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City hears OPEB funding options as long-term liability shown near $40 million under conservative assumptions
Summary
An outside advisor briefed the council on the city's unfunded other post‑employment benefit (OPEB) liability and recommended steady annual contributions and a higher‑return investment posture to reduce the long‑term burden.
City finance staff and an outside adviser on Tuesday gave the City Council an update on the city’s retirement and post‑employment benefit liabilities and options to reduce future costs.
Mark Schuster of Schuster Advisory Services told the council an actuarial valuation shows an accrued OPEB liability that is sensitive to the discount rate used in the calculation. Using the low discount rates in the current valuation produced a notional liability figure in the range of roughly $40 million; higher assumed investment returns reduce that present‑value number materially.
Schuster recommended a two‑part approach that many municipalities use: establish an irrevocable Section 115 trust to invest funds intended for OPEB, and adopt a predictable, recurring contribution amount so the city begins chipping away at the obligation. He presented scenarios showing the effect of different annual contribution levels and assumed portfolio returns. Staff said the city has already opened a Section 115 trust and has begun making smaller annual contributions and will bring options on a target asset allocation and multi‑year funding plan.
Council members discussed trade‑offs: higher allocations to equities increase expected long‑term returns (and reduce the actuarial liability) but bring more investment volatility. Staff noted the city's pension obligation bond issued in an earlier period had reduced pension pressure and that OPEB funding decisions are a separate but comparable long‑term obligation.
Ending: The council received the presentation as an informational item and asked staff to include potential funding options and an updated actuarial analysis when the city next considers the budget and strategic priorities.
