July 3, 2014: OPEB: The Background (part 1)

Belmont Citizen-Herald: July 3, 2014

The Town of Belmont made a commitment at Town Meeting this year.  It’s a promise to Belmont’s employees to pay their health care benefits when they retire.  The promise was made both to Town employees and to school employees (both teachers and non-teachers).

It’s a promise the Town has little chance of keeping.

These benefits are frequently referred to by their acronym. They’re called “OPEB,” Other Post-Employment Benefits.  OPEB is in addition to any pension that employees may earn.

Belmont’s promise to pay health care benefits extends to both current and future retirees. Every two years, the Town prepares a study –called an “actuarial analysis”– of how much it will cost to pay all of its OPEB commitments.  The most recent analysis (2012) found that Belmont owes roughly $196 million in OPEB benefits, $107 million to current employees and $89 million to current retirees.

In recent years, Belmont has created an OPEB trust fund to which it contributes each year.  The purpose of that trust fund, according to the Town’s financial statement, is “to help meet future postemployment benefit costs for retirees.”  Town Meeting just appropriated roughly $265,000 to that trust fund for Fiscal Year (FY) 2015.

While the Town’s Warrant Committee chair told Town Meeting that this contribution would put “a small dent” in the unfunded OPEB obligation, that’s not really true.  The Town’s 2013 audited financial statement reported that the annual interest alone on the unfunded OPEB obligation was $2.175 million in the year ending December 31, 2012.  The Town’s trust fund contribution, in other words, was just over 10% of the interest alone on our unfunded OPEB liability.

All of the unpaid balance, and 90% of the unpaid interest, in other words, went into the amount to be paid sometime in the future.  The annual interest, alone, on the unfunded OPEB amount balance has more than tripled in recent years, from just under $0.7 million in 2010 to $2.17 million in 2012.

Not only does the payment to the OPEB trust fund fail to reduce the unpaid balance from prior years, but that unpaid balance also continues to get bigger as Belmont fails to pay its entire OPEB liability for each year,.

In FY 2013, what Belmont needed to pay just to stay even –this is called the “annual required contribution” or “ARC”– was roughly $19.4 million, toward which the Town actually paid $4.6 million (25%). That 2013 payment was a decrease from 2012, when the ARC was $18.97 million, and the Town actually paid $7.9 million (43%).

According to our Board of Selectmen, the small contribution Belmont makes to the OPEB trust fund each year is sufficient for the Town to keep its current favorable bond rating.  Aside from maintaining that bond rating, however, an action that unquestionably benefits the Town, the attitude taken is that the unfunded OPEB obligations are so big, the Town will never have to pay them.

We are told that, at some point, “the state” will step in and relieve Belmont of its obligation to make good on its promises regarding retiree health care benefits.

Even assuming that such relief might be legal –there are certainly those who say that it would not be lawful for anyone, state or local, to renege on the OPEB promises—problems exist with the way Belmont has treated its OPEB obligations. These problems should concern all Belmont residents.  These problems, and some immediate action steps the Town might take, will be explored in next week’s column.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s