10.02 - OPEB Actuarial Valuation

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City of It Pequot Lakes MEMORANDUM To: Pequot Lakes City Council From: Nancy Malecha, Finance Administrator/Deputy City Clerk Date: July 24, 2015 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 Nos. 43 and 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 2015. This information will also be included in the City's annual audit report. OPEB relates to medical,dental,vision,and other health-related 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 16 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 12-15 of the attached report) 1. employees' ages 2. employees' years of service 3. employees' salaries 4. economic assumptions 5. medical plan designs 6. 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 12-31-15 is$166,648. 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 continue my recommendation that the City fund its OPEB obligation using the pay-as-you-go(PAYGO)method. Under the PAYGO funding method,the City would not pre-fund 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.