Program Description
Retiree Health Benefits Trust
Beginning in FY08, the County implemented a plan to set aside funds for retiree health benefits, similar to the County's 50-year-old practice of pre-funding for retiree pension benefits. Due to exponential growth in expected retiree health costs, the County had determined the cost of funding these benefits, which were being paid out as the bills came due, would become unaffordable. Setting aside money now and investing it in a Trust Fund, which is invested in a similar manner as the pension fund, is a prudent and responsible approach that will result in significant savings over the long-term.
The County's approach to address retiree health benefits funding has been to determine an amount which, if set aside on an annual basis and actively invested through a trust vehicle, will build up over time and provide sufficient funds to pay future retiree health benefits and any accrued interest on unfunded liability. This amount, known as an Actuarially Determined Contribution or "ADC", is estimated at $70.4 million. This amount normally consists of two pieces - the annual amount the County would usually pay out for health benefits for current retirees (the pay-as-you-go amount), plus the additional amount estimated to fund retirees' future health benefits (the pre-funding portion). The pay-as-you-go amount can be reasonably projected based on known facts about current retirees, and the pre-funding portion is estimated on an actuarial basis.The County's policy has been to pay the full amount of ADC each year. In FY11, the County Council enacted Bill 17-11 which established the Consolidated Retiree Health Benefits Trust. The Bill amended existing law and provided a funding mechanism to pay for other post employment benefits (OPEB) for employees of MCPS and MC. In FY15, the County and all other agencies implemented the Medicare Part D Employer Group Waiver Program for Medicare eligible retirees/survivors effective January 1, 2015. This has reduced retiree drug insurance costs and the County's OPEB liability. The County achieved full pre-funding in FY15, consistent with Council resolution No. 16-555. In FY24, the County General Fund fully funded the pay-as-you-go amount, funding in excess of the ADC by $17.4 million, as the pay-as-you-go amount was determined to be in excess of the ADC, and the prefunding contributions were budgeted at $62.3 million for the MCPS Consolidated Trust. No prefunding amount was required for Montgomery County Government or the MC Consolidated Trust. In December 2023, the County Council passed Resolution No. 20-337, establishing an updated OPEB funding policy. The actuarial valuation used for the FY26 budget resulted in an ADC that was $13.5 million less than the pay-as-you-go amount, and the FY26 budget assumes the utilization of this $13.5 million for payment of a portion of the County's retiree health insurance claims.