2012-09-20-AC-min - Laserfiche WebLink

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September 20, 2012 e.g., over what time period the liability should be fully funded and the time profile of payments into the trust fund. It was noted that Deb Mauger, among others, would like to see the obligation funded over 30 years. Alan Levine is not sure about this time frame based on calculations and projections he has compiled; he suggested that health care costs are very unlikely to increase by factors similar to those seen over the past 10 to 15 years because health care costs are such a large fraction of the economy now (18% of GDP). He does not see compelling reasons to fund the liability over any particular time interval and, furthermore, is concerned that, in future fiscal years, efforts to fund the liability could result in difficulties in funding more important needs. Alan noted that he presented numbers to the OPEB working group that sketch possible funding plans based on rough assumptions. The sketches illustrate the magnitudes of annual trust fund payments that would fund the liability over various time intervals. He tends to prefer plans that have baseline payments that achieve full funding over intervals longer than 30 years. Alan will share his computations with the Committee. It was noted that OPEB trust funds can be invested in equities and, over intervals of a few or more years, are likely to yield a higher rate of return than from money market or CD investments. This differs from stabilization funds, which can only be invested in the latter categories. The pros for building the OPEB trust fund include the (average) annual investment yield that is expected to be equivalent to approximately 30% of the annual cost of retiree health benefits once full funding is achieved, and the eventual offsetting of the liabilities in the Town's financial statements. Cons include the need to devote 1 %, give or take a factor of two or so, of the overall revenues of the Town to building the trust fund. There is also the ethical question as to whether taxpayers should pay now for the services they are currently getting. There is currently $2.5 million in the Town's OPEB trust fund; the Town has been adding $500,000 annually. Options for increasing the $500,000 were discussed, including adding additional funds when available and adding an amount equal to the amount currently being allocated for pensions once pensions are fully funded. There were concerns about the uncertainty of the former. Regarding the latter, Rob Addelson noted that pensions may not be fully funded by 2020. John Bartenstein observed that there are logically three components to the OPEB liability: current expenses, i.e. the current year's liability based on past employee service; future liabilities for each year's service going forward ( "normal cost "); and future liabilities based on all the employee service in years prior to this year that were not pre- funded. He suggested that if the Town keeps up with the first two and stretches out the third, this might be an equitable basis for establishing how much to allocate annually to funding future liabilities. Alan Levine said that the first and last are essentially the same since current expenses cover liabilities for service in past years. M