Town’s future cost for employee health care

This is a report titled “Town of Medfield Other Post-Employment Benefits – Actuarial Valuation – 1/1/2011.”  The report projects the cost to the Town of Medfield of the future health care costs already earned by the town’s current employees and retirees.  Other Post-Employment Benefits (OPEB) are employee benefits that have already been earned.  In our case these are obligations for which the town has not set aside any funds to pay those future costs.  This unfunded town liability on 1/1/2011 appears to have been estimated by the consultant in this report to stand at $39,775, 805.

From the report –

Summary of Actuarial Results
The actuarial values in this report were calculated consistent with the Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, issued June 2004. Values at two discount rates are presented. The 7.50% discount rate represents the expected rate .of return for a funded plan with a longer-term investment horizon. For an unfunded plan, the GASB Statement No. 45 calls for the use of a discount rate approximating the rate of return of Medfield’s general assets. The rate we recommend for Medfield is 4.25%. The OPEB liability is extremely sensitive to this assumption. Use of the unfunded rate instead of the funded rate causes the Annual Required Contribution (ARC), Accrued Actuarial Liability (AAL), and the Normal Cost to increase dramatically.

The summary results are as follows:
• Actuarial Accrued Liability (” AAL”) is the “price” attrbutable to benefits earned in past years. The total AAL as of January I, 2011 (at 4.25%% discount rate) is $39,775,805.  This is made up of approximately $22.3 million for current active Medfield employees and approximately $17.5 million for Medfield retirees, spouses and survivors.
• The Normal Cost is the “price” attributable to benefits earned in the current year. The Normal Cost as of January 1, 2011 (at the 4.25% discount rate) is approximately $1.9 million.
• Based on a twenty-eight year funding schedule (at the 4.25% discount rate), the Fiscal 2011 contribution would be $3,503,030. This figure is referred to as the Annual Required Contdbution (ARC). This figure should be contrasted with the ARC using the fully funded 7.50% rate and a thirty-year funding schedule of $2,432,940. These compare to the pay-as-you-go contribution of the existing costs for current retirees of $1,234,867. For an illustration of how payment of the ARC impacts the funding of the plan over time, please refer to the “mustrative Funding Schedule” discussion beginning on page 15 and the accompanying table on page 35. The following table shows the breakdown of the Actuarial Accrued Liability between future retirees and current retirees, as well as the normal cost, at Medfield’s different discount rates:

[SEE THE REPORT FOR THE CHART (it did not copy well below)]

Actuarial Results as of ,January 1, 2011 7.50% Rate 4.25% Rate

Current Actives                                                       $12,922,731   $22,309,068

Current Retirees, Beneficiaries, Vesteds ~  $12,881,239 ;  $17,466,737
and Survivors

Total AAL .                                                                  $2~,803,970   $39,775,805

Normal Cost                                                                $979,396            $1,889,948

ARC (uses 28 year amortization for

Unfunded, 30 years for Funded) .                       $2,432,940      $3,503,030

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