GASB 45 ForumA Local Government’s Perspective

February 7, 2007 Janet SmithWashington D.C. City of Phoenix, Arizona

Personnel Director

Overview

• The liability was significant

• With effective dates approaching, time for planning was short

• Best interest of the city and the employees to reduce this liability– Bond ratings

– Cash flows

– Plan design

– Citizen interest

GASB 45

The Challenge

Overview

• Blended rates between active employees and retirees

• Provided retirees a subsidy to offset medical expenses

Liabilities

Overview

• Collaboration Required: – Employee unions & associations– Personnel, Budget and Research, and Finance departments

• Actuarial Analysis: – Pension and Health Care actuary – Initial estimate based on preliminary data

• Explore All Options:– Cost-sharing multiple employer plans– Community – rated plans– Political solutions– What are others doing?

Working Together for a Positive Solution

The Process

Do I Really Have to Make Changes?

Regardless of GASB:– Changing demographics made it

necessary to change

– Recognizing this liability and funding it is the right thing to do

Bottom Line

2007 2008 2009 2010 2011 2012 2013 2014

Considerations

• Impact to stakeholders:– Current retirees

– Employees nearing retirement

– New employees

• Maintain retiree medical benefits• Opportunity to codify benefits• Manage costs • Craft a mutually agreeable solution

Designing the Solution

Health care

coverage will

still be

offered to

employees

and retirees

A Look at the ChangesWin/Win Solutions

Eliminated GASB liability by unblending actives and retirees (implicit subsidy)

Long term reduction in GASB liability by setting an end date to the Retiree Subsidy Program

Lower future health care costs by targeted health benefits programs

CITY

Current retirees and those within 15 years receive:

• Additional funds to reduce impact of unblending

• Rate stabilization fund to address potential retiree rate fluctuations

All other actives receive Post Employment Health accounts for future health care costs

Targeted health benefits programs and options by population

EMPLOYEES

Next Steps

• Communication of changes:– Employee, management, and retiree

briefings

– Employee publications

– Mailings to retirees

• Effective date of changes: August 1, 2007

Implementation