The Sacramento City Council adopted a funding policy Tuesday to address $363 million in underfunded liabilities on retiree medical benefits.
Currently, the city is on a pay-as-you-go system, which totaled about $10 million this fiscal year.
The new policy calls for increasing funding and changing the benefits plan over the next 10 years until the city is paying the annual costs and a yearly contribution to the unfunded liabilities.
The goal is to have the program fully funded in 30 years, said Leyne Milstein, the city’s Department of Finance director.
The benefits in question consist of a cash contribution benefit for retiree medical and dental benefits, and subsidized premiums for retired police, firefighters and other city employees.
Unlike pension funds, there are no long-term investments backing these benefit promises.
“As more and more people retire, that pay-as-you-go will cost more and more of our discretionary general funds,” Milstein said.
In 2013, the council established a trust to set aside money for this problem. Currently, it has $7.5 million in it.
How funding for this policy will be generated is still up for debate. Staff in December proposed four strategies to the council, including eliminating the benefits for current employees, having current employees contribute, replacing benefits for current employees with health savings accounts and capping firefighter benefits.
New police and city employee hires are not eligible for these benefits. New firefighter hires get a reduced option.
Any changes to the current benefit plan will have to be negotiated.