Board switches how staff’s post retirement plan is funded
Money will be put into school-owned accounts each budget year
Staff members hired after July 1 at Medford Area Public School District will have a very different post retirement benefit then their predecessors.
Medford is one of a shrinking number of school districts in the state that provides a longevity bonus to employees in the form a payout the employees can use to pay for health insurance premiums after retirement. The payment is separate from and in addition to the Wisconsin Retirement System (WRS) pension school staff receive.
Under current policy, the district pays a set amount to teachers and another flat amount to support staff based on if they are retiring with 15, 20, 25 or 30 years of service to the district. Upon the employee’s retirement, the money is paid into a retirement Health Reimbursement Account (HRA) and is not taxed if used for qualified medical expenses such as insurance premiums.
At Monday’s school board meeting, members approved changing from a flatamount payout to a “prefunded” plan that would have the district set an amount in the budget each year to put in retirement HRAs for each employee. The employee would then have the option to decide how that money was managed. The advantage for the school district is that over time the district could end up putting less into the program while the employees see the equivalent or even greater payouts at the end depending on market conditions and their investment strategy.
As with the previous system, the money would not actually become the employee’s until after they retired and met the longevity requirements required by the district. As with the existing plan, if an employee leaves district employment for any reason other than retiring, or retires before reaching the years of service threshold, the money is kept by the district and can be used toward funding contributions to other employees.
District finance director Audra Brooks proposed the change as a way to gradually remove the OPEB (other postemployment benefits) liability from the district’s books.
OPEB is the trust fund that the district set up to have the money available to pay out the retirement benefit. Every other year an actuarial study is done which takes into account the potential impact to the fund for payouts and other factors. The study generates a figure showing if the district is sufficiently funded. In the past, the district had foregone making contributions to the OPEB trust because it was funded better than 90 percent. However, in recent years the district has been hit with a large number of retirees and at the same time expanded the program to include additional staff members. The most recent actuarial study had the district at only 63 percent funded in the OPEB trust fund. Brooks said the district would have to add $1.8 million into the fund to bring it up to 100 percent.
According to Brooks, even with the switch the district will still have to fund OPEB to cover the district’s commitment to the current employees, although this will be at a much lower level over time. She explained that the OPEB could exist for another 30 years until all the current employees are retired.
The decision to change the post retirement plan was met with questions and pushback from some of the board members, most notably board president Dave Fleegel. Fleegel has been a vocal critic of the assumptions used by the actuarial study including who is included in the study and other factors. He said he would prefer a more realistic presentation for the actuarial study versus changing the entire system. Fleegel also noted that while the OPEB shows up as a liability on the district’s audit, it is not something the district faces penalties over.
Brooks noted that it could negatively impact the school district’s bond rating which could make borrowing money more expensive. However Fleegel noted the district already has a very high bond rating and has never been penalized for having this liability in the past.
Board member Oralee Dittrich spoke in support of the change, describing it as being similar to an annuity where you pay in and receive a benefit at the end.
Under the change approved by the board, the district will contribute $750 per year for teachers and $375 per year for support staff hired after July 1, 2020.
Brooks said it is too costly to do it now, but at some point the district could consider buying back previous years employees to add them to the program and speed up the time it takes for the OPEB to sunset.
After a lengthy discussion, board members voted unanimously to switch to the new system.