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7A ATTACHMENT II Page 9 plan administrator will account for and invest these funds (at the previously mentioned higher discount rate). At this time, CalPERS is reviewing the possibility of administering OPEB and providing trustee services to cities. The services provided would be the same as the services provided by CalPERS for the City's pension plan. However, the requirements for participation are unknown at this time, and the City's participation in a CalPERS administered OPES plan may require full funding of the ARC as is currently required under CalPERS pension participation. It is recommended that the City implement GASB 45 along with a plan for funding the ARC as bond rating agencies, while realizing that cities cannot immediately fund the OPES liability, will possibly look at the cities' plans for progressively funding OPES. Failure to develop a plan may adversely affect an issuer's credit rating. The City is currently in the middle of issuing a series of bonds to fund the Recycled Water Project, and a decline in the City's credit rating would increase the cost of borrowing. Additionally, failure to implement GASB 45 would result in a qualified or adverse audit opinion. The required GASB 45 implementation date for the City is fiscal year 2007-08. The City must make decisions for implementation including the following: . Funding level of ARC - zero to full funding . Funding source - budgeted annual departmental charges, one-time monies such as unanticipated increases in available fund balance . Trustee/Self Administer -If any part of OPES is funded above the current "pay-as- you-go" level, a determination must be made whether the City will self administer the plan and use an outside trustee for investment purposes, or utilize an outside administrator/trustee such as CaIPERS. The City may also review the current level of post employment benefits currently provided, and possibly look at implementing a tiered approach for new hires. Any changes in this benefit would impact the total cost of OPES and the resultant ARC. Decisions must be made by the end of November if the any additional costs of OPES in excess of the "pay-as-you-go" amount are to be included in the preliminary budget for fiscal year 2007-08. Alternative The City may choose to not implement GASB 45 in 2007-08, in which case the City's independent auditor will issue a qualified or adverse opinion, and there will be an adverse impact on the City's credit rating. Fiscal Impact Fiscal impact will vary depending upon the measures taken to fund the Annual Required Contribution (ARC). If the ARC is funded at a decreased level, the City will experience the availability of more unrestricted funds in the short-term. However, the unfunded portion of the ARC will be added to subsequent actuarial reports, thereby increasing future ARC 2 ._-. - . __c_..__~_,,_.__,,___....".,.,_..._,.,...." .."