Superintendent: OPEB trust will be exhausted within months; district weighing Medicare-supplement plans

Superintendent Matt Gross told the ISD 318 school board during a workshop that the district’s other post-employment benefits (OPEB) trust will be depleted “in the next 1 to 3 months,” and staff are exploring Medicare-supplement plans and other options with the goal of making decisions in early October.

The OPEB liability covers retiree health benefits the district currently pays out of a trust established after 2007. Gross said the district now pays about $5,500,000 annually for retiree health coverage and that the last actuarial valuation, dated February 2025, put the district’s total OPEB liability at about $126,000,000. He said the trust was initially funded after the district issued $35,000,000 in bonds and that the trust funded roughly 53% of the liability; the trust has paid out about $52,000,000 in premiums since inception.

The district must shift from the existing trust-funded model to a pay-as-you-go approach because the trust is nearly exhausted. Gross said that move will require the district to pay benefits out of the general fund up front and then levy to recover those costs later, which will produce “a large tax increase” when the transition occurs. He added, “We absolutely can. We absolutely will” levy for annual retiree benefit costs under the pay-as-you-go model, but warned the district will be “a year behind” and lose the future value of money as liabilities grow.

Why it matters: a depleted trust changes how retiree health benefits are funded, can increase near-term pressure on the general fund, and may result in higher levies for taxpayers. Gross told the board the most direct way to reduce future tax impact is to reduce the district’s OPEB liability.

Staff said they are evaluating options that could lower future district liability, including seeking contributions that change retiree cost sharing and, most intensively, moving eligible retirees into fully insured Medicare-supplement plans that would shift some costs off the district’s books. Gross said the district recently obtained finalized bids from Blue Cross and HealthPartners and will review those with an insurance consultant and a subcommittee in the coming weeks. He cautioned that quotes from the two providers show notable cost differences between plans.

Process and timeline: Gross said staff met with retirees and the fringe benefits committee over the summer and have scheduled additional meetings: a subcommittee review on the 4th (of the month referenced in the presentation), a special fringe-benefit-committee meeting on the 18th, and a special board workshop on the 30th with the objective of making an early-October decision to allow retirees to shop during Medicare’s November open enrollment period if the board approves a change.

Legal and historical context: Gross reminded the board that the statutory authority many districts used to issue bonds to fund OPEB trusts expired in October 2009, so the district cannot reproduce the same bonding strategy now. He also referenced the accounting standards that historically drove actuarial valuations, noting the district implemented GASB rules beginning with GASB 45 and mentioned later updates (GASB 101 was cited in the presentation).

Outstanding items and uncertainty: Gross said staff are still working through plan language and costs and that a final financial estimate for the proposed Medicare-supplement approach was not ready at the workshop. He also said staff need to confirm whether statutory procurement and requote rules that apply to active-employee health plans extend to retiree coverage. Board members and staff asked several procedural questions during the update; Gross said that if a proposed change meets the district’s legal obligations it would require board action to adopt.

The board will receive the subcommittee and fringe-committee recommendations before any formal vote. If a switch to a Medicare-supplement plan is feasible and approved, the district intends to align implementation with Medicare open enrollment to allow retirees to select coverage.