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Actuary explains OPEB, funding choices and a model showing trust growth and future tradeoffs
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Summary
KMS Actuaries’ Linda Bridal briefed the Select Board on OPEB (other post‑employment benefits), the effect of GASB standards on municipal balance sheets, Southborough’s current $250,000 annual OPEB deposit, and modeling options that could change long‑term funded status and discount rates.
The Southborough Select Board heard an in‑depth presentation April 28 from Linda Bridal, owner and chief actuary at KMS Actuaries, explaining other post‑employment benefits (OPEB), how those liabilities are measured under GASB standards and what policy levers the town can use to manage the liability over time.
Bridal opened by defining OPEB as retiree benefits other than pensions and reviewed how changes in retiree counts, health‑care cost trends and investment returns cause the town’s reported liability to move from year to year. "OPEB is retiree health benefits paid over time," Bridal said. She told the board KMS’s working assumption for modelling the town’s portfolio returns is roughly 6.75 percent, and noted the town has been contributing $250,000 annually to its OPEB trust as a supplement to pay‑as‑you‑go retiree payments.
Bridal said that under the town’s current funding policy the OPEB trust balance is growing slowly; the presentation referenced an approximate current trust balance discussed during the meeting (about $4.5 million) and a scenario where the town’s funding and assumed returns produce roughly $7.5 million in the trust by 2037. She emphasized those numbers change with assumptions: "Everything changes every time we look at this... health care costs, demographics, investments," she said.
Board members pressed on a few points. One member raised whether the report assumed redirecting pension catch‑up payments to OPEB once the town finishes its Worcester Regional Retirement catch‑up; Bridal said modelling can assume a full diversion, a partial diversion or none at all, and that the firm used the town’s written funding policy to generate the scenarios presented. Another member asked about the per‑person municipal cost of retiree health coverage for Medicare‑eligible retirees; Bridal said the post‑65 component is the main driver of OPEB liability because longevity extends the duration of benefit payments.
Bridal presented a menu of policy levers the town could consider: increase annual prefunding above $250,000, set a target funded ratio and schedule, change retiree cost‑sharing or plan design, or adopt a policy to redirect pension catch‑up payments partially or fully to OPEB once pension obligations are satisfied. She said KMS can model a limited number of scenarios to show tradeoffs and recommended the board clarify its objectives (best discount rate, target funded ratio, or budget‑constrained path) so consultants can produce focused policy options.
The board asked for additional modelling and a clearer schedule showing projected Worcester Regional pension assessments over a 5–10 year horizon; Bridal agreed to prepare follow‑up scenarios that reflect options (for example, diverting 50 percent of pension catch‑up payments rather than 100 percent).
The discussion closed with agreement to return with modelling choices and potential policy language for the board to consider, and with a pointer to a Massachusetts OPEB summary report the consultant received that afternoon for comparative data.
(Topic introduced at the board’s follow‑up item from KMS Actuaries and covered across multiple segments of the meeting.)
