Presenter Cathy Bojorquez

Background/Analysis

In June 2015, the Governmental Accounting Standards Board (GASB) issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The objective of GASB 75 is to improve accounting and financial reporting for postemployment benefits other than pensions (other postemployment benefits or OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. GASB 75 replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB.

The District has long recognized a significant unfunded liability for postemployment benefits, specifically retiree health benefits. Thus, in order to mitigate increasing future liabilities, during 2000 and 2001 the retiree health benefits provided to all new hires were modified to provide health benefits until the age of 65 rather than lifetime benefits. Subsequently, retiree health benefits were discontinued effective July 1, 2005, for new hires of the following employee groups: (a) all classified personnel including confidential staff and supervisors; and, (b) management. Years later, retiree health benefits were discontinued for new faculty members hired on or after July 1, 2015. As of the measurement date June 30, 2023, the District has 648 retirees currently receiving benefits and 321 active employees eligible for future benefits, on either a lifetime basis or until age 65.

An actuarial study provides information to manage costs and liabilities associated with retiree health benefits and to provide information for financial reporting. An actuarial valuation of the total OPEB liability is required to be performed at least every two years, with more frequent valuations or calculations encouraged. The previous actuarial study, with a measure date of June 30, 2022, was conducted as a full valuation. In alignment with GASB 75, the District conducts a full valuation every two years, with an update completed in the off-years for the deferred inflows and outflows that impact the comprehensive annual financial report. The current Study is a roll-forward valuation. As a roll-forward valuation, the report is based on census data previously provided as of June 2023, for the June 30, 2022, full valuation.

General Findings of the Actuarial Study (measurement date June 30, 2023):

June 30, 2023 Measurement Date for June 30, 2024 Fiscal Year-End June 30, 2022 Measurement Date for June 30, 2023 Fiscal Year-End Change

Total OPEB liability $138,449,168 $130,289,699 $8,159,469

Plan fiduciary net position $25,330,331 $23,322,049 2,008,282 Districts net OPEB liability $113,118,837 $106,967,650 $6,151,187

Plan fiduciary net position as a percentage of the total OPEB liability 18.30%.

The total OPEB liability of $138,449,168 is the estimated amount that would have accumulated had the District begun accruing the liability associated with the retiree health benefits when each eligible current employee and retiree was hired.

In adherence to best practice and fiscal prudency for effective administration of a substantial and growing unfunded liability for retiree health benefits, the District has set aside funds to cover retiree health liabilities in a qualifying trust. The establishment of an irrevocable trust is intended to help mitigate the rising costs to the District for its OPEB or retiree health benefits liability, as long-term investments through a trust typically earn higher returns on investment than other available methods.

The District issued in August 2010 a Request for Proposal (RFP) for an irrevocable trust program. In October 2010, the Futuris Public Entity Investment Trust was selected as the investment program coordinator with Benefit Trust Company as the Discretionary Trustee and Morgan Stanley Smith Barney as the Registered Investment Advisor. The Futuris Public Entity Investment Trust is an IRS Section 115 Trust that is used for the purposes of investment and disbursement of funds irrevocably designated by the District for the payment of its obligations to eligible employees (and former employees) of the District and their eligible dependents and beneficiaries for OPEB (e.g., life, sick, hospitalization, major medical, accident, disability, dental and other similar benefits).

In February 2011, the District established a Retirement Board of Authority (RBOA) consisting of District personnel to reach informed decisions and oversee and monitor the Trust activity.

In March 2011, the District remitted $9 million to its irrevocable trust. Since that time, additional dollars have been remitted for a total contribution to date of $14,450,000. Investment earnings help address the Districts long-term liability. With investment earnings totaling $10,880,331, the Fiduciary Net Position of this trust at June 30, 2023 was $25,330,331. By subtracting the Fiduciary Net Position from the Total OPEB liability, the Districts Net OPEB Liability is $113,118,837.

Because actuarial valuations contain estimates and assumptions about future results, the actuarial liability amounts will change with each successive actuarial study. To control or reduce future rising costs, additional changes to the District's health benefits program would need to occur.

District Council on Administrative Services (DCAS)

Meeting Information

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