Other Post-Employment Benefits (OPEB) Background Information

What is OPEB?
Other Post-Employment Benefits (OPEB) are non-pension benefits provided to employees upon retirement. The City of Novato's OPEB benefits provided to retirees are limited to health care. Dental, vision and life insurance coverage are not provided to retirees.

How does Novato provide OPEB?
Novato contracts with the California Public Employees' Retirement System (CalPERS) to participate in the Public Employees' Medical and Hospital Care Act (PEMHCA) to provide access to group health insurance for all active employees. The CalPERS Board of Administration administers the health benefits program and determines the benefits design, along with any copays, deductibles, providers and premiums. The City is required to also provide access to retired employees as part of contracting with CalPERS for active employees. The City contracts with CalPERS to provide the minimum contribution possible for retirees.

Novato's Retiree Medical Program Provisions and Costs:
To be eligible for benefits from the City, an individual must be receiving a CalPERS pension. Therefore, the individual must be at least 50 years old and have five years of service credit in CalPERS. These retiree medical benefits are available for life.

The City currently pays the minimum, legally-mandated employer contribution toward a retirees’ monthly health premium if the retiree elects to purchase medical coverage through CalPERS once they are retired. Additionally, since the 2012-13 fiscal year, Novato has opted to pre-fund an actuarially determined contribution into an OPEB trust in order to reduce its OPEB unfunded liability. In 2015-16, Novato’s monthly OPEB expense was $125 per month for each eligible retiree who opts for the benefit. This contribution amount is adjusted annually based on the medical component of the Consumer Price Index. In the 2015-16 fiscal year, the City spent $87,682 to pay OPEB costs for retirees and contributed $180,000 into its OPEB trust to offset future liabilities. These contributions are budgeted annually in the City’s operating budget. In total, the OPEB trust had assets on hand of $708,682 at the end of fiscal year 2015-16.

New Standards Establish OPEB Reporting Requirements
Public agency OPEB liabilities have become a major issue due to the fact that health care premiums have increased dramatically in recent years, more employees are reaching retirement age and retirees are living longer. Public agencies have historically funded OPEB costs on a "pay-as-you-go" basis. Furthermore, the cost of benefits was not reported until after employees retired. This approach was not comprehensive, as it failed to account for future costs and obligations incurred for current employees.

In response, the Government Accounting Standards Board (GASB) developed two new standards to direct how state and local governments account for and report OPEB benefits. The GASB is a non-profit agency that develops and issues financial and accounting standards for state and local government agencies. In 2004, the GASB issued Standards 43 and 45 to address reporting and accounting of OPEB liabilities.

• GASB 43 (April 2004): Established uniform financial reporting standards for OPEB plans. Specifically, this standard required actuarial reporting by retiree health benefit plans.
• GASB 45 (June 2004): Required an employer's (i.e. City of Novato's) expense to be determined using actuarial methods so that costs accrue over the employees' working lifetimes. Public agencies must report their annual OPEB costs and their unfunded actuarial accrued liabilities for past service costs. Novato is required to conduct an actuarial study of its OPEB commitment every two years.

It is important to note that GASB 43 and 45 are accounting standards and not legal requirements for governments to change anything about public retiree health benefits or their funding.

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