West Hartford And Post-Employment Benefits Funding

Oh oh.... There could be trouble in River City, I mean West Hartford.

Post-Employment Benefits Funding information is in the budget documents handed out by the town. We took the liberty to examine this information. There were some very eye opening items. Here was just one.

Now the budget document says

"The need to fund post-retirement benefits for employees has long been recognized by the Town. A reserve fund for retiree health care was established in 1986 and annual contributions were made to the fund.The Risk Management Health Reserve was established in 1984, for the purpose of paying retirees’ health claims. It was designed to operate essentially as a pension plan with the measurement of both assets and liabilities and an actuarially determined required contribution. This program has been voluntary on the Town’s part, but the Government Accounting Standard’s Board (GASB) has determined that postemployment benefits, other than pensions, are an accruing cost that should be reflected in the governmental unit’s financial statements. A similar reporting requirement was added to private sector financial statements in 1990. This means that effective for the fiscal year ending June 30, 2008, the Town will be required to disclose information about asset and liability levels, show historical contribution information, and keep a running tally of the extent to which these programs are over or under funded."

Ah yes, our reporting will now be subject to Governmental Accounting Standards Board (GASB) 45 accounting rules. A quote from one union publication says this:

In 2004, the Governmental Accounting Standards Board (GASB) released Statement 45 (GASB 45) concerning health and other non-pension benefits for retired public employees. These benefits may also be called “other post-employment benefits” and retiree healthcare programs, which are by far the most costly. GASB 45 strongly encourages public sector employers to set aside funds for non-pension benefits. Instead of a "pay-as-you-go," employers are strongly encouraged to fully fund retirement plans in order to show a more favorable financial statement.
The intent of GASB 45 was to bring governmental accounting standards more in line with private company standards. Though GASB has no power to change ‘how’ governments fund retiree health, pension and other benefits, it does govern the rules that auditors must follow in providing options on the reliability of governmental financial statements. Audited financial statements prepared according to GASB are scrutinized by investors in state and local bonds and rating agencies that make judgments on the likelihood those bonds will be paid off is required.

So when pension funds, or any funds for that matter, are not fully and adequately funded they are deemed "unfunded" or "underfunded". The amount that is unfunded is a liability to the town because it has to be funded at some point in time. As stated above, financial statements are are looked at by rating houses like Moody's and Standard and Poors. Now they will be including these unfunded liabilities in their assessments. That could be a problem for West Hartford, as it not creates an added financial stress on our budget, and if we do not fund these liabilities it can affect our credit rating.

Our budget documents say that:

Due to various financial pressures, the Town did not contribute to the Health Reserve Fund in fiscal years 2002, 2003 and 2004 and continued to pay for all retiree claims from the Fund. In addition, in fiscal year 2004, $2,026,564 was used to fund the Town’s pension contribution. The result of these actions is that the Risk Management Health Reserve Fund now needs to be funded or it will be depleted in just a few short years. The major immediate consequence if this happens will be that all retiree health costs will then have to be funded out of the General Fund. Significant long term consequences would be that the General Fund operating budget would be subject to the large fluctuations in retiree medical claims that have been in the double digits the past several years and, given the implementation of the GASB requirements, the Town would have to explain what was being done to address this large and growing cost.

Additionally, because the market fluctuates, that also affects the fund's balance. we therefore have even more additional costs to bring the fund up to what it should be.

But check this out:
And interestingly enough the funding ratios begin to drop just around the time when Jonathan Harris became Mayor of West Hartford in 2001 and continues to plummet under Democrat control. In fact, and as the town budget document shows, after the town stopped contributing "due to financial pressures" we now essentially have to play catch up to bring this fund up to be fully funded for GASB 45 purposes. The contribution is now enormous and the 2008-09 budget reflects an increase to the annual contribution to that fund.
It looks as if this problem was caused by poor financial decisions made by former Town Manager Barry Feldman and Mayor Harris. It wasn't until 2007 that the town began to reverse the funding ratio decline. The question remains, why did they wait so long to reverse that decline? and how will this ultimately impact the availability of funding for other needs in our budget?

Now, as they say, the chickens have come home to roost.

Maybe it is time we consider ditching a full retirement plan and allowing employees to get their own 401-(K) plans which we just give a contribution to. More businesses are doing this, and there is no reason why our town shouldn't. Besides, why should our employees, like our superintendent, retire after putting in a few years, get a huge retirement pension and then "double dip" to go off an work as another position? Former Town Manager Barry Feldman "retired" and got a lovely pension, and now is employed at UCONN... not a bad deal, unless you are a West Hartford taxpayer.