Fiscal Year 2019 Budget

Beginning July 1, 2018 and ending June 30, 2019

Last updated: 7/1/18

Other post employment benefits

Similar to pensions, employees earn post-employment health care and life insurance benefits (OPEB) over their years of active service, with those benefits being received during retirement.

The City, including the Boston Public Health Commission (BPHC), has an unfunded liability for these benefits of $2.26 billion, as of the most recent independent actuarial valuation on June 30, 2015.
The size of this liability is largely influenced by changes to retiree health benefits, the City’s annual additional contribution to fund the liability, and the discount rate assumed.

Overview

Voluntary annual allocations

While the City is required by law to make an annual contribution toward reducing its unfunded pension liability, there is no such requirement for retiree health and life insurance benefits. In FY08, the City followed new Governmental Accounting Standards Board (GASB) requirements to identify and disclose this estimated liability, and also began voluntary annual allocations to fund the liability. Annual allocations are retained in an irrevocable Trust Fund, authorized through the City’s acceptance of M.G.L. Chapter 32B section 20. As of December 31, 2017, the Fund had a balance of $547 million.

Reducing liability

This budget again dedicates $40 million toward reducing the City’s long term other post-employment benefits (OPEB) liability. These fiscally responsible actions are critical to the Walsh Administration’s prudent financial management policies, which have contributed to the recent affirmation of Boston’s triple A bond rating.

Annual Required Contribution

The Annual Required Contribution (ARC) for the City to significantly reduce the OPEB liability over a 30 year period is projected at $191.4 million in FY19. $182.2 million (95%) of this amount will be funded through:

  • a combination of pay-as-you-go benefit payments for current retirees (included in health care costs discussed in previous section);
  • a $40 million FY19 allocation by the City to the Trust; and
  • an additional $2.25 million deposit by the BPHC into the Trust.
Funding the OPEB liability

The City is currently on a schedule that targets reducing its pension liability by 2025, and then plans on redirecting some portion of its annual pension contribution to further reduce the OPEB liability. However, this schedule is illustrative only of the currently expected funding schedule, and actual circumstances that will occur will likely vary from current assumptions.

Other Post Employment Benefits


FY16 Actual FY17 Actual FY18 Budget FY19 Budget
Total 40.0 40.0 40.0 40.0