Greenfield faces hefty retirement needs
Needs to save $74M by 2038
GREENFIELD — This month, the mayor will send information to the Town Council on how the town might accumulate $74 million to pay its former employees’ non-pension benefits over the next two to three decades.
According to a recent actuarial study, the town will need to have to have about $74 million by 2038 to cover those costs, the largest of which being health insurance for retirees and their spouses, each year.
Marjorie Lane Kelly, the town’s finance director, said the town currently spends about $6 million a year covering benefits for both its active and retired employees and their spouses as per contracts with the town.
Kelly said Greenfield, like all government entities, has had this liability for many years, but since 2009, it has been required to report the liability on the town’s balance sheet. She said all cities and towns are being advised by the state to develop some sort of funding mechanism to anticipate the growing liability.
The proposal from Mayor William Martin is to establish a trust, which is what some other Massachusetts cities and towns are now doing.
The state suggests its municipalities look at future costs and establish an Other Post-Employment Benefits (OPEB) liability trust.
Earlier this summer, At-large Councilor Dalton Athey suggested the town start saving aggressively — he suggested putting $670,000 in an account for its Fiscal 2014 contribution — but the town could only afford $75,000.
Kelly said the town has saved about $150,000 so far, but she said the mayor is considering asking Town Council to approve a larger amount next year.
Kelly explains that the liability has always existed and auditors and bond rating agencies knew that it did, but since 2007, municipalities have been required to contract for an annual actuarial study and since 2009 have been required to show the liability on their balance sheets.
To come up with a figure of $74 million, an actuary looked at every town employee in Greenfield, their ages, their current benefits, their life expectancy and when each might retire to determine how much it will cost the town from the time each employee retires through the remainder of their lives. The study looked ahead 30 years.
Kelly said not that long ago, the ratio of active to retired employees was 3 to 1, but now it is almost 1 to 1 and over the next five to 10 years could end up 1 to 3.
She said the town had about 600 employees, including part-time, and about 250 retirees not so long ago, but that is changing quickly due to consolidations and positions not being filled after retirements.
Kelly said that once the trust reaches the target figure, money would come out of it each year to fund retiree benefits, rather than the town including that amount in its operating budget each year.
Kelly said the trust fund plan that she and Martin will propose does not require a certain amount be put into the trust each year.
“If we have a bad year or something unexpected comes up, we wouldn’t be obligated to put more than we could afford into the trust,” said Kelly.
She said the most recent actuarial study says the town should put aside about $7 million a year to reach its goal, but Kelly said that amount is unrealistic and that the town cannot afford such a large number.
Town Council will first have to adopt the state’s legislation concerning OPEB, and then the mayor will make a recommendation on how much will be deposited in the trust annually.
Town Council will discuss the issue Dec. 18 in the studio in Greenfield Community Television, 393 Main St. The council’s regular monthly meeting will begin at 7 p.m.