HomeMy WebLinkAbout12 - Retiree Medical ProgramCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 12
March 25, 2008
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Administrative Service Department
Dennis Danner, Director
9491644 -3123 or ddanner @city.newport- beach.ca.us
SUBJECT: Retiree Medical Program
ISSUE:
Should the City fund the remainder of the liability for the former Retiree Medical Program
through the California Employers' Retiree Medical Benefit Trust Fund (CEBRT) offered by
CalPERS?
RECOMMENDATION:
Authorize the Mayor, City Manager and City Clerk to execute the attached documents
initiating participation in CEBRT, with the intention of budgeting sufficient funds to fully
satisfy the remaining liability over a twenty year period.
DISCUSSION:
The City's Retiree Medical Program has been converted from a defined benefit plan to a
defined contribution plan. This new plan is being phased in over a period of several
years. There is virtually no unfunded liability with the new plan. Since no additional
participants are being added to the old plan, the unfunded liability connected with that
plan is essentially fixed and will slowly decrease over an extended period.
The subject of Other Post Employment Benefits (OPEB) has become a matter of
increased scrutiny in recent years. The Government Accounting Standards Board
(GASB) has instituted increased OPEB disclosure requirements in the financial reports of
government entities. Many agencies are grappling with significant unfunded liabilities. For
local governments collectively, the most significant aspect of this.overall liability is for
retiree medical programs. Newport Beach is fortunate to have been able to cap this
liability by converting its long- standing retiree medical program to a defined contribution
basis.
The final step in the conversion process; and in the process of complying with the intent
of the GASB reporting requirements, is to provide funding for the remainder of the
existing liability. To the extent an entity is able to do so; the convention is to fund such
liability over the approximate period of time in which the employees participating in the
plan are still actively employed. In consultation with the City's Actuary, a 20 year fixed
horizon was tentatively agreed upon as the appropriate time frame. However, at the
direction of the City Council Finance Committee a 30 year horizon will also be evaluated.
A final funding horizon recommendation will be included with the Council Policies for
funding the City's Internal Service funds. Pending these policies, the Actuarially Required
Contribution (ARC) rates will be calculated and a final funding plan will be put in place.
The current proposed action is to establish a Trust Relationship with CalPERS CERBT,
and to open an account which will serve as a repository for these funds. This course of
action offers two distinct advantages.
1. By so doing, the liability takes on a reduced level of significance in the City's financial
structure. If the facilities replacement program moves forward as currently envisioned, we
will be relying on external financing (Certificates of Participation) at a level unprecedented
in the City's history. The cost of the capital needed to accomplish this program will be
significantly impacted by how rating agencies and insurers view our financial strength, to
include the discipline with which we address liabilities of this nature. This action sets the
right precedent and sends exactly the right message in that regard.
2. Compared to other potential external organizations with which we could enter into a
similar contractual arrangement, CalPERS provides the right blend of higher long -term
investment returns, security, and flexibility.
FUNDING AVAILABILITY:
There is no up -front administrative cost connected with participating in CEBRT. The
annual cost of the program itself will almost certainly be decreased by this action, as
opposed to holding the funds locally.
Submitted by:
K/G.Y�itso
Dennis C. Danner
Administrative Services Director
Attachments: Agreement & Election to Prefund Other Post Employment Benefits through
CalPERS
Delegation of Authority to Request Disbursements
Certification of OPEB Actuarial Information and Funding Policy
CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST.PROGRAM ( "CERBT ")
AGREEMENT AND ELECTION
OF
CITY OF NEWPORT BEACH
(NAME OF EMPLOYER)
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CaIPERS
WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the
Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for
annuitants ( Prefunding Plan); and
WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board
of Administration (Board) has sole.and exclusive control and power over the .
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to (i),receiving contributions
from participating employers and establishing separate Employer Prefunding Accounts
in the Prefunding Plan for the performance of an essential governmental function (ii)
investing contributed amounts and income thereon, if any, in order to receive yield on
the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for
costs of administration of the Prefunding Plan and to pay for health care costs or other
post employment benefits in accordance with the terms of participating employers'
plans; and
WHEREAS (3) CITY OF NEWPORT BEACH
(NAME OF EMPLOYER)
(Employer) desires to participate in the Prefunding Plan upon the terms and conditions
set by the Board and as set forth herein; and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by
the Board and (ii) filing a duly adopted and executed Agreement and Election to Prefund
Other Post Employment Benefits (Agreement) as provided in the terms and conditions
of the Agreement; and
WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an
essential governmental function within the meaning of Section 115 of the Internal
Revenue Code as an agent multiple - employer plan as defined in Governmental
Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of
single - employer plans, with pooled administrative and investment functions;
Rev. 217 =7; Rev 6118!2007, Rev 10/101207
NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND
EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS:
A. Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of
California or an entity whose income is excluded from gross income under Section 115
(1) of the Internal Revenue Code.
B. Adoption and Approval of the Agreement; Effective Date; Amendment
(1) Employer's governing body shall elect to participate in the Prefunding Plan by
adopting this Agreement and filing with the CalPERS Board a true and correct original
or certified copy of this Agreement as follows:
Filing by mail, send to: CalPERS
Constituent Relations Office
CERBT (OPEB)
P.O. Box 942709
Sacramento, CA 94229 -2709
Filing in person, deliver to:
CalPERS Mailroom
Attn: Employer Services Division
400 Q Street
Sacramento, CA 95814
(2) Upon receipt of the executed Agreement, and after approval by the Board, the
Board shall fix an effective date and shall promptly notify Employer of the effective date
of the Agreement.
(3) The terms of this Agreement may be amended only in writing upon the agreement
of both CalPERS and Employer, except as otherwise provided herein. Any such
amendment or modification to this Agreement shall be adopted and executed in the
same manner as required for the Agreement Upon receipt of the executed amendment
or modification, the Board shall fix the effective date of the amendment or modification.
(4) The Board shall institute such procedures and processes as it deems necessary to
administer the Prefunding Plan, to carry out the purposes of this Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
Rev 10/10/2007 2
C. Actuarial Valuation and Employer Contributions
(1) Employer shall provide to the Board an actuarial valuation report on the basis of the
actuarial assumptions and methods prescribed by the Board. Such report shall be for
the Board's use in financial reporting, shall be prepared at least as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
(a) prepared and signed by a Fellow or Associate of the Society of Actuaries
who is also a Member of the American Academy of Actuaries or a person
with equivalent qualifications acceptable to the Board;
(b) prepared in accordance with generally accepted actuarial practice and
GASB Statement Nos. 43 and 45; and,
(c) provided to the Board prior to the Board's acceptance of contributions for
the valuation period or as otherwise required by the Board.
(2) The Board may reject any actuarial valuation report submitted to it, but shall not
unreasonably do so. In the event that the Board determines, in its sole discretion, that
the actuarial valuation report is not suitable for use in the Board's financial statements or
if Employer fails to provide a required actuarial valuation, the Board may obtain, at
Employer's expense, an actuarial valuation that meets the Board's financial reporting
needs. The Board may recover from Employer the cost of obtaining such actuarial
valuation by billing and collecting from Employer or by deducting the amount from
Employer's account in the Prefunding Plan.
(3) Employer shall notify the Board of the amount and time of contributions which
contributions shall be made in the manner established by the Board.
(4) Employer contributions to the Prefunding Plan may be limited to the amount
necessary to fully fund Employer's actuarial present value of total projected benefits, as
supported by the actuarial valuation acceptable to the Board. As used throughout this
document, the meaning of the term "actuarial present value of total projected benefits"
is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in
the Prefunding Plan to exceed the amount required to fully fund the actuarial present
value of total projected benefits, the Board may refuse to accept the contribution.
(5) Any Employer contribution will be at least $5000 or be equal to Employer's Annual
Required Contribution as that term is defined in GASB Statement No. 45. Contributions
can be made at any time following the seventh day after the effective date of the
Agreement provided that Employer has first complied with the requirements of
Paragraph C.
R� IO/ICV2007 3
D. Administration of Accounts, Investments, Allocation of Income
(1) The Board has established the Prefunding Plan as an agent plan consisting of an
aggregation of single - employer plans, with pooled administrative and Investment
functions, under the terms of which separate accounts will be maintained for each
employer so that Employer's assets will provide benefits only under employer's plan.
(2) All Employer contributions and assets attributable to Employer contributions shall be
separately accounted for in the Prefunding Plan (Employer's Prefunding Account).
(3) Employer's Prefunding Account assets maybe aggregated with prefunding account
assets of other employers and may be co- invested by the Board in any asset Gasses
appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the
investment income or Employer's Prefunding Account in a manner determined by the
Board.
(5) Investment income shall be allocated among employers and posted to Employer's
Prefunding Account as determined by the Board but no less frequently than annually.
(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund
the actuarial present value of total projected benefits, the Board, in compliance with
applicable accounting and legal requirements, may return such excess to Employer.
E. Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and
containing the information prescribed by the Board.
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account
at least annually reflecting the balance in Employer's Prefunding Account, contributions
made during the period and income allocated during the period, and such other
information as the Board determines.
F. Disbursements
(1) Employer may receive disbursements not to exceed the annual premium and other
costs of post employment healthcare benefits and other post employment benefits.
(2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the
persons authorized to request disbursements from the Prefunding Plan on behalf of
Employer.
Rear iorzor2007 4
(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will
be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3)
that are received on or after the first of a month will be processed by the 15`h of the
following month. (For example, a disbursement request received on or between March
1st and March 31stwill be processed by April 15th; and a disbursement request
received on or between April 1st and April 30th will be processed by May 15th.)
(5) CalPERS shall not be liable for amounts disbursed in error if a has acted upon the
instruction of an individual authorized by Employer to request disbursements. In the
event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the
actual dollar amount of the disbursement, plus interest at the actual earnings rate but
not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the
balance in Employer's Prefunding Account.
G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as
determined by the Board.
H. Termination of Employer Participation in Prefunding Plan
(1) The Board may terminate Employer's participation in the Prefunding Plan if.
(a) Employer gives written notice to the Board of its election to terminate;
(b) The Board finds that Employer fails to satisfy the terms and conditions of
this Agreement or of the Board's rules or regulations.
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing
reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding
Plan, except as otherwise provided below, and shall continue to be invested and accrue
income as provided in Paragraph D.
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not
make contributions to the Prefunding Plan.
Rev iotzo12W7 5
(4) After Employer's participation in the Prefunding Plan terminates, disbursements
from Employer's Prefunding Account may continue upon Employer's instruction or
otherwise in accordance with the terms of this Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of this Agreement:
(a) Employer may request a trustee to trustee transfer of the assets in
Employer's Prefunding Account. Upon satisfactory showing to the Board
that the transfer will satisfy applicable requirements of the Internal
Revenue Code and the Board's fiduciary duties, then the Board shall
effect the transfer within one hundred twenty (120) days. The amount to
be transferred shall be the amount in the Employer's Prefunding Account
as of the disbursement date and shall include investment earnings up to
the investment earnings allocation date immediately preceding the
disbursement date. In no event shall the investment earnings allocation
date precede the transfer by more than 120 days.
(b) Employer may request a disbursement of the assets in Employer's
Prefunding Account Upon satisfactory showing to the Board that all of
Employer's obligations for payment of post employment health care
benefits and other post employment benefits and reasonable
administrative costs of the Board have been satisfied, then the Board shall
effect the disbursement within one hundred twenty (120) days. The
amount to be disbursed shall be the amount in the Employer's Prefunding
Account as of the disbursement date and shall include investment
earnings up to the investment earnings allocation date immediately
preceding the disbursement date. In no event shall the investment
earnings allocation date precede the disbursement by more than 120
days.
(6) After Employer's participation in the Prefunding Plan terminates and at such time
that no assets remain in Employer's Prefunding Account, this Agreement.shall
terminate.
(7) If, for any reason, the Board terminates the Prefunding Plan, the assets in
Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts
sufficient to pay post employment health care benefits and other post employment
benefits to annuitants for current and future annuitants, and (ii) amounts sufficient to pay
reasonable administrative costs of the Board.
(8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if
no provision has been made by Employer for ongoing payments to pay post
employment health care benefits and other post employment benefits to annuitants for
current and future annuitants, the Board is authorized to and shall appoint a third party
administrator to carry out Employer's Prefunding Plan. Any and all costs associated
Rev 10rIat2007 6
with such appointment shall be paid from the assets attributable to contributions by
Employer.
(9) If Employer should breach the representation and warranty set forth in Paragraph
A., the Board shall take whatever action it deems necessary to preserve the tax- exempt
status of the Prefunding Plan.
I. General Provisions
(1) Books and Records.
Employer shall keep accurate books and records connected with the performance of
this Agreement. Employer shall ensure that books and records of subcontractors,
suppliers, and other providers shall also be accurately maintained. Such books and
records shall be kept in a secure location at the Employer's office(s) and shall be
available for inspection and copying by CalPERS and its representatives at any time.
(2) Audit.
(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CalPERS, and its authorized
representatives, and such consultants and specialists as needed, at all
reasonable times during normal business hours to inspect and copy, at the
expense of CalPERS, books and records of Employer relating to its
performance of this Agreement.
(b) Employer shall be subject to examination and audit by the Bureau of State
Audits, CalPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of this Agreement
and for three years after final payment under this Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of this Agreement, including, but not limited to, the costs of
administering this Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CalPERS, and its authorized representatives, and
such consultants and specialists as needed, in connection with any
examination or audit. All adjustments, payments, and /or reimbursements
determined to be necessary by any examination or audit shall be made
promptly by the appropriate party.
(3) Notice.
(a) Any notice, approval, or other communication required or permitted under
this Agreement will be given in the English language and will be deemed
received as follows:
Bev XVICY2007 7
Personal delivery. When personally delivered to.the recipient.
Notice is effective on delivery.
2. First Class Mail. When mailed first class to the last address of the
recipient known to the party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
3. Certified mail. When mailed certified mail, return receipt requested.
Notice is effective on receipt, if delivery is confirmed by a return
receipt.
4. Overnight Delivery. When delivered by an overnight delivery
service, charges prepaid or charged to the sender's account, Notice
is effective on delivery, if delivery is confirmed by the delivery
service.
5. Telex or Facsimile Transmission. When sent by telex or fax to the
last telex or fax number of the recipient known to the party giving
notice. Notice is effective on receipt, provided that (i) a duplicate
copy of the notice is promptly given by first -class or certified mail or
by overnight delivery, or (ii) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be
deemed received on the next business day if it is received after
5:00 p.m. (recipient's time) or on a nonbusiness day.
6. E -mail transmission. When sent by e-mail using software that
provides unmodifiable proof () that the message was sent, (ii) that
the message was delivered to the recipients information processing
system, and (iii) of the time and date the message was delivered to
the recipient along with a verifiable electronic record of the exact
content of the message sent.
Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger
or overnight delivery service.
(c) Any party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement.
Rev 10110/2007
(d) All notices, requests, demands, amendments, modifications or other
communications under this Agreement shall be in writing. Notice shall be
sufficient for all such purposes if personally delivered, sent by first class,
registered or certified mail, return receipt requested, delivery by courier
with receipt of delivery, facsimile transmission with written confirmation of
receipt by recipient, or e-mail delivery with verifiable and unmodifiable
proof of content and time and date of sending by sender and delivery to
recipient. Notice is effective on confirmed receipt by recipient or 3
business days after sending, whichever is sooner.
(4) Modification
This Agreement may be supplemented, amended, or modified only by the mutual
agreement of the parties. No supplement, amendment, or modification of this
Agreement shall be binding unless it is in writing and signed by the party to be charged
(5) Survival
All representations, warranties, and covenants contained in this Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of this Agreement until such time as all
amounts in Employer's Prefunding Account have been disbursed.
(6) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained in or
granted by the provisions of this Agreement shall be effective unless it is in writing and
signed by the party waiving the breach, failure, right, or remedy. No waiver of any
breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure,
right, or remedy, whether or not similar, nor shall any waiver constitute a continuing
waiver unless the writing so specifies.
(7) Necessary Acts, Further Assurances
The parties shall at their own cost and expense execute and deliver such further
documents and instruments and shall take such other actions as may be reasonably
required or appropriate to evidence or carry out the intent and purposes of this
Agreement.
Rev 1011012007 9 .
A majority vote of Employer's Governing Body at a public meeting held on the
day of the month of in the year , authorized entering
into this Agreement
Signature of the Presiding Officer.
Printed Name of the Presiding Officer:
Name of Governing Body:
Name of Employer:
Date:
BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BY
KENNETH W. MARZION
ACTUARIAL AND EMPLOYER SERVICES BRANCH
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CalPERS
The effective date of this Agreement is:
Rev 01109/2W8 10
Ca1PERS
DELEGATION OF AUTHORITY
TO REQUEST DISBURSEMENTS
RESOLUTION
OF THE
CITY COUNCIL
(GOVERNING BODY)
OF THE
CITY OF NEWPORT BEACH
(NAME OF EMPLOYER)
The CITY COUNCIL delegates to the incumbents in
(GOVERNING BODY)
the positions of Administrative Services Directorand
(TITLE)
Deputy Director of
Administrative Services authority to request on behalf
(TITLE)
of the Employer disbursements from the Other Post Employment Prefunding
Plan and to certify as to the purpose for which the disbursed funds will be used.
a
Title MAYOR
Witness
Date
OPEB Delegation of Authority (2107)
CERTIFICATION OF OPEB ACTUARIAL
CAPERS INFORMATION AND FUNDING POLICY
CERTIFICATION OF OPES ACTUARIAL INFORMATION
As Actuary for the.plan, I certify that the valuation for the City of Newport Beach
upon which the enclosed summary of actuarial information Is based, meets the
following criteria:
• The valuation was prepared on the basis of the OPEB assumption model
prescribed by the CaIPERS Board and in effect at the time of the
valuation.
• The valuation has been prepared and signed by a Fellow or Associate of the
Society of Actuaries who is also a Member of the American Academy of
Actuaries.'
• The valuation has been prepared in accordance with generally accepted
actuarial principles.
• In the case where the actuarial valuation is to be performed on a biennial
cycle:
• this valuation includes (ARC) information that covers two fiscal years
other actuarial information for the second fiscal year will be provided
after benefit payments and contributions are provided by the agency.
• The valuation has been prepared in accordance with the requirements set
forth in Governmental Accounting Standards Board (GASB) Statements
No. 43 and No. 45.
• If employer assets to pre-fund other post- employment benefits are invested in
an irrevocable OPEB trust other than the California Employers' Retiree
Benefit Trust, the liabilities associated with those assets are not included in
the summary of actuarial information.
I further certify that the discount rate is consistent with the anticipated level of
funding pursuant to the relevant section of GASB 43, and the employer's
certification.
June 30, 2006
Valuation Date
John E. Bartel, ASA, FCA, EA, MAAA
Printed Name o nd Designationn,
,Ji,itaoo7
Signature Date
'In cases where the actuary performing the work does not meet these criteria, the valuation may be
acceptable if the person has equivalent qualifications that are acceptable to the CaIPERS Board Please
provide the qualifications of the actuary performing the valuation.
01ClientsKity of Newport Beach\OPEBW6 -30-06 ValustionMep"WA 07 -0&xx Newport Beach Ca1PERS OPEB Tr ist
Certifieation.doo
CERTIFICATION OF FUNDING POLICY
As the employer, I certify that our funding policy is to contribute consistently an
amount at least equal to * % of the ARC.
CITY OF NEWPORT BEACH
Name of Employer
Homer L. Bludau, City
Printed Name and Title of Person Six
the Form
Signature Date
* 0% of the ARC related to the implicit subsidy and an
amount greater thancor equal to 100% of the ARC
related to the cash (explicit) subsidy.
0,.UientsXOty of Newport BeachWEM -30 -06 VaWntionMepwtslBA 07 -08 -roc Newport Bach CeIPM OPEB TW.'
CMification.doc