City Retiree Health Care Costs Get Clearer

Like layers of an onion being peeled back, the levels of disclosure about the cost of post retirement health care costs for all governments are increasing.

In 2004, Rule 45 from the Governmental Accounting Standards Board (GASB) set in motion changes to how post retirement benefits other than pensions (known in the shorthand OPEB) were accounted for. Rather than being stated as expenses when paid out, OPEB had to be put on an actuarial basis like pensions, with long-term assets, liabilities, and the funded/unfunded status of the plan clearly noted.

Rule 45 was phased in over three years for governments based on revenue collections. The City of Pittsburgh has taken two valuations since January 1, 2006. The most recent recorded valuation on January 1, 2008 showed long-term liabilities of $359 million, up from $320 million two years earlier. There are no assets set aside for these liabilities (there is no requirement for there to be, either by statute or Rule 45) and the City has made contributions at the $20 million level in the past several years on a pay as you go basis.

The OPEB unfunded liability is roughly half of the unfunded liability of the City’s pension plans, and the time and capital spent on the parking lease plan has not included any discussion of the OPEB liability. The Act 47 amended plan from 2009 stated "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".

Just yesterday City Council discussed establishing an OPEB trust fund within the Department of Finance, a recommendation made in that 2009 amended plan. The City is expected to be putting $2.2 million a year into the fund. Recall that since the City ended retiree health care for police and fire employees hired after January 1, 2005 so all of the unfunded liability is tied to current life insurance coverage and the health care liability built up before the benefit ended.