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Strategy Session for Negotiating for Other Post-Employment Benefit (OPEB) Liabilities

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Strategy Session for Negotiating for Other Post-Employment Benefit (OPEB) Liabilities. Table of Contents. Lack of Employer Planning Why Negotiate for OPEB Funding Understanding an OPEB Report Negotiation Considerations Funding Sources How Much Should be Funded Case Studies

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table of contents
Table of Contents
  • Lack of Employer Planning
  • Why Negotiate for OPEB Funding
  • Understanding an OPEB Report
  • Negotiation Considerations
  • Funding Sources
  • How Much Should be Funded
  • Case Studies
  • OPEB Funding Trends
  • Q&A
getting started

The future ain’t what it used to be.

- Yogi Berra

Getting Started
lack of employer planning
Lack of Employer Planning
  • You can’t start saving for retirement when you are in your sixties!
  • Reducing Benefits
    • Frozen benefits
    • Defined contribution plans
    • Benefit caps
    • Restrictive service requirements
    • Benefit buyouts
  • Higher Costs
    • High co-pays
    • High deductibles
    • Dependent elimination
action plan

Hard work never killed anybody, but why take a chance?

- Edgar Bergen

Action Plan
why negotiate for opeb funding
Why Negotiate for OPEB Funding
  • Employers will most likely delay funding unless they are forced or enticed to fund OPEB liabilities
    • GASB 45 does not legally obligate employers to fund OPEB liabilities, only to size them
  • Early start allows you to benefit from compounding investment returns, which can significantly reduce program expenses even with below average returns
    • 5.00% average return means deposit grows by 332% over 30 years
    • 7.00% average return means deposit grows by 661% over 30 years
  • Lack of funding will eventually lead to rating downgrades for employers – making it more difficult to fund OPEB liabilities
    • “…an absence of action taken to fund OPEB liabilities or otherwise manage them will be viewed as a negative rating factor” (Fitch)
understanding an opeb report
Understanding an OPEB Report
  • Typically consolidated
  • Packed with assumptions
    • Inflation
    • Mortality Rates
    • Discount Rate
    • Health Care Cost
  • Annual required contribution is not required
negotiation considerations
Negotiation Considerations
  • What does funding mean?
    • Deposits into a trust
    • Withdrawals
    • Borrowing cost
  • Potential use of Taft Hartley trust guidelines for governance
    • Equal representation of employee and employers on governing board
    • Full fiduciary responsibility assumed by the board
negotiation considerations1
Negotiation Considerations
  • Ensuring employer follow through
    • Can not be pay-go
    • Can not permit immediate depletion
    • Specific funding targets
      • Asset Balance
      • Cash Deposits
  • Setup and administrative cost can be excessive
    • Fee based
    • Asset based
    • Embedded cost
funding sources
Funding Sources
  • Employer contributions/Employee contributions
    • Share costs at point of service
      • Increased co-pays, deductibles, etc.
    • Direct contributions to the trust
  • Federal reimbursement of OPEB expenses
    • Certain entities that provide federally funded services can apply for OPEB expense reimbursement for certain employees
funding sources1
Funding Sources
  • Debt can be used to supplement funding efforts
    • Conservative uses of debt can kick start funding efforts
    • Debt can insure that contributions are paid
    • Interest is the responsibility of the employer
    • Debt can also be used to capitalize on short term reimbursement opportunities
how much should be funded
How Much Should be Funded
  • OPEB funding doesn’t have to be an all or nothing proposition
    • Funding the Annual Required Contribution is the goal, but any funding amounts above pay-go expenses will have long term benefits
    • Funding can be done using a scaled in approach, increasing annually as General Fund revenue growth allows
    • Over funding can lead to diminished federal reimbursement opportunities by decreasing your overall liability
    • Under funding can lead to the trust expiring prematurely, leaving retirees without promised benefits
case study 1 misleading report

42.7% of all statistics are made up.

- Larry, the Cable Guy

Case Study #1: Misleading Report
case study 1 misleading report1
Case Study #1: Misleading Report
  • Large NE School District with approximately 5,000 active employees and an Annual Required Contribution of approximately $16.2 million
  • District officials claimed that in order to have enough money to provide the benefit, employees had take a 15% pay cut for a period of 20 years
  • Overwhelming vote to strike
case study 1 misleading report2
Case Study #1: Misleading Report
  • Holes in District analysis
    • 60% AFT
    • 4% earnings rate
    • Exaggerated inflation well above wage increases
    • Implicit subsidy
  • Union and District officials reach a compromise to contribute 3.52% of annual salary to OPEB trust, splitting the cost approximately 50/50 between Union members and the District
    • Union agreed to a higher deductible
    • District agree to cash deposits into a trust
case study 2 mortality gains

Light travels faster than sound. That is why some people appear bright until you hear them speak.

- Anonymous

Case Study #2: Mortality Gains
case study 2 mortality gains1
Case Study #2: Mortality Gains
  • Midsize NE city with a $50 million total liability
  • Insure the lives of workers to recover death benefits to pay for OPEB cost
  • Employees expect that there is a contract for lifetime benefit


  • Excessive costs
  • Unrealistic assumptions
  • Betting on the early death of employees
case study 3 desired outcome

It’s better to have tried and failed, than not to have tried at all.

- Spunky Tuna

Case Study #3: Desired Outcome
case study 3 desired outcome1
Case Study #3: Desired Outcome
  • Midwestern County with an initial liability of approximately $369 million
  • Established guidelines
    • Initial needs defined
    • Regular due diligence
    • Mutual oversight
  • Develop concessions in exchange for funding
    • Reduced spousal and dependent benefit
    • Medicare supplement plan
    • Increase service requirement for benefit eligibility
    • County contributes 2.5% of premiums to a trust
  • Funding and concessions reduced liability to approximately $225 million
opeb funding trends
OPEB Funding Trends
  • Few trusts have been formed and funding levels remain low nationwide
  • Public sector entities are making or contemplating aggressive changes to benefit plans in an effort to reduce expenses:
    • Increase employee premiums and co-pays
    • Eliminate or reduce spousal and/or dependentcoverage
    • Cap employer contributions and implement adefined contribution plan
  • Negotiated concessions should come with firmcommitments

I never said most of the things I said.

- Yogi Berra