Rocklin's retiree health care costs rise

City plans benefit changes, financial trust to address annual liability
By: Jon Brines, Placer Herald correspondent
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“... we have to figure out how to manage that cost within our budget as health care costs continue to go up and people live longer.”

Dave Butler, Rocklin City Councilmember

The long-term cost of providing health and dental benefits for retired city workers continues its yearly jump, but now the city is hoping to make some changes to ease the burden to taxpayers.

City employees have a benefit now that allows them to get health care when they retire and employees are vested after five years of city service, no matter their age.

“The city has a bunch of employees, they pay into their health care and the city pays into their health care,” said Rocklin City Councilmember Dave Butler. “Once they retire, the city has to continue, an obligation to continue, to pay for it. What we call a liability. So we have to figure out how to manage that cost within our budget as health care costs continue to go up and people live longer.”

Rocklin Chief Financial Officer Kim Sarkovich released a new actuarial valuation report prepared by Bartel Associates, LLC, at last Tuesday’s City Council meeting showing Rocklin taxpayers are on the hook, as of June 2012, for an estimated $44.5 million unfunded liability. In 2008, that number was $31.9 million, according to the report. Rocklin currently sets aside $10 million for it, but potentially that could be used for something else if the city doesn’t put it into an official irrevocable trust.

Folsom has a few more employees than Rocklin, but comparably maintains a $2.2 million trust fund and acknowledges its retiree health costs exceeded $42 million last year.

Sarkovich said the liability grew less than expected due to the city’s newly enacted plan to invest the money set aside for retiree health care expenses, which has garnered 8 percent a year in interest, or $500,000. That money is also being added to the pot.

Rocklin follows a pay-as-you-go method, like most public agencies, and allocated $870,000 for the current budget to pay for the actual cost of current and future retirees’ health care premiums for the year. That number has been steadily rising; in 2009 it was $483,000, according to the report.

Of the 250 current employees, the average age is 44 years old and made $67,800 last year. In 2008, the average was 42 years old and $74,000 average pay, according to the report. The city has 89 retirees in the system with an average age of 62, which is up from 2008 when the average age was 60 and there were only 57 retiree premiums the city had to pay for.

City Manager Rick Horst said more needs to be done.

“I want to stress this is significant,” Horst said. “Because of the direction this City Council took, particularly with recommending the trust and investing those dollars, the liability has dropped dramatically.”

If the city plays its cards right, plans in the works could change that $43 million liability figure to $18 million.

Horst wants to further study the benefit tiers and possibly make changes to curb some of the annual cost. He also wants to set up an official trust for the money set aside. That would have to be approved by the City Council and would most likely be finalized before the end of this fiscal year in June.

“We’re going in the right direction by doing what we’re doing,” Sarkovich told the council.

Rocklin could also move away from pay-as-you go and pre-fund health care to reduce its liability. But the city would have to come up with upward of $2 million more a year, according to the report.

There is an x-factor. Doug Pryor of Bartel Associates points to the actual rising costs of medical care and the potential impact of the Affordable Healthcare Act for unforeseen long term costs.

“We still haven’t been able to wrap our heads around what exactly is going to happen there,” Pryor said. “There are arguments both ways about what will happen with health care costs. We’re hoping in the coming years we’ll have more information.”