2/24/15: Reduction in Erie County's Long Term Retiree Healthcare Liability Signals More Than $136 Million in Future Savings

Modified: February 24, 2015 1:38pm

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Date: 
2/24/15

Recently Released GASB 45 Valuation Report Indicates Substantial Savings to Continue into Future 

Report Cites Settled Contracts, Resultant Drop in Claims Costs as Drivers of $136 Million Decline in 2014 from 2012; a Combined Savings of Nearly $200 Million Since 2010

ERIE COUNTY, NY— Today, Erie County Executive Mark C. Poloncarz announced Erie County (“the County”) is poised to save hundreds of millions of dollars in long term health care insurance costs, according to the most recent valuation report issued pursuant to Government Accounting Standards Board (“GASB”) Pronouncement 45 (“GASB 45”). The GASB’s Actuarial Accrued Liability in 2014 for Erie County’s future post-employment healthcare benefits, estimated in 2010 at $707,752,133 and in 2012 at $648,120,471 (a drop of 8%), declined further to $511,780,690 in the latest report, a reduction of $136.3 million or 21% just since 2012.

The significant and continuing reduction is attributable to expected reductions in retiree health care claims along with cost-saving provisions in new union contracts negotiated by the Poloncarz administration. Beginning on January 1, 2015 prescription coverage for retirees over the age of 65 was moved to an Employee Group Waiver Plan (“EGWP”), with resultant savings reflected in less costs than had been assumed in the 2012 GASB Valuation Report. Additionally, cost-saving provisions of contract ratifications with the CSEA Local 815, CSEA Local 815 Erie County Corrections Officer (“CO”) Unit and Teamsters Local 264 (“Teamsters”) including increased healthcare contributions, an increase in service to 15 years for healthcare benefits eligibility for these employees, and the elimination of retiree healthcare for those hired after the contract’s ratification have all contributed to the overall decline in long term liability as well.

“When the first analysis of the County’s projected long-term costs associated with retiree healthcare was completed in 2010, as Comptroller I knew the future cost was unmanageable and must be reduced. So as County Executive I have worked tirelessly to settle every major union contract with fair terms to our employees but also ensured long term savings accrue to the County. This latest report proves we have done exactly that with more than $136 million in long-term savings being identified,” said Poloncarz.

“Additionally, this report underscores the importance of the path of fiscal responsibility my administration has pursued since taking office in January 2012, and also clearly illustrates the positive impact that settling contracts can have on Erie County’s economic health,” Poloncarz added. “As we knew, expecting the county to fund 100% of health care for retirees was not only unrealistic and unsustainable but placed an enormous burden on all residents. As we forecasted, settling union contracts with fairness to all has resulted in tremendous savings to the county, today and into the future.”

A major reduction in the expected cash flow necessary to maintain retiree health care benefits is also evidenced in the recent GASB 45. For example, in 2012 the report anticipated that $40.1 million in cash flow would be required for such benefits in 2022; the 2014 report lowers that to $28.1 million. Overall, the 2014 report projects annual expected cash flow reductions of between $10-13 million for 2014-21 when compared to the 2012 report. The 2014 report, which does not consider the impact of future new hires, also projects similar drops in both liability and cash flow requirements for Erie Community College (“ECC”) and the Buffalo & Erie County Public Library.

Poloncarz continued, “The reductions in long term retiree healthcare liability and expected annual cash flow are encouraging and demonstrate what can happen when fair contracts are negotiated and ratified. My administration has done that, with fiscal responsibility and discipline resulting in outcomes that are beneficial to all residents and are part of a new attitude in Erie County.”

GASB is a national body that sets the standards for governmental accounting and reporting. Under GASB 45, public entities must account for, and report on their financial statements, the annual required contribution (“ARC”) for post-employment benefits (“OPEB”) in the same way they report pension contributions. The annual OPEB amount reported by employers is based on actuarially-determined amounts, rather than a “pay as you go” model that defers the liability to future generations. Public entities must use actuarial valuations to determine the accounting and reporting amounts expected in the future, and liabilities may be amortized for up to 30 years. 

For more information on GASB and GASB 45, visit: http://www.osc.state.ny.us/localgov/pubs/opeb45faqs.htm