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ITEM: |
CONSENT
CALENDAR |
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9. |
CONSIDER EXPENDITURE OF BUDGETED FUNDS TO COMPLY WITH GOVERNMENTAL
ACCOUNTING STANDARDS BOARD ACTUARIAL REQUIREMENT FOR EMPLOYEE POST-RETIREMENT
MEDICAL BENEFITS |
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Meeting
Date: |
May 17, 2010 |
Budgeted: |
No |
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From: |
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Program/ |
N/A |
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General
Manager |
Line Item No.: |
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Prepared
By: |
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Cost Estimate: |
$2,800 |
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General Counsel Review: N/A |
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Committee Recommendation: The Administrative Committee reviewed this item on May 7, 2010 and recommended approval. |
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CEQA Compliance: N/A |
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SUMMARY: In
July 2004, the Governmental Accounting Standards Board (GASB) issued Statement
No. 45, Accounting and Financial Reporting by Employers for Post-Employment
Benefits Other Than Pensions. The
District currently provides health insurance benefits as a post-employment
benefit and must comply with GASB 45 and include the results on its Fiscal Year
2009-10 financial statements. Government
entities with less than 100 employees are allowed to use a simplified approach
to GASB 45 called the alternative measurement method rather than having a full
actuarial evaluation. This method allows
small entities such as the District to comply with GASB 45 at a fraction of the
cost of a full actuarial evaluation by using an on-line computer program to
calculate the liability. This is much
less expensive than a full actuarial evaluation because District staff will
enter employee data and do other up-front work.
Staff has identified several companies that offer on-line tools to
calculate the liability under the simplified approach and has tested a couple of
the tools. The District’s contribution
structure is somewhat complicated due to its two tier system that was
negotiated after GASB 45 was adopted and staff has determined that a tool offered
by a company called Milliman best meets the District’s needs. The cost of using the tool for a two-year
period is $2,800. While staff has
identified cheaper alternatives to the Milliman tool, it has been determined
that the Milliman application will provide a more accurate calculation of
future liabilities and Milliman actuarial staff will also review the final
product for accuracy and make any necessary adjustments. The 2009-10 budget includes $5,000 for this
purpose. It is estimated that the cost for
a full actuarial study would be $5,000 to $10,000.
RECOMMENDATION: District
staff recommends that the Board authorize a contract with Milliman to complete
an actuarial valuation using the alternative measurement method for
post-employment health insurance costs at a cost not-to-exceed $2,800.
BACKGROUND: In July 2004, the Governmental Accounting
Standards Board (GASB) issued Statement No. 45, Accounting and Financial
Reporting by Employers for Post-Employment Benefits Other Than Pensions. The District provides health insurance as a
post-employment benefit and is required to comply with GASN 45 by the end of
the current fiscal year. The main thrust
of GASB 45 is to require for the first time that public-sector employees
recognize the cost of other post-employment benefits over the service life of
their employees rather than on a pay-as-you-go basis. Once the liability amount is calculated, it
must be included in each entities annual audit report. However, GASB 45 does not require that the
amount actually be funded so entities can either partially fund, fully fund or
continue to fund the costs on a pay-as-you-go basis. District staff will address the funding issue
after the actuarial valuation has been completed and future costs are known.
U:\staff\word\boardpacket\2010\20100517\ConsentCal\09\item9.doc