The city of El Dorado is working at new regulations for recording employee benefits.

“There are new governmental accounting statements this year,” said DeeAnne Grunder, director of finance. “GASB 45 requires us to recognize our other post employee benefits on an accrual basis.

“Right now the only benefit we offer other than retirement is health care.”

GSB 45 requires the city to have a valuation every three years, and they just completed their first one this year.

“Prior to GASB 45, cities operated on a pay-as-we-go cash basis,” she said. “There was no accrual for a liability unless you failed to pay your premium.”

According to state regulations, retirees have to be eligible to be on a health plan and work for the entity for 10 years. In addition, retirees pay up to 125 percent for the group health premium because they have higher claims.

“The city of El Dorado offers additional health benefits for retirees,” Grunder said. “They must have 20 years of service with the city. For those retirees under age 62, they pay 50 percent of the premium. From age 62 to 75, retirees pay 100 percent. If those requirements for our policy are not met, they fall back under the state statute and we can require them to pay 125 percent.”

The group health premium offered is the same for all employees, whether current employees or retirees. If they used an age-adjusted premium, that amount for retirees would be much higher than for active employees.

Grunder read one quote from a book on the topic, which she felt summed it up well: “Even if retirees were responsible for paying the full amount of their monthly premium, the employer would still be providing a benefit to them by paying a higher premium for its active employees to subsidize the lower premium for retirees.”

“That’s the reason you might want to charge more than 100 percent,” she explained.

One aspect of the health care the city commission was considering is the annual required contribution by the city.

“We are not required to fund it,” she said. “This is what we will need a decision on from you all on whether we fund this or not.

“The actual accrued liability (ARC) is the benefits promised to employees as compensation for services already rendered. We have been promising employees when they come to work for the city, and if they are eligible, they can have our health benefits when they retire.”

She said the city has to record all liability now. That includes estimating health claims for each employee when they retire.

If the city chooses to fund the ARC, they will send a portion of that money to a trust fund.

If they chose not to fund it, then the total amount needed in that fund will increase next year.

“The actuary uses several assumptions to come up with all of the numbers: the investment rate and health care inflation rate,” she said. “Healthcare costs are exceeding the inflation rate.”

But she said the investment rate is the good side of it.

“They will use an assumption for the investment rate,” Grunder said. “That depends on whether or not we fund it. If not, they will use a rate in line with the investments you make. If you fund the ARC, you are required to set up an irrevocable trust. Once it’s there you can’t change your mind and get it back next year. So funding it will actually save money.”

Another factor figured into the fund amount is the turnover rate, age active employees will retire and mortality rate.

“It determines the window of time we will have to fund health care insurance claims,” she said.

It also looks at the retiree participation rate and how many take family coverage.

“What is important is that the funding ratio is increasing and the speed of increase or decrease,” she said. “People looking at the financial statements, those are the things that are important to them.”

The rate will change as things go along.

Herb Llewellyn, city manager, said all of the rates now are based on estimates and are conservative.

Grunder agreed it was less than she expected.

The goal is to have enough money in the trust to fund the benefits.

“Sitting here today, I think most cities will not fund this,” Llewellyn said. “I don’t think that (not funding it) is a good idea at all.”

That is because it shows up on financial statements for the city and can cause higher investment rates for the city and bond rating agencies desire to press to full funding.

“The people who bid on our bonds read our financial statement before they bid,” Llewellyn said.

The total of the old liability and projected future liability is $1.6 million.

Commissioner Steve Pershall gave his support.

“I would be in support of funding this because I tend to think government does not fully disclose everything,” he said. “I think to me this would be more of doing full disclosure to the public as we really stand. As an accountant, I would certainly encourage funding the ARC.”

Grunder explained this benefit being offered is something employees are earning today.

“It makes sense not to defer the cost to future tax payers,” she said.

Llewellyn also said more and more governments are going to accrual accounting because it is a better reflection of financial well-being.

“We agree we need to do it,” he said, adding that they planned on budgeting it for 2009. “Even furthermore, at the end of the year when we see how we’ve done, if our expenditures and revenues are the same as last year, we will recommend you fund ’08.”

Mayor Tom McKibban asked if once the money was in the fund, there was any way future commissions could take it out.

Grunder said they couldn’t take it out, but they could stop funding the ARC.

“I think it would give us a lot better management of our money for the future,” Commissioner David Chapin said. “I would have to say yes.”

The amount the city would have to fund is $78,000, although they would get back around $34,000 from that each year.

The city will put it in the budget for 2009 and look at it at the next meeting.