Town Proposes Contributing Less to Offset Future Benefits

March 15, 2024

Town officials have revised the policy for proposed annual contributions to the OPEB trust fund, designed to safeguard the reservoir of free cash while continuing to chip away at the long-term liability.

The updated policy is simple: “The town shall appropriate 5 percent of the certified free cash into the OPEB Trust Fund.” That means Annual Town Meeting will be asked to approve $794,067.

The previous policy, in effect since 2018, increased the amount each year by 3.5 percent and an additional $100,000. The amount approved by Annual Town Meeting last year was almost $1.4 million. 

When departmental employees retire, the town continues to fund portions of their health insurance and life insurance premiums. These costs are collectively called “other post-employment benefits;” the acronym used is OPEB.

Impressed by the magnitude of the long-term liability, Town Meeting began setting aside allocations 30 years ago. Town officials established an OPEB trust fund in 2013 to provide an interest-bearing account for the annual amounts. 

Historically, the funding has been allocated from the town’s reservoir of free cash, which means there is no impact on the amount raised by taxation for the next fiscal year.

But even though current free cash has been certified at around $15 million, officials are concerned that the buildup could shrink quickly, leaving the town without a supplemental financial safety net. Indeed, a free cash allocation is used to balance overall spending every year.

By linking OPEB trust fund allocations to a fixed percentage of free cash, the new policy adjusts trust fund allocations to fluctuating free cash totals.

There are many variables leading to computation of the 30-year OPEB liability, such as census data and health-care plan rates.

According to the most recent actuarial study, the projected amount as of June 20, 2022 is almost $54 million. It would be about $69 million without the money the town has allocated to the fund, plus interest. The amount in the fund as of June 30, 2023 was $14,891,996. Finance Director David Castellarin said he expects to receive an updated actuarial study by the end of March.

As more workers retire, and people live longer after retirement, the total liability accelerates.

Currently, Bedford covers current and former employee premiums with a “pay-as-you-go” approach, which at some point will not be financially sustainable.

Select Board and Finance Committee members over the years have pointed out that a majority of Massachusetts cities and towns are not setting any money aside to cover future OPEB liability.

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