ADMINISTRATIVE COMMITTEE
3.	CONSIDER EXPENDITURE OF BUDGETED FUNDS TO COMPLY WITH GOVERNMENTAL ACCOUNTING STANDARDS BOARD ACTUARIAL REQUIREMENT FOR EMPLOYEE POST-RETIREMENT HEALTH BENEFITS
Meeting Date:		October 8, 2012	Budgeted:	Yes
From:		David J. Stoldt,	Program/	Services & Supplies
		General Manager	Line Item No.:	7740 Professional Fees
Prepared By:		Suresh Prasad	Cost Estimate:	$2,800
General Counsel Review: N/A
Committee Recommendation: The Administrative Committee reviewed this item on October 8, 2012 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 (FY) 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. For Agencies with fewer than 200 participants, a GASB valuation report is required at least every three years. This is the third year of the District’s 2009-10 valuation report. The cost of completing the GASB valuation report for Fiscal Year ending June 30, 2012 is $2,800. The 2012-13 adopted Budget includes $3,000 for this purpose.

RECOMMENDATION: District staff recommends that the Board authorize a two year contract with Milliman, Inc. 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, 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 with 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 report using the alternative measurement method.

Milliman’s 2009-10 valuation report indicated that the “Unfunded Actuarial Accrued Liability” as of June 30, 2011 was $2,177,710 and the total net “Other Post-Employment Benefit Obligation” (OPEB) was $375,900. The net OPEB figure is for fiscal years 2009-10 & 2010-11. The report showed that the annual “Amortization Payment” to fully fund the unfunded liability over 30 years and the “Normal Cost” required to fully fund future costs if there were no unfunded liability using a discount rate of 7% would be $224,442. The combination of these two components is the result of the total “Annual Required Contribution” (ARC) if the District was to fully fund both current and future costs over the 30 year period. In FY 2010-11 the District paid premium contributions for medical coverage for five retirees and one surviving spouse of a retiree at a cost of $44,976. This actual cost would be deducted from any contribution made that year. For example, if the District had fully funded its contribution in FY 2010-11, the $44,976 would have been deducted from the ARC of $224,442 resulting in a net contribution of $179,466. 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. District staff will return to the Board at a later date to address the funding issue.

EXHIBIT

3-A Milliman, Inc. GASBhelp Invoice

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