OCEAN CITY – The newly stated retiree health care program has resulted in additional funds being directed to Ocean City’s Other Post-Employment Benefit (OPEB) Trust Fund.
Last month, the Mayor and City Council passed a new ordinance concerning retiree health care for newly hired town employees. The ordinance states, “if an employee elects to participate in the high deductible health plan the town will contribute an amount to the employee’s health saving account (HSA), which the employee can utilize to satisfy deductible charges and other allowable medical expenses. Upon retirement from Ocean City, after 25 years of service, the retiree may participate in any of the municipal retiree health plans until the age of 65 years by paying a premium determined plus a maximum of 3 percent annually and the participating retiree will pay the difference between the required total premium and the town’s contribution.”
During this week’s Mayor and City Council meeting, Finance Officer Martha Bennett Lucey explained that Bolton Partners updated the actuarial valuation for retiree health insurance benefits after the council passed the ordinance changing the benefit for new hires to a 3-percent soft cap and ending the benefit at the employee’s age of 65. Since the plan has become open to new hires, Bolton Partners has reduced the cost of the Actuarial Required Contribution (ARC) for the current fiscal year from around $4.4 million to about $3.5 million.
The retiree health expense in the current budget was estimated around $3.1 million and was already paid to the OPEB Trust Fund in December of 2010 and because that amount is less than the ARC of $3.5 million Lucey requested that $412,000 be approved to be paid to the trust fund and the expense be increased by that amount in a budget amendment for FY2011’s budget.
Councilman Joe Hall did not agree with the request to add the additional amount to the trust fund and pointed out that adding the additional contribution is not mandatory. He also reminded the council that when the new retiree health care was established Mayor Rick Meehan offered other suggestions in decreasing costs even further.
Those options were a 3-percent soft cap for current employees or those under 15 years of employment or a 6-percent cap for those employees employed over 15 years.
At that time, Joe Hall agreed with the mayor and explained that the current retiree health care creates a $32 million liability. If a 3-percent cap was to be placed on current employees with 15 years or less, that liability would be reduced to $28.5 million. If a 6-percent cap would be placed on current employees with 15 or more years it would reduce the liability $25.8 million.
“My suggestion would be not to increase this fund and have an actuarial done that if we were to put a 6-percent cap on it for the current employees,” Joe Hall said. “Inflation is going to happen in health care and I think committing the taxpayers in the town to 6-percent inflation and capping it at that would be responsible and minimize the level of contribution necessary to the fund.”
Lucey explained to Joe Hall if the council approved adding the contribution to the trust fund and decided to change the retiree health care in the future, that amount of money would become a credit toward liability.
“I would suggest if you fully funded it [contribution] this year, you could at any time in the future make an ordinance change that could reduce your liability and it would adjust the next year’s payment if there are any excess funds in there,” Lucey said
Joe Hall was still not comfortable over the idea of placing the contribution and not being able to take it back out if needed in the future.
“My personal opinion is I would rather keep the money in the general fund and have access to it for whatever reason the town would perceive necessary,” he said.
Meehan was pleased to hear that Joe Hall still looks towards a soft cap in some way for all employees.
“That is what we needed to do but we didn’t do it,” the mayor said. “I hope we have those discussions in the future but this is to go ahead with the budget amendment … once you do reduce that, it will reduce additional payments in the future if you do in fact go to a different program.”
The council voted 6-1 to pass Lucey’s request to add the additional contribution to the OPEB Trust Fund, with Councilman Joe Hall in opposition.