Comprehensive Annual Financial Report - City of Santa Monica

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CITY OF SANTA MONICA, CALIFORNIA Notes to Basic Financial Statements, Continued For the fiscal year ended June 30, 2009 Deferred Compensation Plans The City offers to its employees an optional deferred compensation plan created in accordance with Section 457 of the Internal Revenue Code. This plan is available to substantially all employees and allows participants to defer a portion of their current income until future years to shelter such funds and earnings from state and federal taxation until withdrawal. The deferred compensation is not available to participants until termination, retirement, death or unforeseeable emergency. The City offers an employer discretionary, defined contribution plan established and governed under Internal Revenue Code Section 401(a). Employer-only contributions are calculated based upon a percentage of employee compensation under agreements with employee bargaining groups and unions. The City offers to its as-needed employees a separate Section 457 deferred compensation plan under the Omnibus Budget Reconciliation Act (OBRA). This plan is available to all as-needed employees who are not eligible to participate in CalPERS. This plan requires equal employer and employee contributions based on a percentage of earnings. These plans are administered through third-party administrators. The City does not perform the investing function and has no fiduciary accountability for the plans. Thus, plan assets and any related liabilities to plan participants have been excluded from the City’s basic financial statements. Other Postemployment Benefits In addition to providing pension benefits through CalPERS, the City, in accordance with agreements with various bargaining units and groups, provides medical insurance benefits that are considered other postemployment benefits (OPEB) to certain retired employees. Employees of the Supervisory Team Associates bargaining unit become eligible for a medical insurance benefit if they fulfill length of service requirements and have more than 75 unused sick leave days upon retirement. Employees of the Executive Pay Plan group and management employees of the Rent Control Board are eligible for a city paid medical insurance benefit if their combined retirement age and years of City service equals or exceeds 70. Although not delineated in any written agreement, all retirees are allowed to continue participating in one of the City’s health plans at the same rate as active employees. The City also maintains minimum benefits for public safety employees provided by the City’s contract with its healthcare provider. The City pays for OPEB on a pay-as-you-go basis. Annual OPEB Cost and Net OPEB Obligation The City’s OPEB cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance within the parameters of GASB 45, “Accounting and Financial Reporting for Employers for Postemployment Benefits Other than Pensions.” The ARC represents a level of funding that if paid on an ongoing basis is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s OPEB obligation to the plan. 85
CITY OF SANTA MONICA, CALIFORNIA Notes to Basic Financial Statements, Continued For the fiscal year ended June 30, 2009 Development of Net OPEB Obligation and Annual OPEB Cost (in thousands) Annual required contribution $ 1,713 Interest on OPEB obligation 62 Adjustment to annual required contribution (53) Annual OPEB expense 1,722 Contributions made (549) Increase in net OPEB obligation 1,173 Net OPEB obligation - beginning of the year 1,242 Net OPEB obligation - end of the year $ 2,415 Schedule of Employer Contributions (in thousands) Fiscal Year Ended June 30 Annual OPEB Costs Annual Contribution Percentage Contribution Net OPEB Obligation 2009 $ 1,722 $ 549 31.88 % $ 2,415 2008 1,638 396 24.18 1,242 Actuarial methods and assumptions Projections of benefits for financial reporting purposes are based on the plan as understood by the City and its employees and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and that actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. In the July 1, 2008 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 5.0% rate of return, which is a blended rate of expected long-term return on plan assets on the City’s own investments calculated based on the funded level of the plan at the valuation date, and an annual health care cost trend of 11.0% initially, reduced by decrements to an ultimate rate of 5.0% after 8 years. Both rates include a 3.25% inflation assumption. The remaining amortization period at July 1, 2008 was twenty nine years. 86
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Comprehensive Annual Financial Report - City of Santa Monica

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