BICKMORE & ASSOCIATES, INC. 2-2016

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Other Post -Employment Benefit Programs of the City of "" Actuarial Valuation as of July 1, 2015 C. Sources of OPER Liabilities General Types of OPEB In general, post -employment benefits other than pensions (OPEB) comprise a part of compensation that employers offer for services received. The most common OPEB are: Medical • Vision . Dental • Life Insurance • Prescription drug Other possible post -employment benefits may include outside group legal, long-term care, or disability benefits outside of a pension plan. OPEB does not generally Include vacation, sick leave' or COBRA payments which fall under other GASB accounting statements, A direct employer payment toward the cost of OPEB is referf6d,to as an "explicit subsidy" and these are included in the determination of OPEB liabilities. In addition, if:;claims experience of employees and retirees are pooled when determining premlums-fihe"retirees pay a premium based on a pool of members that, on average, are'.y'punger and healthier. For certain types of coverage, such as medical and life insurance, this pooling results irr an,;'implir,it subsidy" of retiree premiums by active employee premiums;; ince the retiree premiums,`are lower than they would have been if retirees were InsuYed'separafely i,Paragraph f2la, of GASB 45 generally requires an implicit subsidy of retiree premium; rates l 2;yalued,as an OPEB liability. For actuarial valuations dated prior. to March: 31, 015, an eikslotion existed for plan employers with a very small membership in a large'°community-rated" healthcare program. Following a change in Actuarial Standards.of Practice, GASB no longer offers this exception. This change had a significant impact on this valuation of the City's OPEB liability. OPER Obligations of the City The following is a general summary of the liabilities included in this valuation: • Medical explicit subsidies: The City contributes directly to the cost of retiree medical coverage. We valued these benefits,,;, as described in Table 3A. • Medical implicit subsidies: `Employees are covered by the CaIPERS medical program. The same monthly premiums are, charged for active employees and for pre -Medicare retirees and CaIPERS has confirmed that the claims experience of these members is considered together in setting these premium rates. We determine the implicit rate subsidy for pre -Medicare, retirees as the difference between (a) projected retiree medical claim costs by age and (b) premiums expected to be charged for retirees. For details, see Table 4 and Addendum 1: Bickmore Healthcare Claims Age Rating Methodology. Different monthly premiums are charged for Medicare -eligible members and CalPERS has confirmed that only the claims experience of these Medicare eligible members is considered in setting these premium rates. We have assumed that this premium structure is adequate to cover the expected claims of these retirees and believe that there Is no implicit subsidy of premiums for these members by active employees. • For life insurance, we valued expected retiree claims, not premiums. ' When a terminating employee's unused sick leave credits are converted to provide or enhance a defined benefit OPER, e,g., healthcare benefits, such converted sick leave credits should be valued under GASB 45. B CkIi ore � 4?