04-14-18 Special Meeting of the La Porte City Council - Budget Retreat

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REQUEST FOR CITY COUNCIL AGENDA ITEM Agenda Date Requested: April 14, 2018 _ __ Appropriation Requested By: Michael G. Dolby, CPA _ _ ____ Source of Funds: __N/A________ __________ Department: Finance_______ ________ ___ Account Number: __N/A__________________ Report: _X_ Resolution: ___Ordinance: ___ _ Amount Budgeted: __N/A_________________ Exhibits: _CAFR Excerpt _ Amount Requested: __N/A________________ Exhibits: ____________________________________ Budgeted Item: YES NO Exhibits: ____________________________________ SUMMARY & RECOMMENDATION The Government Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, will be effective for fiscal year 2018. GASB 75 replaces the requirements under GASB 45, which required other post employment benefits (OPEB) to be disclosed annually on the City's financial statements. GASB 75 requires OPEB costs to be reported on the balance sheet net position or the amount of reserves available retirement, the benefits are considered a liability of the City. The City provides a future defined benefit to its employees by paying for health benefits. To calculate the liability, the City hired an actuary. The present value of all benefits expected to be paid to current plan members as of December 31, 2016 is $55,233,488. The actuarial accrued liability, which is the portion of the $55,233,488 attributable to service accrued by plan members as of December 31, 2016, is $40,962,221. This liability will continue to grow unless steps are in place to lower it. As of December 31, 2016, there is $0 in valuation assets available to offset the liabilities of the plan. The funded status of the plan, which is the ratio of plan assets to actuarial accrued liability, as of December 31, 2016 is 0.00%. Rating agencies may look negatively on financial outlook if steps are not taken to mitigate this liability. Staff is researching prefunding a trust which would set aside money to pay for retiree health insurance. In addition to setting aside money for future health cost, the liability will be reduced by interest earnings through investment of the funds, which thereby reduce future payments. Staff would like to invite consultants to attend a future council meeting and outline the benefits. The City currently operates under a pay as you go for retirees, which is approximately $822,910 annually; this payment can be placed into the trust with any remaining contributions (to the trust) could be used to offset future liabilities. Action Required by Council: