Comprehensive Annual Financial Report - City of Santa Monica

CITY OF SANTA MONICA, CALIFORNIA
Notes to Basic Financial Statements, Continued
For the fiscal year ended June 30, 2008
Development of Net OPEB Obligation and Annual OPEB Cost (in thousands)
Annual required contribution $ 1,638
Interest on OPEB obligation —
Adjustment to annual required contribution —
Annual OPEB expense 1,638
Contributions made (396)
Increase in net OPEB obligation 1,242
Net OPEB obligation - beginning of the year —
Net OPEB obligation - end of the year $ 1,242
Schedule of Employer Contributions (in thousands)
Annual
OPEB Costs
Annual
Contribution
Percentage
Contribution
Net OPEB
Obligation
Actuarial methods and assumptions
$1,638 $396 24.2% $1,242
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, 2007 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, 2007 was thirty years.
Medical Trusts
The City contributes, consistent with bargaining unit agreements, monies to medical trusts that provide
postemployment medical benefits to employees. The amount of benefits provided to employees under
these plans is limited solely to the amount contributed, related investment earnings, and forfeitures.
During FY 2007-08 the City contributed $5,763,636 towards the retiree medical trusts. These are
administered through third-party administrators and the City does not perform the investing function or
have other significant responsibility relating to the management of plan assets. Thus, plan assets and
any related liabilities have been excluded from the City’s basic financial statements.
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