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 Funding Police (Concluded) Funding of the Implicit Subsidy The implicit subsidy liability created when expected retiree medical and/or life insurance claims exceed the retiree premiums was described earlier in Section C. In practical terms, when the City pays the premiums for active employees each year, their premiums include an amount expected to be transferred to cover the portion of the retirees' claims not covered by their premiums. This transfer represents the current year's implicit subsidy. Paragraph 13.g. of GASB 45 allows for recognition of payments to an irrevocable trust or directly to the insurer as an employer's contribution to the ARC. We have estimated the, portion of this year's premium payment attributable to the implicit subsidy and recommend,,notting this amount against the funding requirement for the implicit subsidy (see Tables 1 B aril 1 D). There is a larger question about whether or not the City will , nt''(o'prefund the implicit subsidy liability or not. Some possible options include,, • Prefunding 100% of the ARC relating to both th 6,xplicit subsidy qnd imse pli'dit subsidy liabilities. The City confirmed that this-fs irts inten'ded•,;approach, so theresults are shown in the report exhibits. • Prefunding 100% of the ARC relating to,! both theexplicit etibeldy and implicit subsidy liabilities, but intentionally allocate the entire trust contribution to more quickly pay-off the explicit subsidy liability, ratheY.than `aq.bGating any toward the implicit subsidy liability. • Prefunding 100% of the ARC developed for the explicit subsidy liability, but financing the implicit subsidy liability. on a pay-as-you-go basis. We believe this approach would require determining the implicit subsidy liability. using a pay-as-you-go discount rate (e.g,, 4% rather than the 7.28%). We are available to review these options further with the City, Eickmore