(s):
(2) The change in retirement age:
(3) The date such higher retirement age was negotiated:
(4) Whether the higher retirement age is applicable to both new and existing
employees:
1$. If from fiscal years 2011 -2012 to the present you have negotiated with any employee
group(s) or negotiating group(s) to require active employees to contribute towards the cost of
their retiree health care benefits, please specify the following for each employee group(s) and
negotiating group(s):
(1) The employee group(s) or negotiating group(s):
(2) The nature of employee contribution:
(3) Whether you increased the employee's compensation to satisfy part of this
contribution:
(4) The date such increased contribution went into effect:
May 10, 2017 Marin County Civil Grand Jury Page 27 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
(5) Whether applicable to both new and existing employees:
(b) The amount of the employee contribution:
19. Please explain the nature of reduction in OPEB benefits, if any, when a recipient becomes
eligible for Medicare.
20. What OPEB benefits (by type and agency funding amount) do you offer to your employees.
If the benefits differ between employee group or negotiating groups or based on date of hire,
please explain.
Your Website
21. Is there a link on your website to provide the latest following information?
(1) actuarial valuation of your AAL,
(2) your UAAL,
(3) its consequent percent funded,
(4) the Discount Rate (annual percentage) used to determine these values, and
(5) a projection of outlays ("Pay -Go") for retiree health care benefits for each of the
current and subsequent 10 years?
(Collectively "Website Link")
22, If you maintain a Website Link, when was this information first put on your website?
23. With regard to the Website Link information, to the extent such information is not on your
website, why not?
May 10, 2017 Marin County Civil Grand Jury Page 28 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX A: OPEB Questionnaire to Public Agencies (cont'd)
24. Please provide us the URL for the website page(s) that display this Website Link
information.
Financial Reporting
25. Please provide the audited Comprehensive Annual Financial Report (CAFR) for fiscal year
2012 (2011-2012) in one of the following formats:
(1) a hyperlink to a publicly available web site containing the appropriate PDF
document (preferred):
(2) a digital copy of the appropriate PDF file, or
(3) a printed document.
May 10, 2017 Marin County Civil Grand Jury Page 29 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX B: Example Actuarial Valuation Certification
ACTUARIAL VALUATION CERTIFICATION
This report presents the City of Novato's Retiree Healthcare Plan ("Plan") January 1, 2014 actuarial valuation. The purpose of
this valuation is to:
■ Determine the Governmental Accounting Standards Board Statement Nos. 43 and 45 January 1, 2014 Benefit Obligations,
■ Determine the Plan's January 1, 2014 Funded Status, and
■ Calculate the 2014/15 and 2015/16 Annual Required Contributions.
The report provides information intended for reporting under GASB 43 and 45, but may not be appropriate for other purposes.
Information provided in this report may be useful to the City for the Plan's financial management. Future valuations may differ
significantly if the Plan's experience differs from our assumptions or if there are changes in Plan design, actuarial methods, or
actuarial assumptions. The project scope did not include an analysis of this potential variation.
The valuation is based on Plan provisions, participant data, and asset information provided by the City as summarized in this
report, which we relied on and did not audit. We reviewed the participant data for reasonableness.
To the best of our knowledge, this report is complete and accurate and has been conducted using generally accepted actuarial
principles and practices. Additionally, in our opinion, actuarial methods and assumptions comply with GASB 43 and 45. As
members of the American Academy of Actuaries meeting the Academy Qualification Standards, we certify the actuarial results
and opinions herein.
Respectfully submitted,
John E. Bartel, ASA, MAAA, FCA
President
Bartel Associates, LLC
October 28, 2014
Bianca Lin, FSA, MAAA, EA
Assistant Vice President
Bartel Associates, LLC
October 28, 2014
Source: "City of Novato Retiree Healthcare Plan." City of Novato, California. January 1, 2014.
May 10, 2017 Marin County Civil Grand Jury Page 30 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX C: Finding Key OPEB Information in CAFRs or Audits
Where can people find important OPEB-related information in an agency's financial reports?
Example from a Municipality's Comprehensive Annual Financial Report (CAFR) (note: no
prefunding contributions made):
NOTE 10 - Postemployment Benefits Other Than Pensions
Development of 2015 12016 Fiscal Year
Annual OPEB Cost - Based on a 4.410% discount rate
4AAL Actuarial Accrued Liability $ 3,629,754
Actuarial Value of Assets -
Unfunded Actuarial Accrued Liability $ 3,629,754
Amortization Period 23 years
Annual % of Payroll Amortization of Unfunded AAL $
Normal Cost (based on the Entry Age Normal Method)
ARC Annual Required Contribution
Interest on Net OPEB Obligation
Adjustment to ARC
Annual OPEB Cost
Pay-as-you-go Cost
Increase in net OPEB Obligation
Net OPEB Obligation - beginning of year
Net OPER Obligation - end of year
$
119,323
177,525
296,848
73,576
(89,962)
280,462
(105,580)
174,882
1,839,397
2, 014,279
Example from a Municipality's Comprehensive Annual Financial Report (CAFR):
Required Supplementary Information
Schedule of Funding Progress (unaudited)
Other Postemployment Benefits Plan
As of June 30, 2016
The Schedule of Funding Progress presents trend information about whether the actuarial value of plan assets is
increasing or decreasing over time relative to the actuarial accrued liability for benefits. Trend information from the
actuarial studies is presented below:
May 10, 2017 Marin County Civil Grand Jury Page 31 of 37
Actuarial
UAAL
Accrued
Actuarial
Unfunded
as a % of
Actuarial
Liability
Value of
AAL
Funded
Covered
Covered
Valuation
(AAL)
Assets
(UAAL)
Ratio
Payroll
Payroll [(a -
Date
(a)
(b)
(a -b)
(b/a)
(c)
b)/c]
July 1, 2008
$ 1,747,300
$ -
$ 1,747,300
0%
$ 3,725,600
46.9%
July 1, 2011
$ 1,941,900
$ -
$ 1,941,900
0%
$ 4,068,100
47.7%
July 1, 2014
$ 1,628,827
$ -
$ 1,628,827
0%
$ 1,999,530
81.5%
May 10, 2017 Marin County Civil Grand Jury Page 31 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX C: Finding Key OPEB Information in CAFRs or Audits (cont'd)
Example from School District's Audit:
W
Annual required contribution (ARC)
$ 24,585
Interest on net OPEB obligation
(499)
Adjustment to ARC
1,537
Contribution
Annual OPEB cost
Contributions made:
25,623
Contributions from governmental funds
(19,944)
Decrease in net DPEB (asset]
5,679
Net OPEB Obligation (asset) - July 1, 2015
(12,465)
Net OPEB Obligation (asset) -June 30, 2016
$ (6,786)
Funded Status and Funding Progress - OPEB Plans
As of July 1, 2014, the most recent actuarial valuation date, the District did not have a funded plan. The
actuarial liability (AAL) for benefits was $189,127 and the unfunded actuarial accrued liability (UAAL)
was $189,127.
May 10, 2017 Marin County Civil Grand Jury Page 32 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX D: Marin Municipalities' ARC as a Percentage of Total Revenue
The amount of an agency's annual required contribution (ARC) can be compared to its total revenue. A higher
percentage may signal future budgetary challenges if not properly managed.
City of Belvedere
City of Larkspur*
City of Mill Valley
City of Novato
City of San Rafael
City of Sausalito
County of Marin
Town of Corte Madera
Town of Fairfax'
Town of Ross
Town of San Anselmo
Town of Tiburon
0.0%
Municipalities: FY 2016 ARC as Percentage of Total Revenue
Lower% 1
2.5% 5.0°%
10.0%
]= Higher %
May 10, 2017 Marin County Civil Grand Jury Page 33 of 37
UAAL
UAAL
UAAL
ARC
Total
Municipality
Revenue
FY 2012
FY 2016
Change
FY 2016
FY 2016
City of Belvedere
$374,116
$1,036,193
662,077
$118,105
$7,855,000
City of Larkspur*
$7,493,551
$13,698,307
6,204,756
$1,165,424
$21,009,094
City of Mill Valley
$24,481,979
$20,156,488
(4,325,491)
$2,157,955
$39,916,000
City of Novato
$2,786,000
$3,673,318
887,318
$262,000
$47,954,000
City of San Rafael
$24,295,000
$32,727,000
8,432,000
$2,148,000
$100,490,000
City of Sausalito
$6,646,550
$5,730,670
(915,880)
$428,391
$26,588,325
County of Marin
$382,720,000
$294,375,000
(88,345,000)
$21,937,000
$611,801,000
Town of Corte Madera
$11,790,000
$9,704,000
(2,086,000)
$1,855,000
$23,593,928
Town of Fairfax*
$1,024,300
$835,400
(188,900)
$116,600
$9,212,366
Town of Ross
$417,000
$383,000
(34,000)
$36,000
$9,264,385
Town of San Anselmo
$1,941,900
$1,628,827
(313,073)
$147,364
$19,216,454
Town of Tiburon
$2,900,736
$3,629,754
729,018
$296,848
$11,341,758
City of Belvedere
City of Larkspur*
City of Mill Valley
City of Novato
City of San Rafael
City of Sausalito
County of Marin
Town of Corte Madera
Town of Fairfax'
Town of Ross
Town of San Anselmo
Town of Tiburon
0.0%
Municipalities: FY 2016 ARC as Percentage of Total Revenue
Lower% 1
2.5% 5.0°%
10.0%
]= Higher %
May 10, 2017 Marin County Civil Grand Jury Page 33 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX E: Marin School Districts' ARC as a Percentage of Total Revenue
The amount of an agency's annual required contribution (ARC) can be compared to its total revenue. A higher
percentage may signal future budgetary challenges if not properly managed.
School District
UAAL
FY 2012
UAAL
FY 2016
UAAL
Change
ARC
FY 2016
Total
Revenue
FY 2016
Dixie Elementary
$1,057,000
$1,128,416
71,416
$114,463
$25,361,193
Kentfield
$1,432,000
$1,340,399
(91,601)
$199,312
$19,712,081
Larkspur -Corte Madera
$207,671
$189,127
(18,544)
$24,585
$21,966,152
Marin Community College
$6,604,85
$877,366
(5,727,491)
$261,064
$67,403,849
Mill Valley
$2,159,158
$4,662,117
2,502,959
$945,212
$50,815,837
Novato Unified
$823,300
$1,503,161
679,861
$175,235
$94,185,666
Reed Union
$2,730,727
$5,867,732
3,137,005
$855,510
$25,711,228
Ross School
$2,085,000
$3,086,992
1,001,992
$338,061
$8,748,369
Ross Valley
$1,838,000
$1,561,792
(276,208)
$98,513
$29,323,920
San Rafael Elem
$5,462,058
$6,200,000
737,942
$880,377
$62,306,271
San Rafael HS
$4,943,154
$5,400,000
456,846
$726,362
$37,919,147
Shoreline Unified
$1,798,111
$2,013,470
215,359
$286,133
$14,823,677
Tamalpais Union HS
$3,892,000
$3,053,537
(838,463)
$505,711
$92,371,238
School Districts: FY 2016 ARC as Percentage of Total Revenue
❑ixie Elementary
Kentheld
Larkspur -Corte Madera
Marin Community College
Mill Valley
Novato Untied
Reed Union
Ross School
Ross Valley
San Rafael Elem
San Rafael HS
Shoreline Unified
Tamalpais Union HS
0.0%
2.5% 5.0% 7.5% 10.0%
Lower % 1 Y Higher/.
May 10, 2017 Marin County Civil Grand Jury Page 34 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX F: Special Districts' ARC as a Percentage of Total Revenue
The amount of an agency's annual required contribution (ARC) can be compared to its total revenue. A higher
percentage may signal future budgetary challenges if not properly managed.
Special Districts: FY 2016 ARC as Percentage of Total Revenue
Central Marin Police
Central Marin Sanitation
Kentfeld Fire
Las Gallinas Valley Sanitary
Marin Municipal Water
MarinlSonoma Mosquito
Marinwood CSD
Nol Marin Water
Novato Fire Protection
Novato Sanitary
Ross Valley Fire
Ross Valley Sanitary
Southern Marin Fire
Tiburon Fire
0.0%
Lower%a [
5.0%
10.0%
15.0%
l: Higher%
20.0%
May 10, 2017 Marin County Civil Grand Jury Page 35 of 37
UAAL
UAAL
UAAL
ARC
Total
Special District
Revenue
FY 2012
FY 2016
Change
FY 2016
FY 2016
Central Marin Police*
$7,493,551
$15,155,425
7,661,874
$1,321,032
$11,087,891
Central Marin Sanitation
$2,872,049
$2,496,424
(375,625)
$301,327
$16,952,527
Kentfield Fire
$2,004,784
$2,146,412
141,628
$195,606
$5,014,333
Las Gallinas Valley Sanitary
$1,985,486
$2,094,980
109,494
$211,861
$12,976,695
Marin Municipal Water
$34,264,000
$33,104,000
(1,160,000)
$3,683,000
$62,502,430
Marin/Sonoma Mosquito
$12,030,407
$15,038,000
3,007,593
$1,542,000
$8,638,747
Marinwood CSD
$4,422,797
$6,477,757
2,054,960
$518,769
$5,837,007
North Marin Water
$3,470,834
$4,085,375
614,541
$384,385
$17,912,719
Novato Fire Protection
$16,751,185
$13,567,350
(3,183,835)
$1,596,595
$27,838,320
Novato Sanitary
$6,112,283
$6,313,211
200,928
$452,506
$19,299,289
Ross Valley Fire
$4,917,120
$5,121,615
204,495
$485,075
$9,598,396
Ross Valley Sanitary
$302,766
$693,717
390,951
$109,118
$23,623,985
Southern Marin Fire
$5,285,282
$7,089,540
1,804,258
$916,153
$14,911,632
Tiburon Fire
$2,269,028
$2,182,181
(86,847)
$249,592
$7,184,792
Special Districts: FY 2016 ARC as Percentage of Total Revenue
Central Marin Police
Central Marin Sanitation
Kentfeld Fire
Las Gallinas Valley Sanitary
Marin Municipal Water
MarinlSonoma Mosquito
Marinwood CSD
Nol Marin Water
Novato Fire Protection
Novato Sanitary
Ross Valley Fire
Ross Valley Sanitary
Southern Marin Fire
Tiburon Fire
0.0%
Lower%a [
5.0%
10.0%
15.0%
l: Higher%
20.0%
May 10, 2017 Marin County Civil Grand Jury Page 35 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX G: GASB 45 vs. GASB 75 Overview
GASB 4511,56 I GASB 75 57,58,59,60 I Effect
Actuarial valuations required every 2 or Actuarial valuation required every 2 years for More current picture of actuarial
3 years (based on number of OPEB plan all OPEB plans, with optional alternative liability.
members), with optional alternative measurement method if fewer than 100 plan
measurement method if fewer than 100 members.
plan members.
No single discount rate is required when
an employer contributes less than ARC
but has some plan assets.
Requires single discount rate that reflects (1) a
long-term rate on plan assets to the extent they
are projected to always be sufficient to cover
projected payments, and (2) a municipal bond
(lower) rate for the years when plan assets are
not projected to cover projected payments. The
projection must be based in part on whether the
employer has a policy and practice to make its
benefit payments.
Improves consistency,
comparability and transparency
of OPEB liability reporting.
Long-term liability is more
accurately stated.
Only "net OPEB obligation" required Net OPEB Liability (NOL) reported on the face Financial reporting of OPEB
on face of balance sheet. Unfunded of the balance sheet. NOL equals actuarial liabilities parallels GASB 68 for
liability (UAAL) reported in plan notes accrued liability (TOL) minus market value of pension reporting.
in CAFR (Comprehensive Annual plan assets (FNP). NOL same as UAAL with
Financial Report) or Audit. some technical differences.
Provides for limited disclosures in
financial statement notes and required
supplementary information schedules.
Six acceptable actuarial cost methods
Permits a choice between open or
closed amortization periods.
Provides for more extensive disclosures in
financial statement notes and schedules. The
note disclosures include (1) an explanation of
how and why the NOL changed from year to
year, (2) a description of contribution
requirements and how they are determined, (3)
a statement of assumptions and other inputs
used to measure, (4) detailed information about
the discount rate used, and (5) NOL
calculations with 1% increases and decreases in
medical trend rate and discount rate.
Must use a single actuarial cost method (entry
age actuarial cost method).
Must use a defined closed period amortization
for expenses.
Improves transparency of OPEB
liability reporting.
Improves consistency,
comparability, and transparency
of OPEB liability reporting
Improves consistency,
comparability, and transparency
of OPEB liability reporting
55 "Summary of Statement No. 45: Accounting and Financial Reportine by Emnlovers for Postemplovment Benefits Other Than
Pensions." Governmental Accounting Standards Board. June 2004
56 "Guide to Implementation of GASB Statements 43 and 45 on Other Postemplovmem Benefits." Governmental Accounting
Standards Board. 2005.
57 "Summary of Statement No. 75: Accountine and Financial Reportine for Postemplovment Benefits Other Than Pensions."
Governmental Accounting Standards Board. June 2015.
58 "Overview of GASB Statements 73. 74. and 75." Milliman. March 2016
59 'Brief Summary of New OPEB Accountine Standards: GASB 74 and 75." Bartel Associates. July 2015.
60 "GASB Approves New OPEB Emplover Accounting Standard (No. 75)." Bartel Associates. July 2015.
May 10, 2017 Marin County Civil Grand Jury Page 36 of 37
Marin's Retirement Health Care Benefits: The Money Still Isn't There
APPENDIX H: Example Financial Literacy Classes and Presentations
County Financial Reporting and Budgeting
for Nonfinancial Professionals
Understand and interpret county financial reports
This course provides the tools for decision -makers, elected
officials, senior managers — other than accountants and
auditors — who want to have an overview understanding of
government financial reporting. Participants discuss budgets,
financial statements and the audit, and at the 30,000' level
what each of those is saying (or not saying!). Participants
should bring questions about terms or concepts they have
encountered as part of their interaction with county and
government financial reporting. The discussion reviews terms
and definitions used with government financial reporting and
strategies on how to read financial statements and auditor
reports to identify critical information and understand what it
means ... in plain English!
••�
Retiree Health Benefits
The Funding Issue
Financial Management:
Debt and Investment of Public Funds
Make informed decisions about the use of public
resources
Elected and appointed officials make critical decisions on the
issuance and administration of debt, and the investment of
public funds, but may have little experience or depth of
knowledge on this complicated subject. This class provides a
foundation on understanding debt, debt capacity, options, and
county policy on debt. It examines the fiduciary
responsibilities of elected and appointed officials and then
explores investment of public funds. An overview of prudent
investment policy, portfolio strategy and the role of the
investment advisors are also explored.
From: California State Association of Counties
• Unlike pensions, health benefits have not been
pre -funded for a long period of time
► Most plan sponsors nationwide have not pre -funded
health benefits either
► Currently very little investment income to help pay
benefits
• Costs rise as more members retire, and health
inflation outpaces general inflation
• Pre -funding contribution rates have been
calculated since 1999 - but pre -funding started
only recently
,� Circumstances That Would Increase
• Projected Costs
• Medicare funding reductions or cost shifting
• Unexpected new benefit recipients (from health benefit
cutbacks of other employers)
• Medical inflation worse than assumed; the actual future
contributions will depend on future per capita health
cost increases (health inflation) '
• Lower than expected investment returns; bigger impact
as plan assets grow
• This is not a complete list
rerrayin cn4 am ymlenedmircrtax9"5th¢firsl Yea+. paled doxTb]5°A in the lenM.»d Wier Yvan,
GRS GRS
From: "Michisan State Emnlovees: Retiree Health Actuarial Valuation." Gabriel Roeder Smith & Company. 30 Sep. 2015
May 10, 2017 Marin County Civil Grand Jury Page 37 of 37
ATTACHMENT B
FORM FOR RESPONDING TO GRAND JURY REPORT
Report Title:
Report Date:
Public Release Date:
Response by:
"Marin's Retirement Health Care Benefits: The Money Still Isn't There"
May 10, 2017
May 17, 2017
Mayor Gary Phillips and San Rafael City Council
FINDINGS
Not required to address.
RECOMMENDATIONS
■ Recommendation numbered R1, R2 and R3 have not yet been implemented, but will be
implemented within the next 60 days. See Exhibit 1 attached.
■ Recommendations numbered R4, R5, R6, R7, R8 and R9 have been implemented.
-ilvDate: III Signed:
-(7 -
Number of pages attached: 1
EXHIBIT 1
RESPONSE OF THE CITY OF SAN RAFAEL TO THE GRAND JURY REPORT
EXPLANTION REGARDING RECOMMENDATIONS
The City is evaluating alternatives to
CalPERS medical.
2
Recommendation
Response
Expected completion
R1
Written OPEB contribution
Informal Policy will be replaced by a
August 2017
policy.
formal, written policy.
R2
Consistently satisfy formal
City consistently satisfies informal
August 2017 (with
policy.
policy and will commit to satisfying
implementation of R1)
the formal policy.
R3
OPEB contribution supports
Confirmed in draft GASB 75 report
July 2017 (final report)
GASB 75 projection that
OPEB plan assets are
sufficient to make benefit
payments
R4
Establish OPEB trust that
Implemented
Completed
meets criteria of GASB 75
R5
Finance class for agency
New City Council members
Completed
officials
participate in League of California
Cities orientation and have access to
Government Finance Officers
Association materials prepared for
public officials.
R6
Make CAFRs, Audits, GASB
CAFRs, Audits and GASB valuations
Completed
valuations more
are reviewed at open Finance
understandable by public
Committee meetings, prior to being
submitted to the City Council
R7
Ensure that public financial
Implemented OpenGov earlier in
Completed
presentations are more
2017 and will continue to make
readily understandable and
financial information more
accessible
understandable and accessible
R8
Downloadable, text-
Implemented
Completed
searchable CAFRs, audits
and actuarial reports
R9
Prioritize cost containment,
Cost containment of existing
Completed
including reducing or
commitments is ongoing.
eliminating OPEB benefits
for future employees.
The City reduced the OPEB benefits
for management employees hired
after January 1, 2009, and all other
employees hired after January 1,
2010, to the PEMHCA minimum, the
lowest amount that can be offered by
agencies that contract with CalPERS
for medical benefits.
The City is evaluating alternatives to
CalPERS medical.
2
SAN RAFAEL
THE CITY WITH A MISSION
Agenda Item No: lP , C
Meeting Date: July 17, 2017
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: Finance P�
Prepared by: Mark Moses, City Manager Approval:
Finance Director
TOPIC: GRAND JURY REPORT ON RETIREE HEALTH CARE
SUBJECT: CONSIDERATION OF A RESOLUTION APPROVING AND AUTHORIZING
THE MAYOR TO EXECUTE THE CITY OF SAN RAFAEL RESPONSE TO THE
MAY 10, 2017 MARIN COUNTY GRAND JURY REPORT ENTITLED
"MARIN'S RETIREMENT HEALTH CARE BENEFITS: THE MONEY STILL
ISN'T THERE"
RECOMMENDATION: ACCEPT REPORT AND ADOPT RESOLUTIONS AS PRESENTED
BACKGROUND: The 2016-2017 Marin County Grand Jury has issued its report, dated May 10, 2017
and made public on May 17, 2017, entitled "Marin's Retirement Health Care Benefits: The Money Still
Isn't There." In this report, the Grand Jury followed up on previously issued Other Post -Employment
Benefits (OPEB)-related reports, in order to see how local public agencies OPEB liabilities have
changed since the 2012-2013 Report, and examine the impact of OPEB on agencies' financial health.
Under its various labor agreements, the City provides retiree medical benefits to qualifying employees.
At June 30, 2016, 327 retirees and surviving spouses received post -employment health care benefits.
The City's unfunded actuarial liability at that time was measured to be $32.7 million. This liability
includes obligations to current employees, as well as retirees.
ANALYSIS: This Grand Jury report did not specifically call out the City of San Rafael's OPEB funding
status, contribution policies or financial reporting in the report narrative. The report focused on the
change in unfunded liabilities over the past four years across the 39 Marin agencies studied. The report
noted that 23 of the agencies saw an increase in their respective unfunded OPEB liabilities during that
period, although there is a clear trend toward embracing strategies to prefund the benefit as the City of
San Rafael has been doing for many years.
Although the City is not required to address any of the findings, staff noted that one of the findings, F7,
states that the Grand Jury believes that the upcoming Governmental Accounting Standards Board
Statement No. 75 (GASB 75) reporting will further improve an agency's OPEB reporting transparency.
FOR CITY CLERK ONLY
File No.:
Council Meeting:
Disposition:
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Paae: 2
The City agrees with this finding and is in the process of implementing GASB 75 with its FY16-17
financial statements, one year ahead of the timeframe required by the GASB.
Based on the focus of the recommendations, the City appears to be on track to satisfy the expectations
of the Grand Jury with respect to fiscal management of its OPEB obligations.
The City is evaluating alternatives to
CalPERS medical.
Recommendation
Response
Expected completion
R1
Written OPEB contribution
Informal Policy will be replaced by a
August 2017
policy.
formal, written policy.
R2
Consistently satisfy formal
City consistently satisfies informal
August 2017 (with
policy.
policy and will commit to satisfying
implementation of R1)
the formal policy.
R3
OPEB contribution supports
Confirmed in draft GASB 75 report
July 2017 (final report)
GASB 75 projection that
OPEB plan assets are
sufficient to make benefit
payments
R4
Establish OPEB trust that
Implemented
Completed
meets criteria of GASB 75
R5
Finance class for agency
New City Council members
Completed
officials
participate in League of California
Cities orientation and have access to
Government Finance Officers
Association materials prepared for
public officials.
R6
Make CAFRs, Audits, GASB
CAFRs, Audits and GASB valuations
Completed
valuations more
are reviewed at open Finance
understandable by public
Committee meetings, prior to being
submitted to the City Council
R7
Ensure that public financial
Implemented OpenGov earlier in
Completed
presentations are more
2017 and will continue to make
readily understandable and
financial information more
accessible
understandable and accessible
R8
Downloadable, text-
Implemented
Completed
searchable CAFRs, audits
and actuarial reports
R9
Prioritize cost containment,
Cost containment of existing
Completed
including reducing or
commitments is ongoing.
eliminating OPEB benefits
for future employees.
The City reduced the OPEB benefits
for management employees hired
after January 1, 2009, and all other
employees hired after January 1,
2010, to the PEMHCA minimum, the
lowest amount that can be offered by
agencies that contract with CalPERS
for medical benefits.
The City is evaluating alternatives to
CalPERS medical.
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3
A Special Joint City Council Pension-OPEB Subcommittee and City Council Finance Committee meeting
was held on June 6, 2017, at which time the findings, recommendations and appropriate responses were
discussed, although no formal action was taken.
ACTION REQUIRED: To comply with the applicable statute, the City's response to the Grand Jury
report is required to be approved by Resolution of the City Council and submitted to the Presiding
Judge of the Marin County Superior Court and the Foreperson of the Grand Jury on or before
August 17, 2017. A proposed Resolution (Attachment B) is included that would approve staffs
recommendation for the City's response (Attachment C).
RECOMMENDATION: Staff recommends that the City Council adopt the attached Resolution
approving the proposed response to the Grand Jury report and authorizing the Mayor to execute the
response.
ATTACHMENTS:
A. Grand Jury Report "2016-17 Marin's Retirement Health Care Benefits: The Money Still Isn't
There" dated May 10, 2017.
B. Resolution
C. Proposed Response (attachment to Resolution)
SAN RAFAEL STAFF REPORT APPROVAL
THE CITY WITH AMISSION ROUTING SLIP
Staff Report Author: Mark Moses Date of Meeting: July 17, 2017
Department: Finance
Topic: Response to Grand Jury Report on Retiree Health Care
Subject: CONSIDERATION OF A RESOLUTION APPROVING AND AUTHORIZING THE MAYOR TO EXECUTE THE CITY
OF SAN RAFAEL RESPONSE TO THE MAY 10, 2017 MARIN COUNTY GRAND JURY REPORT ENTITLED "MARIN'S
RETIREMENT HEALTH CARE BENEFITS: THE MONEY STILL ISN'TTHERE"
Type: (check all that apply) ❑ Consent Calendar ❑ Public Hearing
N Discussion Item ❑ Resolution ❑ Ordinance
❑ Professional Services Agreement ❑ Informational Report
*If PSA, City Attorney approval is required prior to start of staff report approval process
❑ Was this agenda item publicly noticed?
Due Date Responsibility Description CompletedDate Initial / Comment
PRELIMINARY REVIEW
FRI, 6/30 Author Submit draft report to Click here to ❑X
Director enter a date.
MON, 7/3 Director Submit draft report to ACM 6/22/2017 0
Click here to
Assistant City Manager Readiness review enter a date. 0
WED, 7/5 City Attorney Preliminary legal and 7/5/2017 D
financial impact review Click here to
Finance enter a date. 71
CONTENT REVIEW
FRI, 7/7 Assistant City Manager Content review Click here to
enter a date.
Author Revisions 7/11/2017 0
FINAL REVIEW
MON, 7/10 City Attorney Final legal review
7/10/2017
Click here to
LAG
Finance Final financial review
enter a date.
Click here to
MM
Author Revisions / accept changes
enter a date.
TUES, 7/11 City Manager Final review and approval Click here to
enter a date.