At a time of increased scrutiny of pension costs, most public agencies in Marin have allowed their unfunded retiree health care liabilities to rise over the past five years, according to the Marin County Civil Grand Jury.
Its report, titled “Marin’s Retirement Health Care Benefits: The Money Still Isn’t There,” compares the retiree health care liabilities of 39 government agencies in 2016 with their liabilities in 2012.
“While some Marin agencies continue to reduce their unfunded OPEB liability, we are concerned that many agencies still have not done so,” the grand jury states in its report, issued last week.
Other post-employment benefits, or OPEB, principally consist of health care benefits, but can also include life insurance, disability, legal services and other costs.
“This problem has been escalating for years and will not be magically gone tomorrow,” the grand jury writes. “Left unchecked, the growing liabilities may eventually challenge agencies’ fiscal health.”
The grand jury recommends that Marin agencies adopt a formal policy for how they plan to meet their funding obligations and if necessary prioritize cost containment strategies to reduce or eliminate retiree health care benefits for future employees.
Twenty-three of the agencies that the grand jury looked at increased their unfunded liabilities by a total of $41.9 million. The other 16 decreased their liabilities by $108.1 million; that included the county of Marin, which reduced its unfunded liabilities by $88.3 million.
The collective unfunded retiree health care liabilities of the 39 agencies amounted to $540 million in 2016, down from $606.1 million in 2012. Most of that decrease, however, was attributable to the reduction in the county of Marin’s unfunded liabilities. If the county of Marin is removed from the equation, the unfunded liabilities of the remaining 38 agencies increased to $245.7 million in 2016, up from $223.4 million in 2012.
Five of Marin’s 11 municipalities — Belvedere, Larkspur, Novato, San Rafael and Tiburon — have allowed their retiree health care liabilities to increase since 2012, with Belvedere seeing the biggest increase.
All but five of the county’s 13 school districts — Kentfield, Larkspur-Corte Madera, Ross Valley, Tamalpais Union High School and Marin Community College — have seen their retiree health care liabilities increase. Mill Valley, Reed Union and Novato Unified had the biggest increases. The College of Marin saw the biggest decrease.
Only four of the 14 special districts the grand jury looked at — Central Marin Sanitation Agency, the Marin Municipal Water District, the Novato fire district and the Tiburon fire district — saw a decrease in their retiree health care liabilities. Ross Valley Sanitary and Central Marin police had the biggest increases.
The grand jury says that while much attention has been paid lately to a looming unfunded pension crisis across America, “Less commonly reported is the looming unfunded OPEB crisis.”
The grand jury said that while the unfunded pension liability for the 39 agencies it examined amounts to $956.3 million, their unfunded retiree health care benefits total $540 million.
In January 2016, state Controller Betty Yee estimated the state’s unfunded liability for OPEB at $74.1 billion.
The grand jury notes that unlike pensions, health care benefits are typically not guaranteed or protected by state law, so governments have much more latitude to scale back health care benefits and share benefit-related costs with retirees.
PLANNING AHEAD
The grand jury recommends that all public agencies prefund their retiree health care benefit obligations rather than paying the annual cost of health care benefits as they come due. Money set aside for future benefit liabilities can be earning an investment return until it is needed, thus reducing overall liabilities.
The grand jury report shows that prefunding was key to the large decreases in liabilities realized by the county of Marin and the College of Marin between 2012 and 2016. The county of Marin also capped retiree health care benefit levels for some of its employees. The money that Marin County sets aside to cover retiree health care costs goes into a trust.
“Since we set up the trust, we’ve earned over $10 million,” said Marin County Administrator Matthew Hymel.
The grand jury says at least three school districts in Marin — Mill Valley, San Rafael Elementary and San Rafael High School districts — have established substantial reserve funds to bank money to cover retiree health care benefits. The grand jury recommends using a trust instead, however, since a trust is usually required to ensure that assets won’t be used for some other purpose or attached by a creditor.
Corte Madera Town Manager Todd Cusimano said his town has been able to reduce its retiree health care liabilities by about 17 percent since 2012 by switching from pay-as-you-go to prefunding and eliminating retiree health care benefits for new employees.
Corte Madera now pays an additional $500,000 a year into a trust to cover future liabilities.
“We’re approaching almost $2 million in our trust,” Cusimano said. He estimates that at this pace the town’s retiree health care benefits will be fully funded in 16 years.
In its report, the grand jury provides a long list of strategies for containing retiree health care costs.
Richard Tait of Mill Valley, a member of Citizens for Sustainable Pension Plans, a Marin-based public pension reform group, said, “However, a significant majority only apply to newer employees. As most of the unfunded liability results from obligations to current employees and existing retirees, we wish that reforms for current employees had received more attention.”
Tait said, for example, one strategy that should have been mentioned is raising the age for lifetime benefit eligibility from age 50 to 60.
Nevertheless, Tait congratulated the grand jury “for reporting the magnitude of the unfunded retiree health liability facing Marin public agencies.”
May 21, 2017
Marin Independent Journal
By Richard Halstead
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