TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Paige Hartman-Salazar, Management Analyst
SUBJECT: Adoption of Other Post Employment Benefit Funding Policy
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RECOMMENDATION
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Adopt Resolution 23-4714 entitled: A Resolution of the City Council of the City of Murrieta, California, Approving the Adoption of the Other Post-Employment Benefits (OPEB) Funding Policy.
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PRIOR ACTION/VOTE
On June 2, 2009, the City Council adopted Resolution No. 09-2272, authorizing the agreement between the City and CalPERS for the California Employer’s Retiree Benefit Trust Program (CERBT) to prefund OPEB through CalPERS (Vote: 5-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
The City of Murrieta (City) provides a single employer defined OPEB plan that provides medical and prescription coverage at retirement. Employees may continue health coverage with the City at retirement for themselves, their spouses, and dependents for life once they meet certain eligibility requirements. The amount of City contribution differs depending on the retirement date and City hire date, as explained in further detail below. Employees are eligible for this benefit once they retire, within 120 days from the date of separation, and the retiree must be receiving benefits from the California Public Employees Retirement System (CalPERS).
OPEB Trust
On June 2, 2009, City Council authorized the establishment of the CERBT Fund. CERBT is a Section 115 trust fund dedicated to prefunding OPEB like retiree healthcare. One of the benefits of the trust includes investment income generation from employer contributions to pay for future retiree benefits.
OPEB Plan Provisions
The City’s OPEB has multiple-tier plans based on the employees’ respective labor groups, hire dates, and retirement dates. A summary of the plan provisions is as follows:
Members of all groups who retired prior to July 1, 2007, receive a monthly contribution of $695.
The Murrieta General Employees Association (MGEA) and Murrieta Supervisors Association (MSA) groups and employees covered by the Management and Confidential (M&C) Compensation Plan hired prior to January 1, 2008, who choose to continue their CalPERS health insurance upon retirement, are eligible to receive a monthly contribution to a Retirement Health Savings (RHS) Plan in the amount of $833. Those hired after January 1, 2008, but before July 14, 2014, and retire with 10 years of City service can receive $360 per month until Medicare eligible and then will receive the CalPERS minimum mandated amount for employer contributions under the Public Employees Medical and Hospital Care Act (PEMHCA), commonly referred to as the PEMHCA minimum contribution. (For 2023, the PEMHCA minimum contribution is $151.) Those hired after January 1, 2008, through July 14, 2014, and retire with less than 10 years of City service, and those hired on or after July 15, 2014, and retire from the City, will receive the PEMCHA minimum contribution.
Employees of the Murrieta Police Officers Association (MPOA) and Murrieta Police Managers Association (MPMA) groups hired prior to July 1, 2007, who choose to continue their CalPERS health insurance upon retirement are eligible to receive a monthly contribution to a RHS Plan in the amount of $833. Those hired after July 1, 2007, who retire with 10 years of City service can receive $360 per month until Medicare eligible and then will receive the PEMCHA minimum contribution. Those hired after July 1, 2007, who retire with less than 10 years of City service will receive the PEMCHA minimum contribution.
Employees of the Murrieta Fire Association and Murrieta Fire Managers Association groups hired prior to January 1, 2010, who choose to continue their CalPERS health insurance upon retirement are eligible to receive a monthly contribution to a RHS Plan in the amount of $833. Those hired after January 1, 2010, who retire with 10 years of City service can receive $360 per month until Medicare age and then will receive the PEMCHA minimum contribution. Those hired after January 1, 2010, who retire with less than 10 years of City service will receive the PEMCHA minimum contribution.
Based on the most recent actuarial valuation report as of June 30, 2021, the following current and former employees were covered by the benefit terms under the plan:
Inactive Employees or Beneficiaries Currently Receiving Benefit - 151
Inactive Employees or Beneficiaries Entitled to but not yet Receiving Benefits - 25
Active Employees - 359
Total - 535
OPEB Plan Status
The annual actuarial valuation report determines the employer's Actuarially Determined Contribution (ADC). ADC is the recommended contribution that, if paid on an ongoing basis, is expected to provide sufficient resources to fund (a) future normal cost (cost for new service) and (b) the amortized unfunded liabilities (cost for past service) over a fixed period of time. Historically, the City has elected to pay-as-you-go (pay-go) for current year expenditures.
The most recent valuation report, as of June 30, 2021, states that the City’s total OPEB liability is $33,795,393. The CERBT trust has $5,733,812 in assets. Hence, the total net OPEB liability is $28,061,581. As required by Governmental Accounting Standards Board Statement 75, the net OPEB liability is recognized and reported in the City’s Comprehensive Annual Financial Report. While the benefit is currently funded on a pay-go basis, paying only the actual cost of the benefit in the current fiscal year, is not fiscally sustainable over the long term.
Consistent with best practices, the City Council authorized the establishment of a Section 115 irrevocable trust in June 2009. The approved Fiscal Year 2023/24 Operating Budget also includes set aside reserves to contribute towards the OPEB trust (CERBT). As a result, $2 million ($1 million from the General Fund Reserves and $1 million from Measure T Reserves) will be contributed to the OPEB 115 Trust. The additional contributions to the trust will allow for long-term investment and generate interest earnings to offset the continued increase in providing this benefit. The General Fund pay-go amount included in the Fiscal Year 2023/24 budget is $1,572,000.
OPEB Funding Policy Document
The Government Finance Officers’ Association recommends government agencies implement an OPEB funding policy that codifies their commitment to fund benefit based on the actuarial valuation report. Establishing a funding policy embodies the principle of a prudent governance practice. The proposed OPEB Funding policies allow for the City to make the required ADC, elect the minimum required contribution as the pay-go method, or contribute somewhere in between based on the City’s financial condition.
The purpose of the OPEB Funding Policy is to guide prudent financial management of the City’s OPEB program. The City’s OPEB Funding Policy documents the method the City will use to determine its ADC and establish a sustainable plan to fund the long-term cost of benefits to City employees and retirees.
The proposed policy (Exhibit A to Resolution No. 23-4714) is consistent with the priority to adopt financially sound policies and procedures that are prudent and consider long-term financial planning and stability.
FISCAL IMPACT
There is no fiscal impact associated with the adoption of the OPEB Funding Policy. On June 6, 2023, the City Council approved the adoption of the Operating Budget for Fiscal Year 2023/24, which included a $2,000,000 contribution to the OPEB 115 Trust (CERBT).
ATTACHMENTS
1. Resolution No 23-4714