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HomeMy WebLinkAboutFiscal Year 2014/15 Year-End Adjustment for the Workers' ComDept ID FN 15-021 Page 1 of 2 Meeting Date 12/21/2015 CITY OF HUNTINGTON BEACH REQUEST FOR CITY COUNCIL ACTION MEETING DATE: 12/21/2015 SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Fred A Wilson, City Manager PREPARED BY: Lori Ann Farrell Harrison, Director of Finance SUBJECT: Fiscal Year 2014/15 Year -End Adjustment for the Workers' Compensation Internal Service Fund Statement of Issue The Finance Department is currently undergoing the year-end closing process for Fiscal Year 2014/15, which began on October 1, 2014, and ended on September 30, 2015 Certain technical adjustments and fund transfers need to be made to comply with auditing, actuarial, accounting or legal requirements City Council authorization is requested to appropriate and transfer $1,031,553 from the General Fund to the Workers' Compensation Internal Service Fund in anticipation of the annual audit for last fiscal year Financial Impact This action will result in the transfer of $1,031,553 million from the General Fund to the Self Insurance Workers' Compensation Internal Service Fund (Fund 551) pursuant to Generally Accepted Accounting Principles (GAAP) to help reduce the liabilities that will be recorded for the fiscal year ended September 30, 2015, related to the City's Workers' Compensation program and benefits There are sufficient revenues in the General Fund to support this request Recommended Action Approve the appropriation of $1,031,553 in the Fiscal Year 2014/15 Revised Budget in the General Fund and transfer to the Self Insurance Workers' Compensation Internal Service Fund (Fund 551) Alternative Action(s) Do not approve the recommended action and direct staff accordingly Analysis California Workers' Compensation Law provides benefits to employees for work -related illness or injury Benefits may include payment 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 per claim These costs are all paid for by the City as the Employer FY 2014/15 Actual Expenses and Liabilities (Preliminary Unaudited) Workers' compensation expenses total approximately $5 5 million annually and have grown by 39 percent since FY 2004/05 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 increased labor costs 1413 -207- Item 17. - I Dept ID FN 15-021 Page 2 of 2 Meeting Date 12/21/2015 To facilitate Improved accounting and full financial disclosure of the City's current and future Workers' Compensation program costs, the separate 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 utilization review costs This new Fund has allowed for greater tracking, planning, and transparency of workers' compensation expenses and liabilities Greater transparency has also 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 September 30, 2015, the City's total workers' compensation liability is now $21,662,620 million, or $4,973,287 million higher than the previous year This 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 own employee claims and demographic data as opposed to using industry -wide data, among other factors This increased liability will need to be booked in FY 2014/15 as an additional expense in the Worker's Compensation Fund Of the $4 9 million increased liability, $1 0 million is due to the Unallocated Loss Adjustment Expense, or ULAE, which pursuant to Governmental Accounting Standards Board (GASB) Statement No 10, must be established for self -insured governmental entities City Council approval is requested to transfer $1,031,553, from the General Fund to the Workers' Compensation Fund to finance this specific portion of the Fiscal Year 2014/15 increased liability As the City does not appear to have sufficient funds at this time to pay down the entire $4 9 million in increased liabilities, authorization is requested to transfer $1,031,553 from available year-end balance from the General Fund to the Workers' Compensation Fund to address the requirements of GASB Statement No 10 in anticipation of the fiscal year-end audit The Finance Department will provide additional information and recommendations regarding the City's Workers' Compensation Fund and strategies to reduce its unfunded liabilities at the Strategic Planning retreat to be held in January 2016 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 9/30/2015 Unaudited Item 17. - 2 Hs -208- City of Huntington Beach Worker's Comp Analysis FYE: 9/30/2015 WC Liability per Actuary Report ULAE (Unallocated loss adjustment expense)** WC Liability wfULAE ULAE Percentage" Workers' Comp Liability per Detail Report Increase by IBNR Factor Estimated Worker's Comp Liability Worker's Comp Calculation Due and Payable Medical Indemnity FY 12113 FY 13114 FY 14115 J Increase 15,488,638 00 15,894,603 00 20,631,067 00 4,736,464 00 693,753 66 794,730 15 1,031,553 35 236,823 20 16,182,391 66 16.689,333 15 21,662,620 35 4,973,287 20 45% 50% 50% FY11112 FY 12113 FY 13114 FY14115 10,5667,131 9,473,703 10,725,174 12,007,917 103 171 156 180 10,884,145 16,182,392 16,689,333 21,662,620 Actual FY 12113 FY 13114 2,741,192 2,340,266 2,327,244 2,842,256 5,068,437 5,182, 521 * Average worker's comp medical & Indemnity claims paid over the last 3 years FY 14115 2,030,524 4.173.344 ** ULAE (Unallocated loss adjustment expense) The implementation guide for GASB Statement No 10 specifies that a liability for outstanding unallocated loss adjustment expense (ULAE) needs to be established for self -Ensured governmental entities ULAE are primarily composed of future claims 3 Yr Avg* FY 14115 2,370,661 3.114.281