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APPROPRIATION COMMITTEE-2019 ATM Article 10 Appropriate to Post Employment Insurance Liability Fund Funds Requested Funding Source Committee Recommendation GF $1,885,486 Water EF Approve(9-0) Wastewater EF The Post Employment Insurance Liability (PEIL) Fund holds funds that will be used in the future to pay for health care benefits for retirees. These benefits make up most of"other post-employment benefits" (OPEB).For a detailed discussion of OPEB,the present status of the PEIL Fund, and related issues,please see Appendix F. This article requests the appropriation of$1,885,486 into the PEIL Fund. The Town of Lexington's future OPEB liabilities are not fully funded. The unfunded liability is the sum of the actuarially determined obligations incurred during current and prior fiscal years that have not been funded. Every year, the unfunded liability grows by the present value of future benefits earned during the current years, less the value of benefits provided to retirees during the current year through the operating budget, and less any contribution to the PEIL Fund for future liabilities. If a discount rate of 7.5%is assumed, the requested amount is consistent with the policy previously articu- lated by the Selectmen for the annual appropriation into the PEIL Fund of 35-100%of the normal cost(see Appendix F),which for FY2020 is projected at$4.9 million.If approved,this appropriation would increase the balance in the PEIL Fund from the current balance of$13,996,937 as of December 31,2018,to approx- imately$15,900,000. Part of the funding for the request is based on the use of$750,000 from the remaining balance of the Health Insurance Claims Trust Fund to help cover the Town's annual health insurance costs'. This use frees up a matching amount in the General Fund for this request or other potential uses.Funding for this appropriation also includes $1,129,721 from Free Cash, $267,852 of which reflects the amount the Town received in Medicare Part D reimbursements in FY2018 from the federal government. Similar reimbursements have been directed into the PEIL Fund for the past several years. In FY2019 the town received$186,232 which will be reflected in Free Cash at the end of the year and available for FY2021. However,this is likely to be the last year that the Town receives a Medicare Part D reimbursement since all of the Town's retirees are now on Medicare plans through the Group Insurance Commission(GIC).In addition,the requested amount includes$2,761 from the Water Enterprise Fund and$3,004 from the Wastewater Enterprise Fund that will go toward funding the liabilities for benefits of the employees of the respective departments. One benefit of contributing to the PEIL Fund is that, like the pension fund, it can be invested in equities and earn a higher return, thus reducing future liabilities. Although the Committee recognizes that there are valid alternative priorities to which some portion of these funds could be allocated, such as additional bol- stering of our Capital Stabilization Fund to help address significant upcoming capital investment chal- lenges, it unanimously supports this year's proposed PEIL appropriation. s The present value of the expected post-retirement benefit obligations attributable to employee service during the fiscal year is referred to as the"normal cost"or"service cost". ' The Health Insurance Claims Trust Fund is a reserve fund the Town was required to maintain when it self-insured for health benefits. When the Town joined the fully insured Group Insurance Commission(GIC),it was agreed that the fund would gradually be spent down for employee health benefit costs. The Health Insurance Claims Trust Fund had a remaining balance of$3,147,322 on December 31,2018. 10