11.09 - OPEB Report - Laserfiche WebLink

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City of Pequott Lakes =. ►1 Ttto]7101111o01 To: Pequot Lakes City Council From: Nancy Malecha, Finance Administrator/Deputy City CIerk Date: January 2, 2013 Subject: Other Post - Employment Benefit Report Every three years, the City of Pequot Lakes is required to perform an Other Post - Employment Benefit (OPEB) valuation in accordance with Government Accounting Standard Board (GASB) Statement No. 45. The purpose of this valuation is to determine the City's obligation regarding post - employment benefits (retiree benefits). Hildi Inc. prepared the attached Post - Employment Benefit Valuation Report for the City of Pequot Lakes for 2012. This information will also be included in the City's annual audit report. OPEB relates to hospital, medical, and dental insurance benefits for City retirees. There are two types of insurance benefits for retirees. The first benefit is called the implicit rate benefit. The implicit rate benefit pertains to Minnesota Statute 471.61 which requires a local unit of government to allow a former employee and the employee's dependents to continue to participate indefinitely in the employer- sponsored hospital, medical, and dental insurance group that the employee participated in immediately before retirement, under certain conditions. The second benefit is called the subsidized benefit. The subsidized benefit pertains to retiree insurance benefits as outlined in the City's personnel policy and union contract. (see page 18 of the attached report) Several pieces of data were used to determine the City's OPEB obligation. This data includes, but is not limited to, the following. (see pages 12.19 of the attached report) 1. employees' ages 2. employees' years of service 3. employees' salaries 4. economic assumptions 5. medical plan designs b. medical plan claim costs 7. various other assumptions (i.e. future employment, mortality, healthcare cost trends) Based on the above information, the City's estimated net OPEB obligation as of 12 -31 -12 is $112,319. The table on page 9 of the attached report illustrates when the projected benefits would incur. After talking with Hildi and our auditors, CliftonLarsonAllen, I recommend the City fund their OPEB obligation using the pay -as- you -go ( PAYGO) method. Under the PAYGO funding method, the City would not pre -fiend the obligation but instead budget and pay the benefit as it is incurred. The PAYGO funding method is a viable option for a city our size. If you have any questions, please let me know. Thank you.