Archives for category: Other Post Employment Benefits (OPEB)

From Patrick Gilmartin’s analysis of retiree health benefits:

At July 1, 2012, the Irvington School District had 255 active employees. There were then 162 retirees receiving District-provided health benefits, plus 80 spouses, for a total of 242 persons entitled to such benefits for life. Just under half of the retired employees were under age 70. Of the spouses, 49 were under 70.

A District employee can retire at age 55. Of the 255 active employees, 39 were 55 or older with vested rights to receive lifetime health benefits. Another 32 were in the 50-54 age bracket, 10 of whom had 15 or more years of service.

For a person 70 years of age, the average life expectancy is 14.2 years for a male and 16.5 years for a female. For 55 year olds, the average life expectancies are 25.3 and 28.7 years.

The 2012 Actuarial Report calculated the annual net cost to the District of providing health care to a retired employee and spouse to be $15,534.40 for each year they are both under 65, and $12,120.95 for each year they are both 65 or over.

2010 – 2014

2010: 135 retirees
2014: 157 retirees

Under current laws and contracts, most of New York’s 1.3 million state and local government employees can look forward to receiving taxpayer-subsidized health coverage for the rest of their lives. This amounts to a mammoth wealth transfer from future taxpayers to current employees.

…New York’s state and local governments have promised more than $205 billion in post-retirement health care coverage that they have set aside no money to pay for.

Iceberg Ahead: The Hidden Cost of Public-Sector Retiree Health Care Benefits by E.J. McMahon | Empire Center | 2012 Update

UPDATE 11/9/2013: MK says the problem is much larger than this. AND SEE: Liabilities for the Town of Greenburgh, Irvington, and IUFSD. Our district pays health-care costs for retirees and their spouses for life. This chart shows a 64.82% increase in what we will owe in the future over the past two years’ time, a period of record-low inflation (and record-low wage increases). The term for post-retirement health care paid for by the district is “Other Post Employment Benefits” or OPEB. The increase in future obligations as of June 30, 2013:

 YEAR  OPEB* Obligation  2-year % increase Core PCE year-on-year (Inflation) August 2013**
 June 30, 2011 $16,857,318
 June 30, 2012 $22,056,552 30.84%
 June 30, 2013 $27,784,130 25.97% 64.82%  1.2%

*OPEB = Other Post Employment Benefits *Core PCE = Personal Consumption Expenditure: prices excluding food and energy. Core PCE is the measure of inflation used by the Federal Reserve. Complete analysis and explanation here: Retiree Health Benefits

AND SEE:

UPDATE 11/9/2013:
Mike Kolesar says the problem is much larger than this.
AND SEE: Liabilities for the Town of Greenburgh, Irvington, and IUFSD.

From Patrick Gilmartin (and see: Retiree health benefits at a glance):

The details of the School District’s unfunded health costs are given on on pages 37 and 38 of its Audited Financial Statements as of June 30, 2013 of its Audited Financial Statements as of June 30, 2013. The audited statements are available on the District’s website

If the children knew the amount of debt that their elders have piled up for them to pay, they would — or should — be appalled. The facts:

The District provides health insurance coverage for retired employees “and their survivors” for life. “Substantially all the District’s employees may become eligible for this benefit if they reach age 55 and retire with 10-20 years of service to the District.” There are about 98 retired employees currently eligible to receive benefits. “…there are no assets legally segregated for the sole purpose of paying benefits under the plan.”

At June 30, in each of the years 2011, 2012, 2013, the amount actuarially determined in accordance with generally accepted accounting principles that the District was contractually obligated to pay for the future health benefits of retired employees was as follows:

June 30, 2011 $16,857,318.
June 30, 2012 $22,056,552, an increase of 30.84% in one year
June 30, 2013 $27,784,130, an increase of 25.97% in one year and 64.82% in two years.

As noted, as these benefits accrue there is no money set aside to pay them when they become due. All the District does is pay current health care obligations. The annual expense of what has been promised retirees was $7,558,928 for the year ended June 30, 2013. Of this amount, the District also actually paid only $1,831,350, the costs actually incurred during the year by retired employees and/or survivors. The difference of over $5.7 million was added to the unfunded liabilities of the District.Another note in the Audited Financial Statements, while not totally clear as to its methodology, says that the total unfunded liability of the District’s health care plan at July 1, 2012 was 319% of the payroll for its covered employees.

Did I hear somebody mention Detroit?

Patrick Gilmartin