Other Post Employment Benefits

Transcription

1 Other Post Employment Benefits Presentation to the Board of Selectmen Paul E. Cohen Town Manager October 29,

2 What is OPEB? Other Post Employee Benefits (OPEB) refers to other benefits offered to the Town s retirees aside from their pension. The benefit is essentially retiree health insurance, although technically it includes a $1,000 retiree life insurance benefit. OPEB includes the health insurance benefits available to a retiree s spouse and dependents. 2

3 What is OPEB Liability? The Other Post Employee Benefits (OPEB) liability is the present value of the Town s share of retiree health insurance benefits for those who are retired, as well as those who have a right to retire at a future date. A municipal employee who works an average of 20 or more hours per week for a minimum of 10 years is eligible for retiree health insurance benefits at age 55. Benefits can begin before age 55 for public safety employees. 3

4 Why is the Unfunded OPEB Liability Important? As of January 1, 2013 the unfunded OPEB liability for Massachusetts state and local government amounted to $46.7B. This liability is larger than the unfunded pension liability. OPEB liabilities are a function of health care costs, the size of the eligible population, and the level of benefits offered. We are experiencing dramatic increases in health care costs and we have an increasing population of retirees. Without further action, municipalities will have increasing difficulty in paying for retiree health insurance benefits while adequately funding other essential public services such as education, public safety, and public works. 4

5 What is the Amount of the Commonwealth of Massachusetts & Massachusetts Municipal OPEB Liability? The Commonwealth of Massachusetts unfunded OPEB actuarial accrued liability is $16.7B The unfunded OPEB actuarial accrued liability for Massachusetts cities, towns, and districts totals to $30B. 5

6 What is the Town of Chelmsford s Unfunded OPEB Liability? The Town of Chelmsford s unfunded actuarial accrued liability as of December 31, 2014 is $92,968,000. This represents an increase of $7,556,000 from the December 31, 2012 valuation of $85,412,000. 6

7 What is the amount of the Town of Chelmsford s OPEB Liability Trust Fund and How are these Funds Invested? The actuarial value of the Town s OPEB assets as of December 31, 2014 was $3,759,203. The Town of Chelmsford s OPEB funds are invested in the State Retiree Benefits Trust Fund. 7

8 What are the OPEB Reporting Requirements? The Government Accounting Standards Board (GASB) require a municipality to undertake an actuarial valuation of its OPEB liability every two years. The GASB financial reporting requirements require that a municipality s OPEB liability be included in its audited financial statements. 8

9 What are the OPEB Funding Requirements? Neither federal nor state law requires a municipality to fund its OPEB actuarial liability. There is no local bylaw to compel funding. 9

10 What is the Town s Contribution to Retiree Health Insurance Premiums? The Town of Chelmsford contributes 60% of the cost for a retiree s health insurance premium. The current annual premium costs are: (Retiree Under Age 65) PPO Family: $26,217; Town share: $15,730; PPO: Indiv.: $10,117; Town share: $6,070; (Retiree 65 years +) Medex: $3,480; Town share: $2,088; 10

11 What is the Number of Town Retirees & Active Employees Eligible for OPEB Benefits? For the December 31, 2014 reporting period, the Town of Chelmsford OPEB plan membership was: Current retirees, beneficiaries & dependents: 770 Current active participants: 598 Total: 1,368 11

12 How Much Has the Town Annually Contributed to its Unfunded OPEB Liability? Since Fiscal Year 2012, the Town of Chelmsford has contributed the following amounts to its OPEB Trust Fund: FY12: $269,901 FY13: $1,613,568 FY14: $894,206 FY15: $1,049,387 FY16: $1,045,270 12

13 How much would the Town Need to Annually Contribute to its OPEB Liability to Fund it Over a 30 year period? The Town would need to increase its annual OPEB contribution from $1M to $3M in order to fund its unfunded OPEB actuarial liability over a 30 year period. 13

14 What is the Projected Increase in the Town s Unfunded Accrued Actuarial OPEB Liability if it Continues to Contribute to the Trust Fund at a $1M Level Over a 30 year period? At the current $1M annual funding level, the current $93M OPEB liability is projected to increase as follows: 5 Years: $118M 10 Years: $145M 20 Years: $213M 30 Years: $306M 14

15 What is the History of OPEB Reform Legislation? The Commonwealth of Massachusetts Special Commission to Study Retiree Healthcare and Other Non Pension Benefits issued its final report almost three years ago on January 11, Former Governor Deval Patrick filed OPEB reform legislation on February 12, The legislation mirrored the recommendations made by the special commission. It would have saved the state and cities and towns an estimated $20 billion over the next 30 years, although only a small fraction of the savings would be realized during the first 10 years. To date, the Massachusetts state legislature has not enacted OPEB reform. No action is expected during this legislative session. 15

16 What were the Major Proposed Reforms Contained in the 2013 OPEB Legislation? A public employee would have been required to work 10 years longer and be five years older in order to receive retiree health insurance benefits. For non public safety municipal officials, the new threshold for eligibility for retiree health insurance benefits would have been 60 years of age and 20 years of service. Similar to pension benefits, retiree health insurance benefits would be prorated. 50% of the maximum available benefit would be available at 20 years of service, increasing to 100% at 30 years of service. To protect those employees close to retirement, employees with 20 years of service and within 5 years of retirement would be exempt. Employees with 9 years of service and age 60 would be exempt. 16

17 What Should We Done to Address the Increasing OPEB Liability? Contact Governor Charlie Baker, Senator Michael Barrett, Representatives James Arciero, Cori Atkins, Thomas Golden, and David Nangle to request the enactment of meaningful OPEB reform legislation. Maintain and enhance the Town s funding of the OPEB Trust Fund. 17

18 No Action Has Consequences Further delay by the State Legislature to enact meaningful OPEB reform and the continued underfunding by the Town to the OPEB trust fund will result in an ever increasing unfunded OPEB actuarial accrued liability. This will constrain the future ability of the Town to maintain essential public services. We need to be mindful of what we pass down to the next generation. 18