Retiree Benefits Threaten to Consume 1/3 of Worcester Budget
Wednesday, May 01, 2013
OPEBs -- "Other Post Employment Benefits", namely retiree healthcare costs -- are a major concern to both Worcester and the State.
According to The Research Bureau, despite recent reforms, the Worcester OPEB obligation now stands at $656 million, and is predicted to consume one-third of the city’s budget within a decade, if not addressed.
"People are living longer. While that in itself isn't a problem, of course, it is to municipal governments," said Dr. Roberta Schaefer, President of The Worcester Regional Research Bureau. “Pay-as-we-go is no longer an option. Worcester needs both revenue and reform to tackle this debt."
The Research Bureau report states that in 2011, for the first time ever, Worcester had more retirees than active workers. Worcester has 4,873 retirees and 4,154 employees – and the gap is expected to grow in coming years.
Concerns Continue To Grow Over Pension Benefits Liability
The Research Bureau acknowledged in its report that currently, "The elimination of OPEBs for public employees in Massachusetts is illegal...General Laws guarantee health-care benefits for public employees who retire after 10 years of service, provided they’ve worked 20 hours a week and are at least 55 years old. The amount of the coverage varies among jurisdictions. The Commonwealth itself pays 80 percent of premiums for its workers. The portion paid by municipalities and tax districts varies. By state law, municipalities must pay at least 50 percent."
The report goes on to state that with about 500,000 public workers and retirees in the Commonwealth, that adds up to an unfunded OPEB liability of about $46 billion, of which more than two-thirds – $30 billion – "falls on the shoulders of municipalities."
In January, a statewide commission released a report on the OPEB burden across Massachusetts. This report was the impetus for a bill pending before the Legislature that would, if enacted, establish new standards to reduce cities’ liabilities.
The legislation proposed by Governor Patrick adopts the key reforms proposed by the commission, which include:
• Requiring 20 years of service, instead of 10, before employees are eligible for retiree health benefits.
• Adding five years to the minimum age at which former employees become eligible for OPEBs.
• Pro-rating the amount of premiums based on the length of service, from a 50-percent contribution after 20 years to 80 percent after 30 years.
The Research Bureau: Worcester "Should do More to Ensure Fiscal Health"
Schaefer says that The Research Bureau agrees with many of the commission findings, but believes that Worcester should do more to ensure its fiscal health and the health of its employees, and to be a leader among municipalities in health-care reform. "The proposed legislation is a thimble for a problem that demands a bucket,” Dr. Schaefer said.
“By restructuring its health plans and seeding a retiree-benefit trust, Worcester has established itself as a leader among the Commonwealth’s municipalities in willingness to do battle with the OPEB beast. But new strategies are needed so that the city can fulfill old promises,” Schaefer said.
The Research Bureau’s proposals announced last week include the following:
-The city should reduce the portion of premiums it pays for retirees and their spouses, pro-rate benefits based on the length of service and hours worked, and tighten eligibility standards.
-Further, it should investigate the creation of employee-run medical trusts, which give workers a tax-free vehicle to fund their retirement health care costs
-And it should create a staggered timeline for implementation of all changes to give employees, particularly those nearing retirement, the opportunity to prepare for changes in expected benefits.
"To have an impact on the current liability, changes to the system just can't be for new hires," said Schaefer. "This problem isn't going to go away. Previous generations of politicians kicked this can down the road, and now we're seeing the result of that."
"If OPEB liabilities are going to continue to take up a major chunk of the city budget, people need to know that this will directly impact municipal services -- in the way of deep cuts, if we don't do something," added Schaefer.
Shrewsbury Town Manager: "Near Universal Agreement Something Needs to be Done"
"We need to start telling people the truth," said Shrewsbury Town Manager Dan Morgado. "We're giving them the unvarnished facts, and that is the money just won't be there if we don't make substantive changes."
Morgado, who was on the state OPEB commission, was blunt in his assessment of the situation when he spoke with GoLocalWorcester on Monday. "Look, there's no sugarcoating it. There needs to be substantive change, and substantive change from what [municipal employees] might have been told."
Morgado also addressed the composition of the state commission, saying, "There were representatives from state and municipal government, insurance, and unions on the commission. Both the AFL-CIO and Retired State, County and Municipal Employees Association were at the table. Labor was part of this discussion, and our proposed changes."
"It's a good thing our pension system in the state is in fairly good shape," said Morgado, adding that the Town of Shrewsbury is slated to have a fully funded pension system by 2022. "However, as a whole, we can make tough changes now to ensure solvency, or else see the problem get even bigger. I give Governor Patrick a lot of credit, he's been incredibly supportive of the reforms needed."
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