Finance board backs strategy to cover employee benefits gap
Updated 5:25 pm, Thursday, September 22, 2011
Grappling with escalating liability for retired town employees' health-care benefits, the Board of Finance on Wednesday endorsed a plan from First Selectman Gordon Joseloff's administration to fully fund an annual required contribution of $8.2 million this year to the town's Other Post-Employment Benefits fund.
Joseloff's proposal is based on a projected 7.5 percent "discount rate," or rate of return, on assets in the town's OPEB fund, resulting in a $75 million unfunded liability for retiree health-care benefits. Adoption of the 7.5 percent rate, Joseloff said, would require a $1.3 million allotment from the town's cash reserves in addition to other allocations of municipal funds to meet the annual contribution. To partially offset the withdrawal from reserves, the first selectman said he would try to make $500,000 in savings in this year's budget.
"We feel, given our level of reserves, our more-than-anticipated revenues and turnbacks, that this amount can be done without adverse impact to our reserves," Joseloff said. "It will not require going back to taxpayers, and it will maintain a level of reserves that we think is appropriate for this time."
Meeting this year's required contribution to OPEB will mark the beginning of a series of planned policy changes to fund and eventually shrink town employee benefit costs, Joseloff added. His proposals include refinancing to reduce borrowing costs, a hiring freeze for non-
essential town personnel and using third-party consultants to find savings in municipal employee health plans. In the long-term, Joseloff said he envisions that benefits will be reduced for new town employees.
While finance board members expressed support for Joseloff's call to rein in town employee benefit costs, they also voiced doubts about the veracity of the town's new OPEB actuarial report, produced by Pentegra Retirement Services. Following the discovery earlier this year that more than 400 town employees were omitted from a 2008 OPEB report by a firm that was acquired by Pentegra, Board of Finance members have criticized the experience and performance of the White Plains, N.Y.,-based actuary.
"My confidence in this report has decreased the more I look at it," said board member Tom Lasersohn.
Pressure is likely to further mount on Pentegra after a review of the report by the town's internal auditor, Lynn Scully, found that the analysis did not include public school teachers and administrators in its count of town employees. Those education personnel pay for their own health-care benefits when they retire, but the town could still be affected by costs associated with those employees' claims.
While Scully's review did not estimate how the town's OPEB liability would be affected by counting teachers and administrators, it found that OPEB valuations for other towns such as Greenwich, Fairfeld and New Canaan had included such personnel.
The latest OPEB report uses 2009 data, and board members are already seeking a more current actuarial analysis of the town's OPEB obligation. Board member Avi Kaner, who has repeatedly questioned Pentegra's credentials in recent months, on Wednesday called for the town to replace the firm with a new actuary.
"The last (OPEB) analysis is for 2009," he said. "Now we're in the 2012 fiscal year. This is a great opportunity to have a firm that knows what it's doing to come in and tell us where we are now in 2011."
Board of Finance members also pressed Joseloff to reform the town's fiscal management apparatus.
"We need to formalize internal controls," said board member Brian Stern. "The quality of data on OPEB ... has been substandard. We've found errors, we get information at the last minute, and information that quite frankly is confusing."
Joseloff said that he took "full responsibility for what has occurred." He added that the town will set up a committee composed of "knowledgeable professionals" and hired consultants to scrutinize OPEB data before it is sent off for actuarial analysis.
The town's OPEB liability and fiscal management will likely figure prominently on the campaign trail ahead of the Nov. 8 municipal election. Several Board of Finance and Representative Town Meeting candidates attended the Wednesday meeting.
"The average Westport taxpayer is absolutely shocked. Their confidence is shaken," said Michael Rea, who chairs the RTM's Finance Committee and is a Republican nominee for the Board of Finance. "Let's not forget that people are asking how this happened in the first place. What are you going to do to prevent it from happening again?"
Along with members of the public, the finance board weighed whether to back Joseloff's recommended 7.5 percent discount rate or to support using a more conservative 6 percent rate of return that would have yielded a $9.5 million annual required contribution and unfunded liability of $93 million. While no formal vote was taken, a majority of board members eventually settled on the 7.5 percent rate. They indicated, however, that they may seek to augment the $8.2 million ARC with additional funding later this year for the OPEB fund.
"I think the consensus is that if we have more money, we should put more money in," Board of Finance Chairwoman Helen Garten told the Westport News after the meeting. "It doesn't do any harm to put more money in. Essentially, we'll start to get this funded, because we are definitely behind in the funding of it."