A town windfall from more than a decade ago, a settlement payment from the town’s health insurer, Anthem, will now be moved from a reserve account into the town’s employee pension fund.
The original payment from Anthem—which came to the town after the insurer converted from a mutual company, owned by its users and members, to a company owned by shareholders—was set aside in a reserve fund during the administration of Michael Pace. At the time, the selectmen decided the funds should be used to pay for any negotiated “other post-employment benefits” (OPEB) for town employees such as health care. By this year, that reserve fund had grown to be $1.2 million.
The town’s auditors said this year that new accounting rules require that such savings set-asides either go back into the general fund or go into a trust.
Creating a trust fund for an OPEB health care benefit for which few employees now qualify did not seem cost-effective. Instead, the Pension Board recommended a third path, that the town move $1 million from the current OPEB reserve into the Town Employee Pension Fund. With this shift, the employee pension fund is strengthened and town’s long-term financial liabilities are reduced. In October, the Board of Selectmen and Board of Finance voted to approve the shift.
The remaining $300,000 in the OPEB reserve fund was set aside to pay OPEB owed to retiring town employees in the current budget year. The town has seen the retirement of several senior and long-serving town employees this budget year who are owed benefits.
As Finance Director Lee Ann Palladino explained at a Board of Selectmen’s meeting, “Under GASB-78, Pension and OPEB obligations are both [considered] town liabilities. We felt we would rather shore up the pension funds. We have to pay for pension benefits—they are real—so the town should use the funds to reduce the town’s liability.”
Going forward, the town’s annual OPEB obligation will be about $250,000; it is already included in the budget and has been for the past few years. So this practice will continue, having the town pay-as-you-go for OPEB obligations.
“The transfer [of funds] is an inter-departmental transfer—the Board of Selectmen acts, then the Board of Finance,” said Palladino. “This town has done an excellent job of reducing its long-term financial liability.”