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OPEB presentations: police retiree health prefunding improves; city also records implicit subsidy liability
Summary
Actuarial firms reported the city's police retiree health benefit was about 80% funded at year end after favorable investment returns and contributions; the city also carries an implicit‑subsidy OPEB liability of roughly $3.4 million that fell during 2024 due to higher discount rates.
Two actuarial presentations on Mount Pleasant’s post‑employment health liabilities showed improving funded levels for the police retiree health account and a separate implicit‑subsidy liability tied to retiree premiums.
Why it matters: OPEB liabilities affect the city’s financial disclosures and, if prefunded, the budget; the implicit subsidy (an accounting recognition) must be disclosed even when active premiums are currently covering retiree cost differences.
Police retiree-health (explicit plan) - Reconciliation and funded level: Christian Veenstra of Watkins Ross reported the police retiree-health plan began the year with a liability of about $3.5 million and had roughly $2.6 million in assets, leaving an unfunded liability near $900,000. Strong investment returns and contributions produced a net increase in plan assets, and Christian said the police OPEB ended the year “much better funded, just over 80% at the end of the year.” - Actuarially determined contribution (ADC): Christian reported the actuarily determined contribution was about $161,000 in 2024; because the plan is being amortized on a short schedule the ADC declined to roughly $128,000 in 2025 under the assumptions used. - Risks: Christian said the main risks for OPEB are investment returns and health‑care cost inflation; unlike pensions, retiree health benefits are more changeable by plan design or bargaining.
Implicit-subsidy liability (city-wide group plan) - Size and drivers: Christian said the city’s implicit subsidy liability — the difference between true retiree health costs and the premiums charged when group pricing masks higher retiree costs — was roughly $3.4 million. That liability declined in 2024, partly because market interest rates used for discounting rose.
Commission questions focused on the mix of explicit and implicit liabilities and the practical choices for prefunding versus pay‑as‑you‑go. Christian recommended monitoring returns and health-care inflation and noted the city has options including prefunding, plan design changes, or defined‑contribution models for retiree health.
Ending: Staff will incorporate the actuarial numbers into financial reporting and the budget; commissioners asked staff to present options for long‑term OPEB strategy.
