Retired employee health-care costs may increase

COSTA MESA — The city’s health-care costs for its retired employees could increase by more than $1 million in the next 20 years, according to data discussed at Tuesday night’s budget study session.

In the second of several public City Council question-and-answer budget discussions, city officials focused on how much Costa Mesa pays for the medical, dental and vision plans for its retirees, and how much those plans will cost for future city retirees.

Costa Mesa expects to pay about $1.6 million next year to cover the costs, and that number will continue to rise as employees under the city’s old retirement health-care plan before 2004 stop working.

Under that previous agreement, workers hired between 1989 to 2003 receive up to $500 from the city toward their medical costs on top of Costa Mesa paying the regular California Public Employees’ Retirement System (CalPERS) fees. The worker must retire from the city to be a part of the plan.

Starting with workers hired since 2004, the city just covers the CalPERS fees (about $108 this year) and not that initial $500 contribution. Decades from now, that change in policy will begin to show on the city’s finances, said Joseph Polley, an actuary consultant for Nyhart hired by the city for the presentation for $1,500.

Costa Mesa, like many other cities, has not been setting aside money to pay for its retirees’ health-care costs, Polley said.

In all, the city faces a $35-million unfunded liability, or how much it would have to pay to cover all of its current and past employees’ expected medical costs over their lifetimes. The $35 million is average for a city the size of Costa Mesa, with its more than 400 employees, Polley said.

The $1.5 million the city annually pays toward that liability will rise to about $2.48 million by 2031, but then it starts decreasing, Polley said. He attributed the drop to lower health-care costs and the city’s new agreement with employees.