ADMINISTRATIVE COMMITTEE
6.	RECEIVE ALTERNATIVE MEASUREMENT METHOD REPORT FOR DETERMINING ANNUAL COSTS FOR POST-EMPLOYMENT MEDICAL BENEFITS
Meeting Date:		December 6, 2010	Budgeted:	No
From:		Darby Fuerst,	Program/	N/A
		General Manager	Line Item No.:
Prepared By:		Rick Dickhaut	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: The Administrative Committee reviewed this item on December 6, 2010 and recommended _________________________.
CEQA Compliance: N/A

SUMMARY: In July 2004, the Governmental Accounting Standards Board (GASB) issued Statement Nos. 43 & 45, establishing financial reporting requirement for post-employment benefits other than pensions. The District currently provides health insurance benefits as a post-employment benefit and must comply with GASB 43 & 45 by including current and future cost information in its financial statements beginning with Fiscal Year 2009-10. At its May 17, 2010 Board meeting, the Board authorized expenditure of funds to contract with the actuarial firm Milliman to compile the required data using the alternative measurement report method as discussed in the background section below. Milliman has completed the report and enclosed as Exhibit 6-A is the Key Results and Sensitivity Analysis section of the report. As the table in the document indicates, the “Unfunded Actuarial Accrued Liability” as of June 30, 2010 was $2,177,710. Using a discount rate of 7.0%, the report shows that the annual “Amortization Payment” to fully fund the unfunded liability over 30 years would be $127,887. Additionally, the “Normal Cost” was determined to be $90,019. This is the annual contribution that would be required to fund future costs if there was no unfunded liability. The combination of these two components would result in a total “Annual Required Contribution” of $217,905 if the District was to fully fund both current and future costs over the 30 year period. In FY 2009-10, the District paid premium contributions for medical coverage for one retiree and one surviving spouse of a retiree at a cost of $23,990. This actual cost would be deducted from any contribution made that year. For example, if the District had fully funded its contribution in FY 2009-10, the $23,990 would have been deducted from the $217,905 resulting in a net contribution of $193,915. It should be noted that both current and future costs must be recalculated on an annual basis based on then current employee data and District benefit levels, so the contribution amounts may vary somewhat each subsequent year. The District can elect to either partially fund, fully fund or continue to fund the costs on a pay-as-you-go basis.

RECOMMENDATION: District staff recommends that the Board receive the Alternative Measurement Method Report prepared by Milliman, continue to pay retiree medical costs on a pay-as-you-go basis for the remainder of FY 2010-2011, and direct staff to develop a recommended funding strategy for FY 2011-12 and beyond during preparation and presentation of next FY’s budget.

BACKGROUND: In July 2004, GASB issued Statement Nos. 43 & 45, establishing financial reporting requirements for post-employment benefits other than pensions. The District provides health insurance as a post-employment benefit and is required to comply with GASB 43 & 45 and include the required information in its audited financial statements beginning in FY 2009-10. The main thrust of GASB 43 & 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. While the liability amount must be included in each entities annual audited financial statements, the GASB statements do not require that the amount actually be funded. Government entities can either partially fund, fully fund or continue to fund the costs on a pay-as-you-go basis. Entities with less than 100 employees are allowed to use a simplified approach to GASB 43 & 45 calculations 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 43 & 45 at a fraction of the cost of a full actuarial evaluation by using an on-line computer program to calculate the liability. At its May 17, 2010 Board meeting, the Board authorized expenditure of funds to contract with the actuarial firm Milliman to prepare the data using the alternative measurement report.

EXHIBIT

6-A Key Results and Sensitivity Analysis

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