The Massachusetts Budget and Policy Center (Mass Budget) has published two reports, Workforce Characteristics and Wages in the Public and Private Sectors and Demystifying the State Pension System. Both are relatively brief and are very informative.
Accounting rules for government retiree pension contributions were changed by the Government Accounting Standards Board (GASB)in 1999. The Commonwealth required that municipalities meet the requirements, as they apply to pensions, within 20 years. Most municipalities had accounted for pension benefits on a pay as you go basis until that time. As a result, towns had to catch up with millions of dollars in actuarial based pension costs. That process is underway and towns have been making normal contributions as well as catch up payments to the pension funds. The General Court has extended the date for compliance on a couple of occasions when market shocks resulted in reductions in the value of assets held by pension funds. The target date to be in compliance is now 2026. Our town's plan, the Bristol County Retirement System (BCRS), is on track. The BCRS estimates the plan will meet the required funding by 2024.
Pension costs are not the only post retirement benefit costs for which towns are obligated. GASB issued new rules for those other post employment benefits (OPEB) in 2004. The new rule, commonly called GASB 45, once again required the benefit obligations to be calculated on an actuarial basis. Once again, most municipalities were accounting for these costs on a pay as you go basis.
However, unlike the situation with pensions, ...
... the actuarial calculation of health care obligations resulted in obligations so large that most towns could not reasonably be expected to fund. The exploding costs of health insurance is the primary driver of the high cost estimates. As was discussed at last Monday's Select Board meeting, the GASB 45 calculation of Dartmouth's OPEB was pegged at $53 million dollars. It will take a long time and a lot of effort for our town to meet ever that obligation.
The Massachusetts Taxpayers Association (MTA) has published a report, Retiree Health Care: The Brick That Broke Municipalities’ Backs. The report posits that most communities cannot pay the obligations. It says,There is a serious question whether many communities can afford to continue to provide any sort of retiree health care, particularly in combination with their pension obligations and the escalating costs of employee health care. At a minimum, the extraordinarily generous retiree benefits must be scaled back, and the sooner communities act the more likely they will be able to preserve some form of those benefits.
Unfortunately, communities have limited flexibility to address this problem since so many of the benefits are mandated by state law. Nevertheless, cities and towns have some opportunities to make changes on their own, which they should seize.
Our town has taken some of those limited steps the report mentions.
As I said at Monday's Select Board meeting, it is the cost of health care which is bankrupting our town, our states, our country, our businesses, and many families. I wrote a post about that here, Health Care Reform or Bust! If the Commonwealth and nation do not reform health care and reduce the increase in costs, towns will not be able to fund their OPEB obligations.
Tuesday, March 8, 2011
Post retirement benefit obligations
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22 comments:
The brick that breaks the camels back. It appears that the brick represents the cost of health insurance, and the camel is our state/ town. The question is why are we paying so much for health care? What is causing this increase in health care? I have my finger but don't know where to point. Is it the doctors, lawyers, unhealthy people, smokers, drinkers, or just bad gene's. If the cost in health care has skyrocketed to a point of unaffordable, what are the causes? This didn't just happen. Someone or something has caused this increase in health insurance.
A couple of snow storms ago, I developed chest pain while shoveling snow. I became short of breath, and decided to visit the walk in medical center. Blood was taken for testing and x-rays for my chest
I was transported by ambulance to St. Luke/ South coast hospital. My test results indicated a heart problem. More blood was taken and x-rays. I explained that the walk in center took blood and x-rays. They explained that new test are required and they don't rely on other health providers x-rays. I was put in ICU. Several doctors came to visit, each one asking the same questions. I was on oxygen and some bag hanging down with fluid pumped into my veins. I was taken into several rooms for every test that any one person can endure. Eight hours later, I was admitted into P.C The following day I received additional test and at the end of the day around 5PM my doctor explained that he could not find a problem with my heart or chest x-rays. He released me from the hospital and told me to check in with my P.C. Doctor.
I reached the elevator and discovered I didn't have my watch so I went back to my room but someone was in my bed and the nurses were hanging a bag. A doctor was standing in my one time room and explained that I couldn't visit for some time, the nurses are too busy. This was one of the same doctors that checked me out just the day before. I reached in and found my watch.
This past week,I revived a copy of the South Coast medical cost.....7,650 dollars, not including the ambulance at 1, 200 dollars.
If I didn't have health insurance, how would Omama care have handled this situation/cost??
If someone works 30 years under our current pension and benefits system, let’s say they throw in 11% of an average salary of $70k per year. This would equal approximately $230k in pension contributions.
If they retire and live 20 years off the pension and benefits system, let’s say the aggregate cost is an average of $50k in total annual pension payouts. Or approximately $1 million in total. With the possibility that the variable expense part (health benefits) would increase the payout cost even more.
So over the 30 years of employment and 20 years of retirement, someone has got to make up the difference of over $750k through pension fund earnings and / or taxpayer contributions.
That is why bankrupting the system is inevitable. That is why reform is necessary.
Bill,
Since it was you and to a greater extent Mike Watson who argued at Town Meeting that the new contract agreements were fiscally responsible with regards to our revenue and expense projections, how do you propose we start paying for these benefit obligations? It seems to me that to tell town meeting that the contracts were responsible when these liabilities are hanging over our head was a serious blunder. Perhaps you and Mr. Watson could respond since he argued so vehemently in favor of the new contracts. How do we address this problem and where does the money come from to put in the Post Retirement Benefit Obligations Trust?
I admit that I made a mistake by voting to recommend the article as a fincom member. However, it was me that made it a point to inform the town meeting members of the $85mil liabilities before the vote. I also cast my town meeting vote against the article to approve the contract raises.
Where do we go from here?
I'm a retired town employee. I pay 50% of my town medex insurance plan BC/BS supplement insurance and the town pays the other 50%. This is additional insurance/ medication cost needed to cover the 20% not covered by Medicare part B.
When hired by the town it was agreed that the town would pay 50% of BC/BS and I pay 50% BC/BS.
At age 65 years I received a notice from medicare to join medicare part B. I called the town office and they explained that the town will cover my medical insurance and I didn't not have to join medicare part B or the additional medex insurance. At age 70 I received a letter from David Cressman informing me that the town will no longer cover my health insurance and I must contact social security and apply for medicare part B. Personally, I felt the town threw me under the bus. Social security medicare part B informed me that as the result of not accepting medicare part B when I turned 65 that I must pay a 10% penalty for each year I didn't participate or 50% more for the same medicare part B.
You post that the town/state is going broke because of health insurance. Each year the town deducted the 50% from my pay check for the total cost of my health insurance but the town wasn't paying the other 50% as required. This is how I read it. This is beginning to sound like another Freddy Mac/Fanny Mae. (sp)?? Why did the town offer to pay 50% and I pay 50% for health insurance??
The city of New Bedford is paying 90% and the employee's are paying 10% for the same health insurance. New Bedford must be running on life support. What has the town been doing with all the money that should have been paid into the health insurance??The employee's paid their share. I smell a skunk and it's coming from the town hall “wood shed.” Where from HELL is the town going to come up with 53 million dollars??
10:32am- Assume the $230,000 over 30 years will have a net 0 growth is not realistic. These funds do grow over time and have averaged returns over 6% or so in the last 40 years. That gets you much clser to 1 million.
This would equal approximately $230k in pension contributions.
You forgot to include the towns share of the pension plan and compound the interest over 30 years. THe average employee hired since 1996 completely funds their own pension.
Read the Perac data,
I felt the town threw me under the bus.
Until the steel workers settle their contract, you contribution rate should not change. If your rates have changed call the A G's office
To: March 9, 2011 7:35 PM
Nowhere in my posting did I say zero growth. I hope you don't teach English.
To: March 9, 2011 7:52 PM
The drastic increase in the public employee compensation required for the funds to grow to $1 million is going to come from where? If you do the math, the town would have to cough up almost as much as the individual would contribute. I hope you don't teach math or economics.
What should boggle everyone’s mind when it comes to issues like this is how salary and benefits are defined in compensation to the public sector employee with a defined benefit plan. Some people would look at their paycheck and say that is what I make. Not so Sherlock. What the town pays in benefits that would include contributions towards a pension plan needs to be included in what your compensation actually is. If the town needs to contribute more to meet any retirement benefit shortfall, that would be more compensation as well. That would include things that the town has no control over, such as pension fund performance and benefit costs.
Barry Walker for selectman in 2012.
Barry Walker has proven to have a command understanding of town issues, and the ability to express and communicate with his fellow finance committee members. He has been in the fore front as it relates to funding town programs, and raising questions when department heads are expanding into areas of duplication.
Selectman Michael Watson is a liberal spending machine, that must be stopped. Watson has the ability to speak, and he knows this. Watson is too confrontational, quick to judge, and one sided. He is a one man wrecking machine. I truly feel that Greg Lynham, an excellent fin com member, decided to resign as the result of Watson desire to spend town tax money.
The question is, will Barry Walker accept the challenge.
The Town of Dartmouth offered health insurance, and a retirement package so as to encourage workers, to apply for town employment. Both the health insurance and the retirement was a town/employee pay as you work. Town teachers are under a different retirement system then the other town workers. Don't blame the town workers or retired town workers for the increase in health insurance or the retirement system. It is not their fault or the towns. It's just the cost of health insurance that has skyrocket. People are living longer so the retirement system is paying out more for retiree's. Don't blame the retiree or the town it's the advancements made in the field of health care that has prolonged the lives of so many people. Do you have a problem with retired town workers living a longer life??
The important issue to remember is none of the health/retirement programs were ever negotiated by the town unions.
I know of several town workers who retired and didn't live long enough to collect their first retirement check. All the money they/town put into the retirement program was lost, or should I say it is recorded as 440 million dollar Bristol county retirement system surplus. Teachers are under the state rtirement system, and it is going belly up.
Barry,
Giving town employees a cost of living adjustment (COLA or raise if you will) does not significantly affect the other post employment benefit costs (OPEB)which are primarily health insurance. As I said, the exponential increase in health care costs is the main cause of the high future cost of the obligation. The town employees did not cause this indebtedness to go up, it was always there but being paid on a pay as you go basis. The change is due to a change in the accounting rules which quantifies that indebtedness.
The town is already making up pension costs and will have paid up in 2024. There is no requirement to fund the OPEB obligations at this time, We can continue to fund them on a pay as you go basis, albeit at a larger and larger percentage of the budget, or we can start to build up a fund to pay them. It seems entirely prudent to me that we do both. Whatever course is taken, the real answer to the OPEB problem is to implement health care reform policies that reduce the rate of increase in health care costs.
The problem will be with us for decades and it is not equitable to deny any pay increase until the obligation is fully funded.
But Bill, didnt' Romney and now Patrick, solve Massachusetts health care problem with Romneycare? He and Deval said it would lower our health care costs here in Massachusetts.
Oh wait, it did'nt work.
Bill
If you want to reduce town health care, you must bring an article before town meeting members, and IF the town meeting members agree to reduce, or eliminate health insurance payments, this will need a town wide VOTE. Several years ago the unions (teachers) put an article before town meeting to increase the towns share of health insurance. I'm not totally sure but I think the town meeting vote had to be a 2/3 vote
According to state law, the article went before the town voters and loss by 9 votes.
This whole insurance thing reminds me of the dog and bone commercial. WORRY, WORRY, WORRY.... I'M GETTING TOO OLD TO BE WORRYING.
Yeah. like 50% coverage of health care is giving away the store.
Health care coverage comes in many forms. The top plans, such as our unions in town have, have excellent overall sickness and accident coverage. Minimum co-pays, few (if any) deductibles, and comparatively high annual maximum amounts of coverage. On the other hand, many other plans have deductibles that have to be satisfied before any expenses are reimbursed, high co-pays after that, and minimal coverage’s of prescriptions and medical procedures. It is not unusual to see the subscriber pay for the medical expense themselves and then submit proof for reimbursement.
Percentages of subscriber contributions can still be quite high even in these less costly plans.
Although neighboring communities kick in more for premium contributions for their employees, the overall total cost to the town employee is not out of line to what many other people pay.
Of course, this benefit continues into retirement up to a certain point.
I remember the initiative to add more premium expense to the town. I also remember the town paying enormous amounts of money for many years for coverage that was not needed.
This is the type of situation that is very frustrating to me. Instead of working together to look at ways to control costs, or even eliminate them if possible, we "collective bargain" whose pays what and then drop the subject.
I give credit to the current SB for at least looking at coverage costs and attempting to eliminate completely unnecessary expense.
The next step will come in the form of a reduction in cost through less coverage, much like the Gov. Patrick’s proposal discussed at the last SB meeting. Why? Because the unions will not work with the town and the taxpayer on this.
To those covered by the town health care plan, maybe you should go to your union leaders and ask them what they are doing to help for once?
The same union leaders watched for years as the town passed along 50% of the premium costs for coverages that weren't needed to their membership.
Some leadership.
If you want to reduce town health care, you must bring an article before town meeting members??
Municipalities are required by law to pay between 50 and 99% of healthcare premiums. No amount of town meeting votes is going to change that.
Where is it written that municipalities (or any other employer for that matter) have to pay any of an employees health costs?
It is an aniquated system that started in WWII when wage freezes were put in place and employers had to find other means of attracting employees. They added health care and other benefits. THAT is where this disaster started and guess what? We now have a system that is completely gone away from pay as you go to "cost unlimited". Times have changed.
You want to control costs? Then let everyone shop for healthcare coverage privately and fund individuals based on need and ability to pay through vouchers and tax credits.
If people know that they can keep what they save then guess what? They will start to ask how much a procedure or medication will cost and the resulting competiton will drive the costs down. The MRI that costs $1000 less down the street will be the one people will go to.
Ultimately, once people start asking how much then prices will come down.
Additionally, increase the supply of providers by allowing non- invasive and non emergency procedures to be performed by trained nurses and other health care providers under a doctors indirect supervision.
Double the number of medical schools in this country so that in ten years we have double the number of doctors and nurses. There is NO excuse for limiting the number of seats in med schools other than protecting the AMAs privaleged class. When you limit supply you can maintain high prices.
Award scholarships to those who are willing to serve as Primary care docs in under treated areas for a stated period of time.
A basic tenet of economics is if something is scarce or expensive, increase the supply and the price will come down.
Let
s give consumers some skin in the game and work towards increasing supply of health care providers. One is a short term partial fix the other will address almost the entire health care crisis indefinitely.
Bill SAID "Giving town employees a cost of living adjustment (COLA or raise if you will) does not significantly affect the other post employment benefit costs (OPEB)which are primarily health insurance."
Bill, You are correct, it doesn't greatly affect what the benefit costs are BUT it sure DOES affect our ability to pay for them!!!!
Where is it written that municipalities (or any other employer for that matter) have to pay any of an employees health costs?
MGL chapter 32B, Employee shall pay fifty per cent of the premium for the insurance of the employee and his dependents and the governmental unit shall contribute the remaining fifty per cent of such premium.
The BOS cannot change it, Town meeting cannot change it, Only the Legislature can change it. Which is what I have been saying for 2 weeks on this board and will probably have to explain 10 more times.
hey march 16th - instead of complaining on this blog why not step up and write the select board to appear before them and make your case.
I know it's so much easier being anonymous behind a keyboard but.....
Perhaps the readers in this blog will find the following link informative:
http://www.boston.com/lifestyle/health/articles/2011/03/25/more_opt_for_low_cost_health_coverage/
This is what is going on out there in the real world. Sad, but true.
Asking the taxpayer to pay 50% of a premium health insurance plan that costs little else beside the premiums is becoming less and less comparable in cost to what goes on out there in the private sector.
Perhaps what we should be doing is looking into less expensive plans and splitting the cost savings with the unions?
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