West Boylston's OPEB Liability
At the October 16, 2023 Semi-Annual Town Meeting there was an article to transfer money to the "Other Post Employment Benefits Trust". The motion under this Article was to take $100,000 from Free Cash and transfer it to the Trust. This Article generated quite a bit of conversation and questions. I want to take the opportunity to provide more detailed information to the Town about OPEB, West Boylston's liability, our policy, and our history.
First, what is OPEB? OPEB stands for "Other Post Employment Benefits". These are benefits, other than pensions, offered to employees after they leave employment (retiree medical, dental, vision and life insurance). All Towns that offer retiree benefits have always had OPEB liability. However, the amount the liability was largely unknown until the Government Accountability Standards Board (GASB) directed all municipalities to quantify their liabilities in 2001. Initial estimates of these liabilities were first released in 2014. The Town is under no obligation to fund its OPEB liability. However, funding OPEB liability is one of the elements considered by agencies when determining a Town's bond rating.
The Public Employee Retirement Administration Commission (PERAC) issues an OPEB Summary Report periodically. The latest report, issued in December 2021, can be found by clicking here. The cumulative total OPEB liability for all entities that reported is approximately $56.1 billion. The average funded ratio is 5.9%. This report shows more than thirty communities who have not set aside a single penny towards their OPEB liability.
The West Boylston Select Board established an "Other Post Employment Benefits Liability" Policy in October of 2018. That policy can be found here. The policy is guided by the following principal: "The Town of West Boylston is committed to funding the long-term cost of the benefits promised its employees. To do so, the Town will accumulate resources for future benefit payments in a disciplined, methodical manner during the active service life of employees. The Town will also periodically assess strategies to mitigate its OPEB liability. This involves evaluating the structure of offered benefits and their cost drivers while at the same time avoiding benefit reductions that would place undue burdens on employees or risk making the Town an uncompetitive employer." Also in October, at the Semi-Annual Town Meeting, Town Meeting voted to establish the OPEB fund. The initial contribution of $100,000 to the OPEB fund was made in September 2019 utilizing Free Cash (May 2019 Town Meeting authorization).
Town Meeting Authorizations to Fund OPEB:
- May 2019: $100,000 from Free Cash
- October 2019: $50,000 from Free Cash
- October 2020: $50,000 from Free Cash
- May 2021: $50,000 from Free Cash
- October 2021: $50,000 from Free Cash
- October 2022: $75,000 from Free Cash
- May 2023: $25,000 from Free Cash
- October 2023: $100,000 from Free Cash
The Town of West Boylston invests the Fund. As of September 30, 2023, the fund balance is $519,567.51. As of June 30, 2022, West Boylston’s Other Post Employment Benefits (OPEB) liability (including MLP) is $26,439,847.00 and is 6.1% funded. Some may argue that 6.1% funded seems to be low. However, with the 2021 PERAC report stating the average funding ratio across the Commonwealth is 5.9%, I would argue that West Boylston is on track.
In the explanations of Articles that was handed out at the October 16, 2023 Town Meeting the following statement was included: "Free Cash to fund OPEB was made possible by appropriating $400,000 in American Rescue Plan Act (ARPA) funds towards the Retiree Health Insurance budget for FY23. This allowed the $400,000 that otherwise would have been expended on Retiree Health Insurance to flow to Free Cash to fund OPEB in FY23, FY24, FY25, and FY26." Some questions were raised about what happens in FY27. At Town Meeting, I responded that we could not say with certainty what will happen in FY27, but that my thought would be that the Town would utilize Free Cash. There was some additional questions raised about the availability of Free Cash. Although, Free Cash has spiked since COVID (for a variety of reasons), the Town averaged $657,594 per year in Free Cash between 2014 and 2019. However, we cannot predict with any certainty what our Free Cash level will be in FY27. Information on the Town's Free Cash that was handed out at Town Meeting can be found here.
I am always interested in listening to creative solutions for challenging issues. If you have an idea about funding OPEB in the future, please feel free to reach out to me at townadmin@westboylston-ma.gov.
Respectfully,
Jennifer Warren-Dyment, Town Administrator