HomeMy WebLinkAboutAgenda BOC 032207CITY OF PALM BEACH GARDENS
10500 N Military Trail
Palm Beach Gardens, F133410
BUDGET OVERSIGHT COMMITTEE
NOTICE OF MEETING AND AGENDA
Please take notice that the Budget Oversight Committee of the City of
Palm Beach Gardens will conduct a meeting of the committee on
March 22, 2007 at 8:30 am in the Council Chambers.
I. Roll Call
H. Approval of minutes from the February 22, 2007 meeting
III. Update on Proposed Legislation
IV. 2007/2008 Budget Status
V. Initial Results of OPEB Study
VI. Update on Self- Insurance Program
DISABILITY INFORMATION
In accordance with the Disabilities Act and F.S.S 286.26, persons with
disabilities needing special accommodation to participate in this proceeding
should contact the Human Resource Department no later then seven days
subsequent to the proceeding at (561) 799 -4223 for assistance, if hearing
impaired, telephone the Florida Relay Service Number at 800 - 955 -8770
(voice) for assistance.
APPEAL NOTICE
If a person decides to appeal any decision made by the board, with
respect to any matter considered at such meeting or hearing, he will need to
ensure that a verbatim record of the proceedings is made, which record
includes the testimony and evidence upon which the appeal is to be based.
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Introduction
As the result of our reporting that the city's pension plans were under funded, the Council
authorized the engagement of a consulting actuary, independent from the two plans. His
report led the two plan committees to a review their respective situations. While
considerable financial strengthening, in the eyes of this committee, now has been made
with the Fire Fighters' Pension Plan (The police plan is still to be heard from), more
ultimately will be needed and furthermore the nature of the issues needs to be better
explained to the Council and taxpayers.
Even though the calculations used to determine the funding of a plan are, among other
things, based on "Death and Taxes" there is no certainty involved. Rather the
establishment of a defined benefit pension plan, particularly a final pay plan, is an event
which unleashes the "Law of Unforeseen Consequences."
Competing Interests
The three involved groups, plan members, the elected representatives and the taxpayers
have both mutual and competing goals.
All favor having secured benefits.
In theory from that point interests diverge. Plan members want to keep the contribution
levels near to the lowest amount reasonable, to "reduce" the cost of benefit increases and
employee contributions (if a plan is co- contributory). Taxpayers need predictability, not
wanting to be "nuked" at a later date with news of a significant under funding.
Legislative bodies are conscious of current budgets and tax rates so they frequently defer
increases in costs.
The role of actuarial assumptions
The amounts of contributions necessary to support funding are derived from a set of
"actuarial assumptions." The selected actuary makes recommendations which are in turn
approved by the plan committee. The actuary under current national guidelines is granted
discretion within a range of reasonableness.
The reasonable assumptions previously used in the fire fighters plan recently were
changed to another set of reasonable assumptions and the annual contribution was
increased by $600,000 (27 %). Our committee appreciates the improvement but also
believes it would be more prudent to further increase the contribution by as much as an
additional $300,000.
Why the difference in views?
There are several reasons why this committees' opinion differs from those of the
respective plan actuaries and even from those of the consulting actuary.
(1) Standards for governmental plans are less conservative than those mandated for
private sector plans.
(2) Governmental plan actuaries tend not to see both sides of the coin equally.
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In the appendix to his report, the City's actuarial consultant noted in reference to the
very important discount rate, that the more conservative rate applied in the private sector
is not recommended because governmental bodies have the resources [taxing authority] ,
using our language, to bail out a troubled plan.
Our recommendation
We believe more attention should be given to avoiding a future major sharp increase in
funding —which would present a major budgetary surprise to taxpayers. We prefer that the
problem should be eliminated by taking a conservative approach, still within the range of
"reasonable ".
Two of the actuarial assumptions warrant immediate attention;(1) The period of time to
amortize adjustments should be reduced (from 25) to about 12.5 years, which will be
about one -half the expected period of remaining service for an average employee; (2) The
discount rate should be close to that required in the private sector. If these two changes
are made there will be a more timely correction for any assumptions which proved to be
inaccurate.
Our third immediate recommendation is for those in authority to consistently monitor the
plans and their administration. We do not doubt the integrity and competence of the
plans' respective auditors. But, these plans are an important and significant part of the
City's financial structure and the City's appointed auditor should be the auditor for the
plans. Council will increase its awareness because the city auditor reports directly. The
City ultimately is responsible for funding the plans and it should insist on its choice of
auditors. The cost is about the same.
Preliminary Results
GASB 45Actuarial Valuation-
Other Post Employment
Benefits (OPEB)
Budget Oversight Committee
March 22. 2007
Other Post Employment Benefits
(OPEB) —What is it?
June 2004 GASB issued Statement 45
requiring other post employment benefits other
than pensions, be accounted for on accrual
basis
Includes cost of providing postemployment
healthcare
Retirees currently pay the same rate as
employees, but use healthcare at a much
higher rate
These blended rates create an implicit subsidy
for the retiree group
Background
GASB Statement 45 is effective for period
starting after 12/15/07 for Phase 2
governments (annual revenues at least $10 M
but less than $100 M)
Must implement for year beginning 10/1/08, but
early implementation is encouraged
Report prepared by Bolton Partners calculates
initial expense for year beginning 10/1/07
Annual Required Contribution
(ARC)
If we decide to fund, the ARC for FYE 9/30/08
is approximately $320,000, vs. the estimated
pay -as -you go cost for OPEB benefits of
$83,500
In order to fund, payments must be made to a
trust (similar to pension trust)
One incentive to fund is the discount rate used
in trust vs. general government assets
If we decide not to fund, the ARC for FYE
9/30/08 increases to approximately $420,000
Subtracting the pay -as- you -go cost of $83,500,
the end of year balance sheet liability is
estimated to be $336,500 (this liability
increases each year by the difference between
ARC and pay -as- you -go cost)
Even if all assumptions materialize, the ARC is
expected to increase 4 % -5% per year (due to
healthcare inflation)
If we decide to fund, the UAL as of 10/1/07 is
approximately $2.1 M
Amortization of this liability is approximately
$120,000 annually over 17 years
GASB 45 requires the $2.1 M be disclosed as
a footnote to the financial statements
If we decide not to fund, the UAL as of 10/1/07
increases to approximately $3.24 M
Amortization of this liability is approximately
$115,000 annually over 29 years
GASB 45 requires the $3.24 M be disclosed as
a footnote to the financial statements
Balance sheet liability to be booked is the
ARC, less the expected pay -as- you -go cost
($420,000 - $83,500 = $336,500)
Summary
GASB 45 does not require OPEB be funded;
however a liability would continue to accrue
(consider funding)
City of PBG not required to implement until FY
beginning 10/1/08 (consider implementing
10/1/07)
Unfunded liability not required to be funded
(consider designating $2.1 M from
undesignated fund balance as of 9/30/06)
Summary
Report is still being finalized by Bolton
Partners, but numbers will not change
significantly
Will distribute to committee after release;
schedule presentation by Bolton at next
committee meeting
Questions?
Preliminary Results
GASB 45Actuarial Valuation-
Other Post Employment
Benefits (OPEB)
Budget Oversight Committee
March 22. 2007
Other Post Employment Benefits
(OPEB) —What is it?
June 2004 GASB issued Statement 45
requiring other post employment benefits other
than pensions, be accounted for on accrual
basis
Includes cost of providing postemployment
healthcare
Retirees currently pay the same rate as
employees, but use healthcare at a much
higher rate
These blended rates create an implicit subsidy
for the retiree group
Background
GASB Statement 45 is effective for period
starting after 12/15/07 for Phase 2
governments (annual revenues at least $10 M
but less than $100 M)
Must implement for year beginning 10/1/08, but
early implementation is encouraged
Report prepared by Bolton Partners calculates
initial expense for year beginning 10/1/07
Annual Required Contribution
(ARC)
If we decide to fund, the ARC for FYE 9/30/08
is approximately $320,000, vs. the estimated
pay -as -you go cost for OPEB benefits of
$83,500
In order to fund, payments must be made to a
trust (similar to pension trust)
One incentive to fund is the discount rate used
in trust vs. general government assets
If we decide not to fund, the ARC for FYE
9/30/08 increases to approximately $420,000
Subtracting the pay -as- you -go cost of $83,500,
the end of year balance sheet liability is
estimated to be $336,500 (this liability
increases each year by the difference between
ARC and pay -as- you -go cost)
Even if all assumptions materialize, the ARC is
expected to increase 4 % -5% per year (due to
healthcare inflation)
If we decide to fund, the UAL as of 10/1/07 is
approximately $2.1 M
Amortization of this liability is approximately
$120,000 annually over 17 years
GASB 45 requires the $2.1 M be disclosed as
a footnote to the financial statements
If we decide not to fund, the UAL as of 10/1/07
increases to approximately $3.24 M
Amortization of this liability is approximately
$115,000 annually over 29 years
GASB 45 requires the $3.24 M be disclosed as
a footnote to the financial statements
Balance sheet liability to be booked is the
ARC, less the expected pay -as- you -go cost
($420,000 - $83,500 = $336,500)
Summary
GASB 45 does not require OPEB be funded;
however a liability would continue to accrue
(consider funding)
City of PBG not required to implement until FY
beginning 10/1/08 (consider implementing
10/1/07)
Unfunded liability not required to be funded
(consider designating $2.1 M from
undesignated fund balance as of 9/30/06)
Summary
Report is still being finalized by Bolton
Partners, but numbers will not change
significantly
Will distribute to committee after release;
schedule presentation by Bolton at next
committee meeting
Questions?