Santa Monica City Council on May 12 approved a prefunding of other post employment benefits (OPEB) for City employees, totaling $2,506,785 in fiscal year 2014-15.
The City currently pays approximately $1 million annually to beneficiaries.The proposal passed by Council increases the annual expenditure to approximately $2.5 million.
Up until this point, the City has paid the amounts required for retiree benefits in a given year, or pay-as-you-go. The pay-as-you-go amount has totaled approximately $1.1 million. The difference between these methods is in each one’s impact on the amount of the City’s total liability, according to city staff.
The OPEB “actuarial accrued liability” is approximately $25.9 million, according to staff.
By prefunding the OPEB – which means contributing an amount greater or equal to the annual required contribution – the City will reduce its liability and any large financial hit as a result. The move seeks to preempt any large financial penalty that would be absorbed by the City and funds in such a trust could gain higher returns than earned in current investments.
The California Public Employees’ Retirement System (CalPERS) will most likely serve as the City’s trust administrator through its affiliate program, the California Employers’ Retiree Benefit Trust (CERBT) at an estimated annual cost of $6,000, according to staff.