HomeMy WebLinkAboutApprove FY 2017/18 Year End Adjustment for the Workers' CompFile #: 18-370
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MEETING DATE: 10/15/2018
REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Gilbert Garcia, Chief Financial Officer
Subject:
Approve FY 2017/18 Year End Adjustment for the Workers' Compensation Internal Service
Fund
Statement of Issue:
The Finance Department is completing the year-end closing process for Fiscal Year 2017/18, which
began on October 1, 2017, and ended on June 30, 2018. Certain technical adjustments need to be
made to reconcile the budget with liabilities incurred and to comply with auditing, actuarial,
accounting and/or legal requirements. City Council authorization is requested to appropriate and
transfer $1.2 million from the General Fund to the Workers' Compensation Internal Service Fund to
record the increase in the total year-end liability of the Fund based on the most recent actuarial
valuation.
Financial Impact:
This action will result in the transfer of $1,245,432 from the General Fund to the Workers'
Compensation Internal Service Fund (Fund 551) pursuant to Generally Accepted Accounting
Principles (GAAP). The $1.2 million increase in the total liability of the Fund must be recorded based
on the results of the most recent actuarial valuation conducted by the independent actuary firm Aon
Consulting. With total assets of $14.0 million and total liabilities of $30.5 million, the total net position
of the Fund is negative $16.5 million, reflecting a 46 percent funded status. With this requested
transfer, the funded status will increase to 50 percent.
Recommended Action:
Approve the appropriation of $1,245,432 in the Fiscal Year 2017/18 Revised Budget in the General
Fund (100) and transfer to the Self Insurance Workers' Compensation Internal Service Fund (551).
Alternative Action(s):
Do not approve the recommended action and direct staff accordingly.
Analysis:
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File #: 18-370 MEETING DATE: 10/15/2018
California Workers' Compensation Law provides state mandated benefits to employees for work -
related illness or injury. Benefits may include payments for medical treatment, salary continuation,
Total Temporary Disability (TTD) benefits, and permanent disability benefits. The City is self -insured
for its workers' compensation program and is liable for all costs up to $1 million dollars pe_r_claim. The
costs related to claims are paid for by the City as the Employer.
FY 2017/18 Actual Expenses and Liabilities (Preliminary Unaudited)
Total expenses in the Workers' Compensation Internal Service Fund are approximately $6.4 million
for FY 2017/18, which reflects a nine -month adjusted fiscal year and a growth of 47 percent from the
same nine -month period (October to June timeframe) in FY 2015/16. The growth in expenditures is
due primarily to health care industry trends related to the increased cost of medical care, statutorily
enhanced benefits for public employees, and labor costs.
To facilitate improved accounting and full financial disclosure of the City's current and future Workers'
Compensation program costs, the Workers' Compensation Internal Service Fund was created in FY
2012/13 to better account for the program's expenses and long-term liabilities. The components of
these expenses include, but are not limited to, annual claims administration expense, direct and
indirect claims costs (e.g., professional, medical, hospital, pharmacy and legal costs), salary
continuation and medical utilization review costs. This Fund has allowed for greater tracking,
planning and transparency of workers' compensation expenses and liabilities. Greater transparency
has been achieved as all costs are distinctly accounted for within a segregated fund in the City's
annual adopted budget and financial statements.
Unfunded Liabilities and Net Fund Position
As of the most recent actuarial valuation for the period ending June 30, 2018, the City's total workers'
compensation liability is now $30.5 million, or $1.2 million higher than the previous year. The
increase is primarily due to a reconciliation performed by the City's independent actuaries, Aon
Consulting, to true -up the Fund's liabilities to reflect the City's greater than expected outstanding
claims burden. The liability of $30.5 million, compared to total Fund assets of $14.0 million results in
an unfunded liability of $16.5 million and a funded status of 46 percent. The requested action will
match the increase in the City's liability identified in the June 30, 2018 actuarial valuation, and will
bring the funded status to 50 percent.
Environmental Status:
Not Applicable.
Strategic Plan Goal:
Strengthen economic and financial sustainability
Attachment(s):
1. City of Huntington Beach Workers' Compensation Analysis Fiscal Year End 6/30/2018
Unaudited
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City of Huntington Beach
Worker's Comp Analysis - Estimated
FYE: 613012018
FY 13114
FY.1411L__L
FY 15116
FY 16117
FY 17118*
increase
WC Liability per Actuary Report—
_
15,894,603.00
20,631,067.00
20,631,067.00
26,184,026.00
27,439,191.00
1,255,165,00
ULAE {Unallocated foss adjustment expense)—
794,730.15
1,031,553.35
1,031,553.35
1,309,201.30
1,371,959.55
62,758.25
WC Liabilityw/ULAE
16,689,333.15
21,662,620.35
21,662,620.35
27,493,227.30
28,811,150.55
1,317,923.25
Other Liabilities (AP, Camp Absences, Pension etc)
454,768.B3
501,731.33
1,594,173.27
1,796,078,22
1,663,789.55
(132,288.67)
Estimated Year End Adjustments
-
-
59,797.76
59,797.76
Total Liabilities
17,144,101.98
22,164,351.68
23,256,793.62
29,289,305.52
30,534,737.86
1,245,432.34
ULAE Percentage`'"
Workers' Comp Liability per Detail Report
Increase by IBNR Factor
Estimated Worker's Comp Liability
Worker's Comp Calculation Due and Pavable
Medical
Indemnity
Preliminary Unaudited Amounts
Workers' Compensation Liability per Actuary Report
*** ULAE (Unallocated loss adjustment expense)
5.0% 5.0% 5.0% 5.0% 5.0%
FY13114 FY14115 1 FY15116 FY16117 FY17118
10,725,174 12,007,917 15,660,368 14,498,037 14,439,163
1.56 1.80 1.38 1.90 2.00
16,689,333 21,662,620 21,662.620 27,493,227 28,811,151
FY 15116
2,803.120
3,138,208
5,941,328
Actual
3 Yr Avg****
FY16117
FY17118
FY17118
3,203,458
2,120,710
2,709,096
3,224,193
2.795,549
3,052,650
6.427.651
4.916.260
5.761.746
The implementation guide for GASB Statement No 10 specifies that a liability for
outstanding unallocated Icss adjustment expense (ULAE) needs to be established for
self -insured covernrriental entities. ULAE are Drimarilv comuosed of future claims
administration for open claims, which are typically 5% to 10% of the estimated
outstanding losses-
**** Average worker's comp medical & Indemnity claims paid over the last 3 years
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