The Worcester Regional Research Bureau recently released a report, “Other Post-Employment Benefits (OPEB): Holding Government Liable.”
The report [scroll down to read the PDF] spells out in stunning detail the mounting problem of paying for the retirement benefits of current and future employees in Worcester and surrounding towns.
In Worcester alone, the unfunded liability as measured in 2015 is nearly $861 million and with “no new efforts to reduce OPEB obligations, the City’s liability will reach more than $2.5 billion in 30 years.” In comparison, the municipal budget for this fiscal year is $611 million.
The city meets its current obligations with funds from the city budget. It designates 30 percent of its surplus funds, if any, at the end of the fiscal year toward the unfunded portion of the liability as part of the Five Point Financial Plan. In addition, this year’s budget includes $500,000 for the same purpose.
Laudable as those payments are, they are not nearly enough.
To be sure, Worcester and the other towns covered in the WRRB report are not alone. Moody’s Investor Services calculates the total of unfunded state and municipal pensions at $3.5 trillion, nearly 20 percent of the country’s gross domestic product.
Moody’s makes a dire prediction that “historical precedent suggests that it is unlikely that the federal government will offer significant financial support for distressed state and local government pension plans.” In addition, the state budget is feeling pressure from its own unfunded liability in addition to large increases in health care and calls for more education spending.
So what can be done?
Worcester and other municipalities need to come to terms with the uncomfortable truth that financial support to meet its future obligations, as currently calculated, cannot be assumed. In short, each government needs to take responsibility for solving its own problem.
In the opinion of The Research Bureau, “Worcester and its neighboring communities should lay out plans and take steps to intentionally and strategically 1) reduce the current liability, 2) fund the overall liability, 3) reduce the future number of eligible individuals, and 4) eliminate the ongoing obligation of retiree health care.”
We believe these are sensible steps, but we believe the city and its leaders need to act with a sense of urgency befitting a very large bill that’s extremely overdue.
At its current rate of increase, Worcester’s unfunded liability will top $1 billion by 2020.
There are currently 9,229 active employees eligible for benefits or retired employees or their spouses. That figure represents roughly five percent of the population of Worcester.
The longer Worcester does not treat its unfunded liability with the urgency it deserves, the easier it becomes for the other 95 percent to rationalize draconian cuts to benefits long-promised and long-earned.
We urge the city’s leaders to take action soon to avoid a disastrous outcome.