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Guilford Approves Long-Term Investment in Retirement Benefit

In what is being called a long-view investment, Guilford made a significant change in how it funds certain retiree benefits for town and school employees with the establishment of an Other Post Employment Benefits (OPEB) fund, meant to anticipate costs of medical benefits for former workers.

Up front, the fund will require a significant investment over the next several years, according to Finance Director Maryjane Malvasi, but will eventually become fully self-funding and completely eliminate around $1 million in annual costs to taxpayers.

First Selectman Matt Hoey called the establishment of the trust, which required ordinance changes and tweaks, “good public policy and...the right thing to do.”

“I think it is a tremendous step forward for the town of Guilford,” Malvasi told the Board of Selectmen.

Essentially the trust works very similar to a pension fund—it’s money invested on behalf of employees, with the town seeding and managing the investments before eventually paying out to cover benefit costs, according to Malvasi. Currently, Guilford pays these costs as part of its medical fund, at an approximate cost of $1 million a year.

Approximately 100 former employees or their spouses currently receive OPEB benefits, and around 650 are eligible for them, according to Malvasi.

The town and schools currently hold about $36 million in liabilities around OPEB, Malvasi said.

The exact amount that will be paid into the new OPEB fund annually will vary based on a number of actuarial calculations and potential changes in how many employees receive the benefits, with Malvasi estimating it would start at around $200,000 in 2022 and grow to $1.5 million over the next five to seven years.

Currently the plan is to seed the fund with a $1.2 million initial investment at the end of this fiscal year in July, Malvasi said.

Money moved to the OPEB fund can come directly from taxpayers, or be drawn from other funds at the discretion of the Board of Selectmen (BOS), Malvasi said. The town will perform an actuarial calculation annually to determine the proper contribution, she added.

Until the OPEB fund is at least 55 percent funded, the town will continue to pay its annual obligation through the medical fund, but the BOS will continue to make the decision on how much money to draw from the fund depending on its health, according to Malvasi.

There are also no strict requirements that the town invest any money into the OPEB fund, according to Malvasi, adding that it was obviously important to work to expeditiously reach funding goals in order to eliminate the regular budget item.

“There’s no law that says we have to put the money in. But if we don’t, why do it at all?” Malvasi said.

Malvasi credited former selectman Gary MacElhiney for getting the ball rolling on OPEB, which has been recommended as a best practice by the Government Finance Officers Association (GFOA). Setting up an OPEB can bolster a town’s credit rating, according to Malvasi, and also allows the town to use discounted rates.

The Pension Committee will oversee the OPEB fund the same way it oversees the pension fund, Malvasi said.