Facts About Retiree Health Benefits
In response to the attached OC Register Watchdog article of September 10, 2010 and in an effort to maintain full disclosure to the community, below please find additional clarification relative to control of the City of Placentia’s post employment health care benefits costs.
GASB 43 and 45
In 2004, the Governmental Accounting Standards Board (GASB) issued Statements No. 43 and 45, relating to Other Post-Employment Benefits also known as OPEB (primarily relates to retiree healthcare benefits). These statements require governmental agencies that provide retiree healthcare benefits to recognize the cost of such benefits in a manner similar to defined benefit pension.
The City of Placentia like most governmental agencies accounts for retiree healthcare benefits on a cash basis, meaning that the expense is recognized and reported on the City’s financial statement as an annual cash outlay for retiree healthcare premiums. GASB 45 changes the accounting standard from a cash to an accrual basis. The accrual basis of accounting requires employers to recognize and report the value of retiree healthcare benefits earned (based on actuarial standards) by both retirees and active employees.
The City retained an actuary to calculate our unfunded liabilities and a copy of that actuarial may be viewed by clicking here.
Adjustments to Retiree Costs
In an effort to contain and manage post employment retiree costs, in 1995 the City implemented a two-tier retirement system. Prior to 1995, all employees that retired from the City of Placentia with a service retirement were eligible for lifetime health benefits. This second tier provided a major change in that all employees hired after November of 1995 were not eligible to receive full retiree health benefits. This second tier has a significant effect in that it controls the future financial liability for the majority of the City’s workforce.
In addition, in 2008 the City switched over to the CalPERS medical plan and created a cap on premium payments that would be made on behalf of both employees and eligible retirees hired prior to November 1995. This cap provides additional control over current and future medical costs and creates a limit as to the amount that the City will pay toward an employee/eligible retiree’s medical premiums.
Both of the measures outlined above assist the City of Placentia in managing and controlling future OPEB costs and exposure.
For more information, please contact the Administration Department at Administration or at 714)993-8117.