HomeMy WebLinkAbout07/21/09 MEMORANDUM ASSISTANT CITY MANAGER REBECCA UNDERHILL~ ~
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To: Mayor and Members of City Council
From: Rebecca Underhill, CPA, Assistant City Manager
Date: July 21, 2009
Rye: 2009-2010 Budget -Retiree Health Insurance Costs and Retirement Cos1:s
V1le will bring the 2009-2010 budget to the Council at the July 28, 2009 Council Meeting. Two major
issues will be related to employee benefits.
Retiree Health Insurance
Under a new accounting standard, commonly referred to as GASB 45, the City is required,
beginning this year, to disclose the accrued liability for "Other Post Employment Benefit~~', OPEB.
In 2008, we received the first actuarial valuation of our OPEB, which is retiree health insurance.
The 'Actuarial Accrued Liability' of the benefit, <~s of October 1, 2007 was $93.76 million. That is, at
October 1, 2007, we had a benefit accrued to current; employees, and current retirees that would
cost nearly $94 million over the course of their lives. In order to fund this liability, it would cost
over $10 million per year.
The Council authorized a contract with First Southwest Company to assist us in understanding the
numbers, verifying them, and implementing a strategy for dealing with them. Another actuary
reviewed the plan, and the study, and confirmed the liabilities and the funding requirement. By
refining the assumptions, the liability dropped 1:0 $89.3 million and the funding requirement
drropped to $7.76 million.
V1/e will return to Council very soon with more inforrrration about this issue, and we will have to
develop options to deal with this cost.
TIMRS
Tlhe first, TMRS, as discussed last year, as the City savv the cost for retirement benefits increase over
$1 million due to changes in TMRS funding (see attached memo from me, dated February 11,
2008). In fiscal year 2009, the City opted to fund retirement at a rate higher than the phase in rate,
but less than the full rate. Our rate increased from 9.4.08% to a maximum of 18.88%. V1/e funded
a't 17%.
N/e have been notified by TMRS that our phase in rage for next year is 14.7%, and our full rate is
18.47%. As we work to balance the proposed budget, we will consider the funding level for 2010.
As long as we fund less than the full rate, we are accruing unfunded retirement costs than will have
to be paid in future years, through higher rates.
s:\finance\city council\retreat 07.21.09 - tmrs and gasb 45.docx