Questions haunt possible benefits miscount that could cost Westport millions
As town officials continue to investigate whether a 2008 actuarial report on town employee benefit costs accidentally omitted more than 500 municipal retirees from its calculations, Westport's fiscal future remains uncertain.
First Selectman Gordon Joseloff said Monday in an email to the Westport News that officials "continue to look into why some employees were not included in the calculations." He did not, however, provide any explanation of the potential miscount.
Doubts about the accuracy of the report have lingered since a tense meeting last week between the Board of Finance and representatives from the town's actuarial firm, Pentegra Retirement Services. At that meeting, Finance Director John Kondub and Chief Actuary Jeff Kissel said they discovered a possible oversight in late February as they reviewed the town's fiscal commitment to its Other Post-Employment Benefits (OPEB) fund, which pays for retired town employee medical costs not covered by Medicare. Kissel said that while the town had approximately 1,070 active and retired employees enrolled in pension plans as of June 30, 2010, only about 550 individuals were factored into 2008 OPEB cost projections done by the actuarial firm Retirement Services Group. Pentegra acquired RSG in August 2008, several months after RSG had completed its OPEB report.
The town's 2010 comprehensive annual financial report shows a similar discrepancy. It reports that a total of approximately 1,070 active and retired employees were enrolled in the town's pension plans, but only about 450 were covered by its OPEB plan.
"Nobody really looked at the difference between those two," Kondub said of the pension and OPEB plan totals. "My signature's on there, and I take responsibility."
The possible miscount further complicates the Board of Finance's decision on a new tax rate. Originally scheduled to set a new rate May 18, the board has twice deferred a vote as it awaits new valuations from Pentegra of the town's benefits obligations.
During the last few months, finance board members have said repeatedly that they intend to tie the new tax rate to Pentegra's calculation of a new annual required contribution (ARC) to the town's OPEB fund. The current required contribution to OPEB is approximately $4.5 million, but Kissel said last week that a new ARC will not be available for several weeks.
The finance board, however, plans to set a new tax rate Wednesday to be reflected in the first round of 2011-12 tax bills, which will be sent out in July. The meeting starts at 8 p.m. in Town Hall.
"We want to cover our obligations but be fair to current taxpayers," Board of Finance Chairwoman Helen Garten said in an email. "People can differ as to whether we should be funding the full ARC or only a portion, but it is hard to reach a conclusion without knowing what the ARC is."
If employees were accidentally omitted from the 2008 actuarial report, that error could have a dramatic impact on Westport's finances. As of July 1, 2007, the town had an estimated unfunded liability of $50 million to future retirees' medical claims, according to the 2008 RSG report. Factoring in more employees into the OPEB liability could raise the town's obligation significantly. Kissel last week declined to estimate how much a miscount could increase the town's OPEB liability.
To pay a higher ARC for the OPEB fund, board members have indicated they may set a substantially higher tax rate Wednesday. Westport's current tax rate is 14.85 mills, or $14.85 for every $1,000 of assessed real estate.
"There's a general sense on the entire Board of Finance of the desire to fully fund our required contribution to this unfunded liability," board member Avi Kaner said. "If we under-tax, it'll just catch up with us and create an even larger burden next year."
In addition to an unknown OPEB liability, town officials are grappling with other unresolved questions related to the possible benefits miscount. Work papers, a de facto employee roster, that were submitted to the town's actuaries may confirm whether education employees comprise a majority of personnel left out of the 2008 actuarial report. But Kondub said last week that he had not yet located work papers. The Board of Education also does not have such documentation, Assistant Superintendent for Business Nancy Harris said Friday.
"I don't keep records about [benefit plan] participation," she said. "If any of our employees have questions about that, we send them to the town to talk about it."
Harris added that management of education employees' benefits is essentially a town responsibility, with the education board administration only carrying out the "pass-through" function of transferring pension and OPEB plan contributions from education workers' paychecks to the town.
The credentials of Pentegra and its predecessor, RSG, have also come under increased scrutiny. Westport was the only municipality for which RSG did OPEB actuarial analysis, while Pentegra also does not serve as the OPEB actuary to any other towns or cities.
"I'm skeptical about the ability of this actuarial firm to accurately figure out what our liability is," Kaner said of Pentegra. "Discovering that this firm has no municipal experience raises all kinds of red flags."
Neither Joseloff nor Kondub could be reached for comment on the experience of Pentegra or RSG by press time.
Other elected officials have asked whether the town could have required Pentegra to review the analysis of the 2008 RSG actuarial report.
"It's like when a waiter comes up to a table and asks you what you'd like on the menu," said Michael Rea, chairman of the Representative Town Meeting's Finance Committee. "I think it's up to the person sitting in the chair ordering -- being the town, the finance director and the first selectman -- to make the request and make it part of what the actuaries do."
Further inquiry into the possible miscount is likely. Rea added that the RTM Finance Committee plans to meet in the near future with Joseloff and Kondub to discuss the matter.
"We need to investigate and find out what the impact is, so that we understand what's wrong with our system," Rea said. "There is something very definitely wrong."