Official Statement Airport Commission City and County of San ...

Postemployment Health Care Benefits. Eligibility of former City employees for retiree health care benefits
is governed by the Charter, as amended by Proposition B, passed by voters on June 3, 2008. Employees and a
spouse or dependent are potentially eligible for health benefits following retirement after age 50 and completing five
years of City service, subject to other eligibility requirements.
The City was required to begin reporting the liability and related information for unfunded post-retirement
medical benefits in the City’s financial statements for the Fiscal Year ending June 30, 2008. This reporting
requirement is defined in the Governmental Accounting Standards Board (“GASB”) Statement No. 45
(“GASB 45”), which addresses how state and local governments should account for and report their costs and
obligations related to post-employment health care and other non-pension benefits (“OPEB”). GASB 45 does not
require that affected government agencies, including the City and the Airport, actually fund any portion of the
OPEB, rather GASB 45 required that government agencies start to record and report a portion of the liability in each
year if they do not fund the OPEB. GASB 45 also requires that non-pension benefits for retirees, such as retiree
health care, be shown as an accrued liability on the financial statements.
To help plan for the implementation of GASB 45, the City engaged an actuary to prepare a preliminary
actuarial valuation of this liability. In its November 1, 2007 report on GASB 45 Valuation Results and Plan Design,
Mercer Consulting estimated that if the City were to have a Funded Plan to cover post-employment medical
benefits, the projected liability would be $4.0 billion and have an annual required contribution for Fiscal Year 2007­
08 of $409.1 million, assuming a 4.5% return on investments, while covering all City operations, including those
that are General Fund supported. In Fiscal Year 2006-07, the City’s expenditures included $102.6 million for retiree
health subsidies, which represented only the amount needed to pay for current costs due during such Fiscal Year.
The additional potential liability to the City would, therefore, be the difference between the Mercer estimate and the
Fiscal Year 2006-07 expenditures. The calculations in the Mercer Report are sensitive to a number of critical
assumptions, including but not limited to the projected rate of increases in health plan costs.
Proposition B, passed by San Francisco voters on June 3, 2008, tightens post-retirement health benefit
eligibility rules for employees hired after January 10, 2009, and requires payments by the City and these employees
equal to 3% of salary into a new retiree health trust fund. The City’s actuarial analysis shows that by 2031, this 3%
funding will be sufficient to cover the cost of retiree health benefits for employees hired after January 10, 2009. The
projected liability of $4.04 billion described above is designed to be partially addressed by the passage of
Proposition B which applies to future hires. See “–Retirement System–Voter Approved Changes to the Retirement
Plan.”
The City has determined a City-wide Annual Required Contribution (the “ARC”), interest on net OPEB
Obligation, ARC adjustment, and OPEB cost based upon an actuarial valuation performed in accordance with
GASB 45, by the City’s actuaries. The City’s allocation of the OPEB related costs to Airport for the year ended
June 30, 2009 is based upon the Airport’s percentage of City-wide payroll costs.
The following table shows the components of the City’s annual OPEB allocation for Airport for the year,
for the amount contributed to the plan, and changes in the City’s net OPEB obligation (in thousands):
2009 2008
Annual Required Contribution (ARC) $24,009 $22,459
Interest on net OPEB Obligation 744 –
Adjustment to ARC (551) –
Annual OPEB Cost (expense) 24,202 22,459
Contribution Made (7,389) (7,046)
Increase in Net OPEB Obligation $16,813 $15,413
Net OPEB Obligation - beginning of year $15,413 –
Net OPEB Obligation - end of year $32,226 $15,413
The Health Service System issues a publicly available financial report that includes financial statements for
the health care benefits plan. The report may be obtained by writing to the San Francisco Health Service System,
1145 Market Street, Second Floor, San Francisco, California 94103, or by calling 415-554-1700.
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