Speakers present strategies for OPEB funding

Municipal liability for “other post-employment benefits” – largely health insurance premiums for retirees – is a daunting issue that won’t be resolved without concerted effort.

This was the message from CPA James Powers, a partner at Powers & Sullivan, and Allan Tosti, chair of the Arlington Finance Committee, who led a workshop on OPEB obligations at the Annual Meeting of the Association of Town Finance Committees on Oct. 19 in Franklin.

“This issue is not going away,” Powers said.

He pointed out that state law does not require municipalities to pre-fund OPEB liabilities, so towns will most likely fund pensions first because doing so is mandatory.

Essentially, he said, towns have two unfunded liabilities: OPEBs and pensions. Depending on the community, the OPEB liability can be significantly higher than pensions. As far as which one to fund first, Powers says it’s a balancing act that each community has to figure out.

Powers recommends that towns create an OPEB trust fund and start making appropriations to it, so people get used to seeing OPEB at town meeting. Within the last few years, some towns have started with a low number, putting in anywhere from $1 to $1,000 to start, with the intention of increasing the amount each year.

Arlington was one of the few communities that was discussing OPEBs in the 1990s, Tosti said. Home rule legislation was passed in 1998 to allow the town to set up an OPEB fund.

Tosti suggested that communities going down this road keep in mind that this is a long-term fund, not a “rainy day” or stabilization fund.

“Take this seriously,” he said. “This [should be] money you don’t need now or in the next 10 years.”

Before thinking about OPEB liability, communities must first establish their operating reserves, free cash and stabilization fund and cover basic services, Tosti said, making sure police, fire and teachers are paid. Reserves for the town operating budget are a priority and should not be used for OPEBs.

Then comes the hard part, he said: Communities must find out where they are going to get the money.

Arlington contributes a percentage of the money it saves each year from recent changes in its employee health insurance program, Tosti said. When the town reduced its premium contribution rate from 90 percent to 85 percent, it put the difference into the OPEB fund.

Tosti said it’s important for everyone in town hall to get behind the OPEB issue. In Arlington, he said, contributing to OPEB liability is a non-issue and is expected.