Retirement benefits threaten budgets statewide

Published 12:00 am Friday, October 20, 2006

By Tim Engstrom, managing


A statewide study on the liabilities that local governments face from having to stick to employee retirement commitments reveals a problem that could cause disruptions in services or even lead to bankruptcy, if left unaddressed.

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Minnesota State Auditor Pat Anderson released the study Wednesday. She visited Albert Lea on Thursday.

&8220;It is important we begin to raise awareness now so affected governments can begin working toward solutions,&8221; Anderson said.

The commitments are called &8220;other post-employment benefits&8221; or OPEB. It is an accounting term

for retirement benefits. A pension is an example. Most notably OPEB includes employer-paid health insurance.

Of 1,730 local governments surveyed, the study found 362 reported an OPEB liability. The total liability came to $3.37 billion. The top 20 OPEB liabilities, Anderson said, account for 73 percent of the total liability.

&8220;Most of them are around Duluth in northeast Minnesota and in the Twin Cities,&8221; she said.

Health care benefits for life was an item included in retirement packages

because at one time it was relatively inexpensive. The units of government could not have foreseen the cost of insurance premiums would skyrocket, Anderson said.

Most have halted or limited OPEB but some, especially school districts, continue to offer it.

&8220;Failure to address growing OPEB liabilities may lead to the following problems: degradation of services, failure to meet obligations to current and retired employees, damage to the entity&8217;s credit rating, or bankruptcy (although school districts are not authorized to file for bankruptcy under state law),&8221; states Anderson&8217;s press release.

Anderson recommends the state Legislature allow the State Board of Investment to oversee trusts, the investments from which would bring the liabilities


The Greenway school district faces the largest OPEB liability &8212; $88 million. That&8217;s equal to 686 percent of its present revenue stream, the study says.

What about local governments?

The city of Albert Lea has no OPEB liability, Anderson said.

Freeborn County shells out $103,058 per year on OPEB, carrying an estimated liability of $765,744 &8212; about 9 percent of its revenue. Freeborn County does not offer OPEB to its employees anymore.

The Albert Lea school district does, however. It told the state its annual OPEB costs are $337,773 and reported its liability as $1.68 million. Anderson said that figure in the report is likely too low.

Larry Kellogg, financial

manager for the Albert Lea school district, said the figure should be more like $3.75 million. The $1.68 million is the health-insurance portion of the liability.

Kellogg said Albert Lea school district will be looking at alternatives to OPEB in the next round of contract negotiations with its teachers.

He said some districts on the union-heavy Iron Range area offer health benefits to entire families after teachers retire. Albert Lea presently only offers health benefits to the retiree, not the families.

Kellogg used to work for the Owatonna school district. He said it switched to a severance package.

&8220;We&8217;ll be taking a look at that and other types of compensation,&8221; he said.

He said many governments and companies are dealing with the high costs of insurance premiums.

&8220;It became a problem when health care costs started to accelerate in excess of inflation,&8221; Kellogg said.