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APPROPRIATION COMMITTEE—2.020 ATM 25 March 2020 Article 17 Appropriate to Post-Employment Insurance Liability Fund Funds Requested Funding Source Committee Recommendation $1,179,721 Free Cash $750,000 Tax Levy $2,761 Water EF Approve (8-0) $3,004 Wastewater EF $1,935,486 This article requests the appropriation of$1,935,486 into the Post Employment Insurance Liability(PEIL) Fund. The 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 the "other post-employment benefits" (OPEB)that the Town provides as part of the total compensation for its employees. For a detailed discussion of OPEB,the present status of the PEIL Fund, and related issues,please see Appendix F. 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 (via contributions to the PEIL Fund). Every year,the unfunded liability grows by the present value of future benefits earned during the current year9, 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 FY2021 is projected at$4.8 million. If approved,this appropriation would increase the balance in the PEIL Fund from the current balance of$19,115,349 as of December 31,2019,to approx- imately $21,050,835. 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 Fund10 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, $186,232 of which reflects the amount the Town received in Medicare Part D reimbursements in FY2019 from the federal government. Similar reimbursements have been directed into the PEIL Fund for the past several years. The Town does not anticipate receiving any further Medicare Part D reimbursements since all of the Town's retirees are now on Medicare plans through the Group Insurance Commission(GIC).In addition,the requested amount includes contributions from the Water Enterprise Fund and 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 than typical Town-managed funds, thus reducing future liabilities. Although the Committee recognizes that there are valid alternative priorities to which some portion of these funds could 9 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'. 10 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. 39