2015-03-AC-ATM-rpt - Laserfiche WebLink

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AC–2015ATM PPROPRIATIONOMMITTEE The Normal Cost is the present value of the expected post-retirement benefit obligation attributable to employee service during the fiscal year. The Unfunded Liability is the sum of obligations earned during prior fiscal years that have not been funded. Every year, the Unfunded Liability grows by the amount of future benefits earned during the current year, less any contribution to the PEIL Fund, and less the cost of benefits provided to retirees during the current year. The request is approximately 100% of the FY2016 Normal Cost, which is the maximum amount recom- mended by the Selectmen’s policy for the annual appropriation to the PEIL Fund. If approved, this appro- priation would increase the balance of the PEIL Fund from the current balance, $5,778,635 as of February 1, 2015, to approximately $7,641,000, raising the OPEB funding ratio from approximately 6.6% to ap- proximately 8.7%. The bulk of the funding for the request is based on a one-time use of $1,858,947 from the Health Insur- ance Claims Fund to pay for annual health insurance costs. This frees up a matching amount in the Gen- eral Fund for this request, or other potential uses. The remaining $3,247 reflects the amount the Town received in Medicare Part D reimbursements from the federal government, which has been directed into the PEIL Fund for the past several years. Last year’s appropriation to the PEIL Fund was approximately $1.2 million, or roughly 66% of the FY2015 Normal Cost. Given the uncertainty around the school capital projects and the current plan to hold a special town meeting in the fall, the Committee recommends that this appropriation be reduced to $1.2 million with the remainder of the $1,858,947 left unallocated. In the fall, Town Meeting will have an opportunity to appropriate the remainder to the PEIL Fund, or to some other purpose as needed. The Committee recommends an appropriation of $1,200,000 (9-0). FundsFunding Committee Article 22: Adjust Retirement COLA RequestedSourceRecommendation Base for Retirees Disapprove(3-6) NoneN/A Section 103(j) of Chapter 32 of the Massachusetts General Laws indicates that the maximum base amount on which the cost-of-living adjustment (COLA) is calculated may be increased in multiples of $1,000 and should be accepted by a majority of the Board of the system, and is subject to approval of Town Meeting. The Retirement Board has accepted an increase in the COLA base for retirees from $12,000 to $13,000 effective July 1, 2015 to match the base for Lexington Teacher retirees. The last COLA base increase was from $9,000 to $12,000, effective July 1, 1998. There is no direct appropriation in this request, but there is a financial impact on the operating budget. Currently there are 274 retirees who would be impacted by this change (an increase of $30/year) for an annual cost to the Town this year of $8,220. This change would also apply to all future retirees, and would increase the current unfunded accrued liability of the pension trust fund by approximately $786,500. The Committee asserts that key factors affecting pension payments, such as the COLA base, must be con- sidered as part of the total compensation package for retirees (pension plus benefits), which is a matter of negotiation with the Town. There are a variety of other factors that comprise the total value of the pack- age. For example, that Lexington covers 80% of the cost of the health care premiums, versus an average of 66.4% in comparable communities. The Committee does recommends disapproval of this request (3-6). 33