Grand Rapids board hears options to reduce $100 million OPEB retiree-health liability

The Grand Rapids Public School District board on Wednesday received a presentation from actuarial consultants on the district’s other post‑employment benefits (OPEB) liabilities, which the consultants said are concentrated in post‑65 retiree medical promises and total “just under $100,000,000” as of the June 30, 2024 measurement.

Why it matters: the district’s annual explicit premium subsidies for retirees are about $5 million to $6 million now and likely to remain at that level for years, a cost that is paid from the district’s budget and an OPEB trust the consultants said is nearly depleted.

Mark Schulte, an actuary with VA Actuarial, told the board that OPEB in Grand Rapids is primarily retiree medical benefits and that the district currently self‑insures those costs. “For fiscal ’24–’25 they’re a little over $5,000,000,” Schulte said, describing that figure as the district’s current annual retiree‑health cash outlay. He also said the district’s explicit subsidy liability is “just under $100,000,000” and that most of that liability is post‑65 medical costs.

Consultants outlined two near‑term options to reduce ongoing outlays. One is a carve‑out of post‑65 retirees from the district’s self‑insured plan into a fully insured Medicare arrangement, which would replace variable claim payments with a fixed premium paid to an insurer. The second is a defined‑contribution approach using retiree health reimbursement arrangements (HRAs), under which the district would set an annual per‑retiree allocation and retirees would purchase Medicare supplement or advantage plans and seek reimbursement for eligible costs.

Schulte said a retiree HRA “is essentially trying to cap the benefit spend” and that a rough back‑of‑the‑envelope comparison showed offering $5,000 per retiree to roughly 400 retirees could reduce annual district spending from about $5–6 million to about $2 million, while noting that such a change would reduce the level of subsidy retirees currently receive.

Board members and consultants also discussed legal and bargaining limits. A board speaker pointed out “there was a lawsuit not all that long ago about messing with retiree health benefits,” and consultants told the board that altering benefits for active employees generally requires collective bargaining while switching the delivery model for post‑65 coverage (for example, moving to a fully insured Medicare plan while keeping contribution levels the same) may be achievable without renegotiating benefit value.

District staff said the OPEB trust balance is low and likely to be exhausted in the coming months, and that the district has historically used the trust to offset retiree payments. Schulte urged the board that trust assets exist to pay OPEB and that districts sometimes underuse them for fear of spending, saying “the purpose of OPEB trust assets is to spend them on OPEB to offset those costs.”

Directives and next steps from the meeting included: consultants will remeasure liabilities and provide updated numbers this summer; staff were encouraged to obtain insurer quotes for fully insured post‑65 options; and the board will continue fact‑finding on HRA plan design and potential funding mechanisms, including whether levies or other revenue sources would be required.

Board members emphasized outreach and communication with retirees and bargaining units before any changes. A board member cautioned that any change that reduces the dollar value of retiree benefits will be subject to bargaining and potential legal challenge, and consultants reiterated that exact effects depend on plan design and insurer quotes.

The discussion did not result in a formal vote; it ended with direction to continue research, gather quotes and updated actuarial measurements, and return options to the board for future decisions.