“Despite an estimated $320 million of other post-employment benefit liabilities for health care and life insurance as of January 1, 2006, the City has only funded these benefits on an annual basis when they are actually due to former employees who have already retired”. That is how Recommendation PN03 of the 2009 amended Act 47 recovery plan began.
The recommendation was for the City to “establish and begin to fund an OPEB Trust Fund” by FY2011. City Council is scheduled to debate the characteristics of the Fund, members to oversee it, and the initial contribution ($2.2 million in 2012) to the Fund. Both the creation of the fund and thus the initial amount are a year behind schedule.
The fact that the OPEB liability is a massive one and the fact that the City has moved slowly on creating the fund are unchanged; what has changed is the size of the obligation. Whereas the Act 47 plan used the 2006 valuation, two subsequent ones have been made and are publicly available in the Controller’s CAFR. By 2008 the liability was $359 million and by 2010 it was $488 million.
When the Act 47 team pointed out in its recommendation that “OPEB liabilities threaten the City’s long term financial health by committing the City to pay increasing amounts into the future for services rendered in the past”. Retiree health care was eliminated for police and fire personnel who were hired on or after January 1, 2005, so all of the obligation is tied to employees employed before that date.
Creating the fund was one of the requirements set up by the oversight board when it informed the City its approval of the 2012 budget was changed to “conditional” status.
