Tag Archives: retiree health care

Multi-City Look at OPEB Funding

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As touched upon by our Brief this week the Pew Center for the States looked at the funding of retiree health care in 61 cities. The data, which reflects fiscal year 2009, shows how much money the city is required to put in (ARC), how much they actually put in, the total liability, and the percentage at which the other post-employment benefits (OPEB) are funded.

Let’s start with the last point first. It was only a few years ago that cities were required by accounting standards to begin showing an actuarial statement on OPEB, and there is no requirement to pre-fund or set aside assets for OPEB the way things are done for pensions. That’s why only 23 cities of the 61 showed a greater than zero balance in terms of percent funded. Los Angeles was the highest at 55% and Denver was close behind at 51%.

Total liability ranged from a high of $73 billion in New York City to $3 million in Cheyenne. Eighteen other cities besides New York had OPEB liabilities of $1 billion or more.

Several cities-including Charlotte, Little Rock, Phoenix, and Virginia Beach-paid in more than 100% of what was required under the terms of the annual required contribution.

One city that was not included in the measurement? Our very own Pittsburgh, PA. It takes OPEB measurements every other even year (2008, 2010, 2012); in 2008 its total (unfunded, as there are no assets set aside) liability was $359 million and by 2010 it had climbed to $488 million. In 2009 it was required to pay in $29 million but put in 70% of that ($20 million).

OPEB Trust Fund Moves Ahead

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"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.

City’s Retiree Benefits Problem Getting Worse Fast

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As we have written on previous occasions, the City of Pittsburgh’s legacy cost issue is multi-faceted-although little attention is given to some important parts of the problem. Heavy focusing of time and effort on one part of the problem can allow others to worsen. 

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