Actuaries tell Southborough Select Board OPEB liability fell as assets gained, funded ratio remains under 10%

Amanda Makarevich, an actuary with KMS Actuaries, and Michael Bubillo, associate actuary at KMS, presented the town's annual other post-employment benefits (OPEB) valuation at the Select Board meeting. The consultants said the town's OPEB trust had a market value of about $3,681,000 as of June 30, 2024, and the total OPEB liability measured for GASB reporting was $42,362,000, leaving a net OPEB liability of roughly $38,680,000 and a funded ratio of about 8.69 percent.

Makarevich said the valuation follows GASB 74 and 75 reporting rules and noted: "GASB does not require funding OPEB liabilities, just reporting them." The firm described the valuation as a roll-forward from the prior year's census data (no new census was collected for this report) and explained the three inputs to the model: the census, plan provisions and actuarial assumptions.

KMS told the board the plan's discount rate increased to 6.48 percent for the June 30, 2024 measurement date. That blended discount rate uses a 6.5 percent long-term expected return and a 3.93 percent high-quality municipal bond rate, with the exact blend driven by projected asset sufficiency. The firm said investment returns helped: the trust returned about 12.11 percent in fiscal 2024 and posted an investment gain relative to expectation of roughly $199,000.

The consultants summarized the plan's major features: the town offers a Medicare supplemental Aetna plan (Aetna Advantage) for Medicare-eligible retirees, with retirees paying 25 percent of the premium and the town 75 percent; three pre-Medicare Harvard Pilgrim plan options with varying retiree cost shares; retiree life insurance with a $1,000 face value (retirees pay 50 percent of the premium); and 50 percent retiree share for dental premiums. KMS reported it valued 193 retirees in the census and that 122 elected the Aetna Advantage Medicare plan.

KMS explained that the valuation showed no experience gain or loss because the roll-forward assumed no demographic changes since the prior valuation. The firm said a change in the discount rate from 5.59 percent (06/30/2023) to 6.48 percent (06/30/2024) produced a decrease in the total liability of about $5,416,000; after all adjustments the total liability fell about $2.9 million year over year. KMS also reported annual benefit payments of about $1,611,000 in fiscal 2024 and stated the GASB 75 OPEB expense recognized on the town's financial statements for the year is $3,800,000.

KMS reviewed the town's funding policy: since 2017 the town has prefunded the trust with an annual $250,000 contribution. The consultants said the town's current approach is to continue that contribution until the Worcester Regional Retirement System is fully funded (they reported that system is expected to be fully funded in 2036/2037), at which point the town's pension funding requirement would be reduced and those resources could be reallocated toward OPEB. Using current assumptions and that projected timing, KMS said funded status would materially improve in the late 2040s under the scenario in appendix A.

Board members asked about when benefits could begin to be paid from the trust rather than the general fund, the source of the long-term return assumptions (KMS said the town's investment consultant, Bartholomew, provides long-term returns by asset class and KMS uses the town's target allocation), and the town's plan to collect updated census data for a full valuation as of 06/30/2025. Amanda Makarevich and Michael Bubillo said they will collect new demographic data during the summer valuation work.

The board did not take formal action at the meeting; the presentation concluded with the consultants offering to prepare alternate funding scenarios if the board wanted to review different contribution paths.