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Extracted from Consolidated Report

This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.

Orange County Grand Jury • 2014-2015

Unfunded Retiree Healthcare Obligations - a Problem for Public Agencies?

26 pages

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⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.

⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

Note: Missing finding numbers detected: F2

Findings 3 findings

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F2 F3 F4 R1 R2 R3 R4 REPORT 20 Lake Forest x x 4 21 Los Alamitos x x x x x x REPORT 22 Mission Viejo x x x x 5 23 Newport Beach x x x x 24 Orange x x x x x x REPORT 6 25 Orange County Fire Authority x x x x 26 Placentia x x x x x x REPORT 27 Rancho Santa Margarita x x x x x x 7 28 San Clemente x x x x x x 29 San Juan Capistrano x x x x x x REPORT 8 30 Santa Ana x x x x x x 31 Seal Beach x x x x REPORT 32 Stanton x x 9 33 Tustin x x x x x x REPORT 34 Villa Park x x 10 35 Westminster x x x x x x 36 Yorba Linda x x x x x x REPORT 11 REPORT 12 REPORT 13 REPORT 14 REPORT 15 REPORT 16 2014-2015 Orange County Grand Jury REPORT 1 Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? REPORT REFERENCES 2 California Debt and Investment Advisory Commission. OPEBs &GASB 45, A Question and Answer Guide CDIAC # 06-09(2009) REPORT 3 Comprehensive Annual Financial Reports for FY 2012-13, as retrieved from the following city/agency web sites: REPORT Aliso Viejo 4 Anaheim Brea REPORT Buena Park 5 Costa Mesa Cypress Dana Point REPORT Fountain Valley 6 Fullerton Garden Grove REPORT Huntington Beach 7 Irvine Laguna Beach REPORT Laguna Hills 8 Laguna Niguel Laguna Woods REPORT La Habra 9 Lake Forest La Palma Los Alamitos REPORT Mission Viejo 10 Newport Beach Orange REPORT Placentia 11 Rancho Santa Margarita San Clemente REPORT San Juan Capistrano 12 Santa Ana Seal Beach REPORT Stanton 13 Tustin Villa Park Westminster REPORT Yorba Linda 14 County of Orange Orange County Fire Authority REPORT 15 Governmental Accounting Standards Board GASB (2004). Summary of Statement No.45, as retrieved from : REPORT 16 2014-2015 Orange County Grand Jury REPORT Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? 1 REPORT http://www.gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=117 2 6156700943 Governmental Accounting Standards Board (GASB)(2004). GASB Statement 45 on REPORT OPEB accounting by governments, A few basic questions and answers as 3 retrieved from: http://www.gasb.org/project_pages/gasb_st45_basic_q&a.pdf REPORT 4 Legislative Analyst Office. Consider phasing out retiree health care. (2015): as retrieved from: http://calpensions.com/2015/03/23/lao-consider-phasing-out-retiree-health- care. REPORT 5 New Reports Detail Pension Fund Finances(2015) as retrieved from: https://www.calpers.ca.gov/index.jsp?bc=/about/newsroom/news/new-report- REPORT fund-finances.xml 6 Torres, Zahira (2015, March 7). Health benefits are a promise school districts find hard REPORT to keep. Los Angeles Times. REPORT 8 REPORT 9 REPORT 10 REPORT 11 REPORT 12 REPORT 13 REPORT 14 REPORT 15 REPORT 16 2014-2015 Orange County Grand Jury REPORT 1 Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? REPORT APPENDIX: GLOSSARY OF TERMS 2 Governmental Accounting Standards Board (GASB): GASB is the source of REPORT generally accepted accounting principles (GAAP) used by state and local governments 3 in the United States. As with most of the entities involved in creating GAAP in the United States, it is a private, non-governmental organization. REPORT 4 The GASB is subject to oversight by the Financial Accounting Foundation (FAF), which selects the members of the GASB and the Financial Accounting Standards Board and funds both organizations. REPORT 5 The mission of the GASB is to establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for REPORT users of financial reports and guide and educate the public, including issuers, auditors, 6 and users of those financial reports. REPORT The GASB has issued Statements, Interpretations, Technical Bulletins, and Concept 7 Statements, defining GAAP for state and local governments since 1984. GAAP for the Federal government is defined by the Federal Accounting Standards Advisory Board. REPORT 8 Other Post-Employment Benefits (OPEB): are part of total compensation offered by employers to attract and retain employees. OPEB includes postemployment health care, as well as other postemployment benefits e.g. life insurance when provided REPORT separately from a Pension Plan. The applicable GASB statements are: REPORT 10  Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans REPORT  Statement No. 26, Financial Reporting for Post-employment Healthcare Plans 11 Administered by Defined Benefit Pension Plans  Statement No. 43, Financial Reporting for Post-employment Benefit Plans, Other REPORT Than Pension Plans 12  Statement No. 45, Accounting and Financial Reporting by Employers for Post- employment Benefits, Other Than Pensions REPORT GASB pronouncements apply to governmental entities, public benefit entities, public 13 employee retirement systems, and public utilities, hospitals and other healthcare providers, and colleges and universities. REPORT 14 Unfunded Accrued Actuarial Liability (UAAL) is the amount of retirement benefits that are owed to employees in future years that exceed current assets and their REPORT projected growth. Annual Required Contribution (ARC)is the employer’s required contributions for the REPORT year, calculated in accordance with certain parameters and includes (a) the normal cost 16 2014-2015 Orange County Grand Jury REPORT Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? 1 REPORT for the year and (b) a component for amortization of total unfunded actuarial accrued 2 liabilities(or funding excess) of the plan over a period not to exceed thirty years. REPORT 3 REPORT 4 REPORT 5 REPORT 6 REPORT 7 REPORT 8 REPORT 9 REPORT 10 REPORT 11 REPORT 12 REPORT 13 REPORT 14 REPORT 15 REPORT 16 2014-2015 Orange County Grand Jury

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Anaheim, Buena Park, County of Orange, Huntington Beach, Lake Forest, and REPORT Stanton were in compliance with the requirement to contribute a full 100% or 9 more of their Annual Required Contribution in the FY 2012-13. The remaining 26 agencies were not in compliance. REPORT

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All agencies surveyed (except Anaheim) do not disclose retiree health benefits 10 as part of employee compensation per GAAP standards. REPORT RECOMMENDATIONS 11 In accordance with California Penal Code sections 933 and 933.05, the 2014- 2015 Grand Jury requires (or, as noted, requests) responses from each agency affected REPORT by the recommendations presented in this section. The responses are to be submitted 12 to the Presiding Judge of the Superior Court. Based on its investigation titled “Unfunded Retiree Health Care Obligations-A REPORT Problem for Public Agencies?,” the 2014-2015 Orange County Grand Jury makes the 13 following four recommendations: REPORT R.1. The cities of Aliso Viejo, Dana Point, Laguna Hills, Villa Park, and Laguna Woods 14 should measure and disclose their liability in accordance with Governmental Accounting Standards Board Statement No. 45. (F.1.) REPORT

Recommendations 3

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The 21 agencies that have not contributed into an irrevocable trust fund to 15 finance their retiree health obligations should begin to put aside monies to fund this obligation and reduce their unfunded public liabilities (F.2.) REPORT 16 2014-2015 Orange County Grand Jury REPORT Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? 1 REPORT
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The 26 agencies that are not recognizing the full amount of their Annual 2 Required Contribution as expense in the current period and should comply with the requirement to do so. (F.3.) REPORT
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All agencies surveyed should recognize retiree health care benefits in employee 3 compensation in conformity with GAAP. (F.4.) REPORT REQUIRED RESPONSES 4 The California Penal Code section 933 requires the governing body of any public agency which the Grand Jury has reviewed, and about which it has issued a final report, REPORT to comment to the Presiding Judge of the Superior Court on the findings and 5 recommendations pertaining to matters under the control of the governing body. Such comment shall be made no later than 90 days after the Grand Jury publishes its report REPORT (filed with the Clerk of the Court). Additionally, in the case of a report containing findings 6 and recommendations pertaining to a department or agency headed by an elected County official (e.g. District Attorney, Sheriff, etc.), such elected official shall comment REPORT on the findings and recommendations pertaining to the matters under that elected 7 official’s control to the Presiding Judge with an information copy sent to the Board of Supervisors. REPORT Furthermore, California Penal Code section 933.05, subdivisions (a), (b), and (c), 8 provides as follows, the manner in which such comment(s) are to be made: (a) As to each Grand Jury finding, the responding person or entity shall indicate one of REPORT the following: 9 (1) The respondent agrees with the finding REPORT 10 (2) The respondent disagrees wholly or partially with the finding, in which case the response shall specify the portion of the finding that is disputed and shall include an explanation of the reasons therefore. REPORT 11 (b) As to each Grand Jury recommendation, the responding person or entity shall report one of the following actions: REPORT 12 (1) The recommendation has been implemented, with a summary regarding the implemented action. REPORT (2) The recommendation has not yet been implemented, but will be implemented 13 in the future, with a time frame for implementation. REPORT (3) The recommendation requires further analysis, with an explanation and the 14 scope and parameters of an analysis or study, and a time frame for the matter to be prepared for discussion by the officer or head of the agency or department being investigated or reviewed, including the governing body of the public agency when REPORT applicable. This time frame shall not exceed six months from the date of publication of 15 the Grand Jury report. REPORT 16 2014-2015 Orange County Grand Jury REPORT 1 Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? REPORT (4) The recommendation will not be implemented because it is not warranted or 2 is not reasonable, with an explanation therefore. REPORT (c) If a finding or recommendation of the Grand Jury addresses budgetary or personnel 3 matters of a county agency or department headed by an elected officer, both the agency or department head and the Board of Supervisors shall respond if requested by the Grand Jury, but the response of the Board of Supervisors shall address only those REPORT budgetary /or personnel matters over which it has some decision making authority. The 4 response of the elected agency or department head shall address all aspects of the findings or recommendations affecting his or her agency or department. REPORT 5 Comments to the Presiding Judge of the Superior Court in compliance with Penal Code section 933.05 are required from Orange County, the Orange County Fire Authority, and REPORT the Mayors of the cities as denoted in the following Response Matrix: 6 RESPONSE MATRIX REPORT 7 Findings Recommendations REPORT 8 F1 F2 F3 F4 R1 R2 R3 R4 1 Aliso Viejo x x REPORT 2 Anaheim 9 3 Brea x x x x x x REPORT 4 Buena Park x x 10 5 Costa Mesa x x x x x x 6 County of Orange (BOS) x x REPORT 7 Cypress x x x x x x 11 8 Dana Point x x REPORT 9 Fountain Valley x x x x 12 10 Fullerton x x x x x x 11 Garden Grove x x x x x x REPORT 13 12 Huntington Beach x x 13 Irvine x x x x x x REPORT 14 La Habra x x x x x x 14 15 La Palma x x x x x x 16 Laguna Beach x x x x x x REPORT 15 17 Laguna Hills x x 18 Laguna Niguel x x x x x x REPORT 19 Laguna Woods x x x x x x x x 16 2014-2015 Orange County Grand Jury REPORT Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? 1 REPORT RESPONSE MATRIX 2 REPORT Findings Recommendations 3 F1 F2 F3 F4 R1 R2 R3 R4 REPORT 20 Lake Forest x x 4 21 Los Alamitos x x x x x x REPORT 22 Mission Viejo x x x x 5 23 Newport Beach x x x x 24 Orange x x x x x x REPORT 6 25 Orange County Fire Authority x x x x 26 Placentia x x x x x x REPORT 27 Rancho Santa Margarita x x x x x x 7 28 San Clemente x x x x x x 29 San Juan Capistrano x x x x x x REPORT 8 30 Santa Ana x x x x x x 31 Seal Beach x x x x REPORT 32 Stanton x x 9 33 Tustin x x x x x x REPORT 34 Villa Park x x 10 35 Westminster x x x x x x 36 Yorba Linda x x x x x x REPORT 11 REPORT 12 REPORT 13 REPORT 14 REPORT 15 REPORT 16 2014-2015 Orange County Grand Jury REPORT 1 Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? REPORT REFERENCES 2 California Debt and Investment Advisory Commission. OPEBs &GASB 45, A Question and Answer Guide CDIAC # 06-09(2009) REPORT 3 Comprehensive Annual Financial Reports for FY 2012-13, as retrieved from the following city/agency web sites: REPORT Aliso Viejo 4 Anaheim Brea REPORT Buena Park 5 Costa Mesa Cypress Dana Point REPORT Fountain Valley 6 Fullerton Garden Grove REPORT Huntington Beach 7 Irvine Laguna Beach REPORT Laguna Hills 8 Laguna Niguel Laguna Woods REPORT La Habra 9 Lake Forest La Palma Los Alamitos REPORT Mission Viejo 10 Newport Beach Orange REPORT Placentia 11 Rancho Santa Margarita San Clemente REPORT San Juan Capistrano 12 Santa Ana Seal Beach REPORT Stanton 13 Tustin Villa Park Westminster REPORT Yorba Linda 14 County of Orange Orange County Fire Authority REPORT 15 Governmental Accounting Standards Board GASB (2004). Summary of Statement No.45, as retrieved from : REPORT 16 2014-2015 Orange County Grand Jury REPORT Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? 1 REPORT http://www.gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=117 2 6156700943 Governmental Accounting Standards Board (GASB)(2004). GASB Statement 45 on REPORT OPEB accounting by governments, A few basic questions and answers as 3 retrieved from: http://www.gasb.org/project_pages/gasb_st45_basic_q&a.pdf REPORT 4 Legislative Analyst Office. Consider phasing out retiree health care. (2015): as retrieved from: http://calpensions.com/2015/03/23/lao-consider-phasing-out-retiree-health- care. REPORT 5 New Reports Detail Pension Fund Finances(2015) as retrieved from: https://www.calpers.ca.gov/index.jsp?bc=/about/newsroom/news/new-report- REPORT fund-finances.xml 6 Torres, Zahira (2015, March 7). Health benefits are a promise school districts find hard REPORT to keep. Los Angeles Times. REPORT 8 REPORT 9 REPORT 10 REPORT 11 REPORT 12 REPORT 13 REPORT 14 REPORT 15 REPORT 16 2014-2015 Orange County Grand Jury REPORT 1 Unfunded Retiree Health Care Obligations-A Problem for Public Agencies? REPORT APPENDIX: