Memo for fiscal year 2022, updated 2021-03-05

[Archived] Question # 23: Is the City's OPEB Trust Fund proposed reduced contribution for this year informed by an updated actuarial study?


Two years ago, staff indicated that the City’s OPEB Trust Fund was projected to be fully funded by 2024. The proposed operating budget document now projects full funding in 2028. Is this estimate and the proposed reduced contribution for this year informed by an updated actuarial study? If so, what findings did the study include?  (Mayor Wilson)


The City receives actuarial reports annually for each of its current defined benefit and post-employment benefit plans. These reports inform the budgeted contribution rate and provide information regarding funded status of the City’s plans. The actuarial analysis considers a number of variables including contribution history, covered payroll, employee demographic data (e.g., age, life expectancy), and investment earnings to inform the City’s planned contributions rate as well as the current funding status of the plan. The changes in these variables, not a change in the City’s contribution, have historically determined when the plan might be fully funded based on the annual projected cost of the plan. The City’s historical funding policy is to fully fund the OPEB plan using the actuarially determined contribution (ADC). To do this, the City uses a combination of benefit payments to retirees and direct City contributions. The benefit payments have been increasing each year to the point where payments to retirees nearly almost equals the ADC, resulting in a reduced separate contribution rate.

It should be noted that currently the City's contribution to retiree health insurance is included as a separate current operating budget expenditure from the contribution to the Trust Fund. The Trust Fund will be able to transition to making these benefit payments directly from the trust fund as the fund reaches a fully funded status. It should be noted that even though not fully funded, compared to most public entities the City’s OPEB funded rate of 64.9% is considered exceptional by the rating agencies. Also, there is recognition among pension financing professionals that making some amount of pensions or OPEB not fully funded is an acceptable financial policy.

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