Capo Schools Face $51.5 Million in Unfunded Benefits

The pays for its retirees’ medical and dental benefits on a pay-as-you-go basis, leaving the district with an unfunded $51.5 million liability.

The Board of Trustees reviewed a report Wednesday that summarized the district’s financial position with respect to non-pension benefits for retirees.

Despite the less-than-cheery news, said she was pleased to read the report.

“As painful as this is to see these new numbers, and what they mean, it’s far better to have the truth and transparency for our taxpayers … it’s part of being clear to those who pay the taxes and those who pay the bills,” she said.

Since 2004, public agencies have had to take a close look at how demand for post-retirement benefits will impact future cash flow. The report the trustees heard Wednesday paints a financial picture as of July 2010. The district and other agencies are required to complete an actuarial study every two years.

“Although a funding plan is encouraged, there is no requirement that the district establish one,” a report from district staffers states. “As with many districts, the district continues to utilize the pay-as-you-go method of funding this liability.”

According to the report, the district pays full benefits to employees who work for the district at least 20 years. Employees earn the right to partially district-compensated benefits at 10 years of service on a sliding scale, up to full funding at 20 years.

Employees must fully cover the cost to include their spouses or other dependents, according to the report.

If everyone who is currently working for the district lives out their career and retires from Capo—and lives a nice long life—the district would have to pay $85.9 million in future medical and dental benefits for the employees, said Ron Lebs, deputy superintendent of business services.

However, the “actuarial accrued liability”—the amount the district is most likely going to spend based on mortality rates and employee turnover—is $51.5 million, Lebs said.

If the district were to plan ahead and amortize for its needs—kind of like paying a mortgage— throughout the next 30 years, the district should be making annual payments of about $6.2 million, Lebs said.

The district doesn’t have that ability right now, he added. The pay-as-you-go figure, which covers all current retirees, will continue to go up. Right now, that figure stands at $3.08 million, up $811,000 from the last time the district evaluated post-employment benefits.

“That’s why it’s in the best interest of public agencies to buy down their actuarial liability,” Lebs told Patch on Friday.

On Thursday, Gov. Jerry Brown introduced a series of proposed changes in pension plans for state employees and teachers that could save the state as much as $56 billion in the next 60 years.

The changes would impact new employees, however, not those already on the books. They would receive partially paid health and dental benefits after 15 years of service and be fully vested at 25 years.

One local district that has been able to fully fund its retirement benefits is the South Orange County Community College District, which runs . According to spokeswoman Tere Fluegeman, the board there set up an irrevocable trust in 2008 to pay for all future benefits.

At Capo, the $3.08 million in pay-as-you-go payments is taken from the district's general fund. The $51.5 million liability, however, does not show up in the general fund but something called the "combined financial statements," said David Carter, executive director of fiscal services.