Palomar addresses retiree benefit shortfall

By: NOELLE IBRAHIM - Staff Writer | Saturday, August 25, 2007 12:16 AM PDT ∞

SAN MARCOS ---- Palomar College officials say they are being proactive in addressing a projected $66 million shortfall in long-term unfunded liability for retiree benefits.

"We're trying to provide the benefits retirees are being promised," said Palomar President Bob Deegan. "We're staying ahead of the curve."

So far, the college has put about $12 million into a county fund for retiree health benefits, and plans to set aside about $2 million per year to pay for the unfunded liability, said Deegan.

"But if the cost (of benefits) keeps going up, that $2 million will not be enough unless we put more money into there," said Bonnie Dowd, the college's vice president for finance and administrative services.

Last year, Palomar joined the Community College League of California's Retiree Health Benefits Joint Power Authority (JPA), a consortium of the state's community college districts, said Dowd. The JPA provides a professionally-managed investment trust that allows districts to obtain increased returns on their funds, she said.

"It's a pooling of resources," said Dowd, adding that some funds are expected to be transferred to the JPA this fall.

The $66 million figure came from an actuarial study done for the college in 2005 that projected what Palomar would owe employees over their retired lives.The study took into account average medical expenses, average life spans and many other factors that will change over time.

To avoid out-of-date figures, the college will have a new actuarial study with recalculated costs done every two years. The next study is slated for this fall and will determine whether the $66 million deficit figure is still correct, or whether rising costs have caused it to increase.

"We keep hearing about the problem in the future many public agencies are facing with more baby boomers retiring and the cost of health care rising that they will not be able to afford to pay benefits," said Deegan, adding that the cost of health care rose about 15 percent this fiscal year. "It's expensive. We just want to ensure we're addressing it early on."

Palomar has budgeted $11.8 million for the cost of vision, dental, medical and life insurance benefits for its roughly 3,000 employees in 2007-08, said Dowd. The college is expected to pay $18,944 in health benefits per faculty member and $18,106 for each member of the classified staff, she said.

Faculty members are eligible to retire at age 55 while classified and management are able to retire at 50, after 10 years of service in the district, said Dowd.

Palomar now has a two-tiered system of medical benefits for retirees, she said. The main difference is between employees who started work at Palomar before 1991 and those who began after.

Employees who were hired before March 1, 1994, are guaranteed lifetime health care if they stay at Palomar for 20 years and meet the minimum age requirements, Dowd said.

For example, Dowd began working for Palomar in 1990 and will receive full medical coverage from the college until she is 65. When Medicare coverage begins at 65, Palomar's plan will become her secondary insurer.

Employees who were hired after 1994 only receive benefits until they are 65, when Medicare kicks in, she said.

The efforts are meant to help the district be in compliance with Governmental Accounting Standards Board (GASB) regulations requiring all public institutions to state their deficit spending as a liability, Dowd said. The regulations also recommend that the district have a plan in place by July 1, 2008, to address the liability and pay it off within 30 years.

"GASB 45 is saying that you better have a plan in place on how you're going to address future liability (with retiree benefits)," Dowd said. "The college is showing that it is being fiscally responsible by being part of the JPA."

Contact staff writer Noelle Ibrahim at (760) 761-4404 or nibrahim@nctimes.com.