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