OPEB: One Candidate's Thoughts
So what is this item that has captivated so much attention not only in Holliston, but also on a state and national level? The name is OPEB.
The acronym OPEB stands for (Other Post-Employment Benefits) and is offered by some employers as a component of their compensation package designed to attract and retain employees. OPEB differs from a pension in that the benefit is earned by employees during their tenure and “paid” out after their employment has ended, usually when the employee retires or no longer is providing services. OPEB benefits can include such items as health and dental care, life insurance, long term care, and disability.
Due to a change in accounting provisions known as GASB 45 (Government Accounting Standards Board), this OPEB liability needs to be reported by the town as part of its financial reporting. It is important to note that GASB 45 regulates the reporting of the liability, but does not require its funding.
Therefore OPEB liability is an actuarial estimate of the expense a government entity has incurred or might incur for benefits by employees who have already performed those services. OPEB liability also looks to identify those costs needed to pay for future retired employees.
OPEB Liability is escalating due to the following:
1. The number of active and retiree’s eligible for these benefits. There is also the expectation that the number of retirees is expected to increase in the upcoming years along with the fact that people are living longer.
2. State legislation which Holliston adopted in 1964. Also known as Section 32B and its attendant sections mandate that Holliston cover health insurance for its retirees. Based on a Town Meeting vote of 2001, Holliston has a 60/40 split with retirees.
3. Health Care costs continue to escalate- Holliston’s costs for health care have risen significantly since 1964. Most annual increases are in the neighborhood of at least 8% per year.
4. Holliston currently uses the “pay as you go” system where Holliston is only covering the cost of its current annual obligation and not its future needs.
OPEB liability-What can Holliston do about it?
Holliston, like many other cities and towns needs to develop a strategy to deal with the OPEB situation. There is no easy answer to address this issue; however we do need to take a long, hard look at OPEB and its potential effects on the future. I have a number of ideas to accomplish this, which include:
1. Have the Selectman appoint a Benefit Advisory Committee who would be tasked with a thorough look at Holliston’s current compensation and benefit package. This “top to bottom” review would encompass active as well as retiree benefits, including OPEB. To me this is the most important first step. Recommendations from this committee would be presented to the Selectman as well as a future Town Meeting.
2. Work with our State legislators to develop initiatives that give each city and town the right to manage costs by allowing Holliston the right to change its benefit design.
3. Have the Town of Holliston develop a balanced, multiyear strategic plan that will deal with OPEB. All players in this issue, employee, retirees, taxpayers, town leaders and our legislative leaders need to be part of the process.
4. Adopt design changes for all existing and new hires once the recommendations from the Benefit Advisory Committee have been made public.
5. Develop a strategy to “fund” any remaining liability once all mitigation strategies have been employed. Once a strategy has been formulated, establishing a GASB qualified trust will be the next step along with a funding schedule.
6. Look for possible funding sources.
7. Recognize that some action will eventually be required by Holliston to manage this issue.
Holliston’s OPEB liability is a complex issue. There are no easy answers. Thoughtful solutions are required along with an acknowledgement that inaction is no longer an option. Partnering with town leaders, taxpayers, current employees, and retirees will be needed if Holliston is to address this issue. My desire is to be part of the solution.
Respectfully,
John (Jay) Leary, Jr.
Candidate for Selectman- three-year term
First, Jay deserves credit for advancing a plan. That is more than anyone has done in the 3 years the Town has known about this huge unfunded debt. Now, Jay doesn't want to dwell on the past; "we need to look forward". That we do. But Jay needs to come to terms with the fact that taxpayers are upset that this problem has been out there for some time, and up until Town Meeting last May, it wasn't even on the radar with our elected officials who hold office now and seek other offices in the future, including Jay. Second, I would urge any committee that is formed to be specifically tasked to cover the $2.6 million in ADDITIONAL cost we face from the current OPEB's. If they cannot devise benefit reductions to eliminate that cost, they should provide a plan to cover it with other budget reductions or tax increases. That will make the group's work truly meaningful. From my own past experiences, just looking for ways to reduce benefits with no end point accountability will be futile. Third, these benefits and costs are very complex. The group will need the assistance of a professional benefits consultant. And as much as I know about this, I am not one of those, so I'm not looking for the work.
William Dowd | 2011-04-20 08:38:23