Virginia Beach looks to trust fund to help cover retiree costs

VIRGINIA BEACH

The best way to ensure the city has the money to pay its future retiree health care costs – a $150 million tab – is to put the cash in a trust fund, the Beach’s finance director said Tuesday.

Patricia Phillips, the director, told City Council members they should put the money in a new trust operated by the Virginia Municipal League and the Virginia Association of Counties. The trust would pool money from the cities and counties that join in, said Robert Lauterberg, the program’s managing director.

Lauterberg said that by combining the money from different communities, the trust can spread out its costs and take advantage of more investment options.

A local finance board would be appointed to work with fund managers. Phillips would sit on the board, as would the city treasurer.

A handful of localities have already signed on, including Fairfax County and Roanoke. Virginia Beach council members are set to vote next Tuesday on whether to join them.

The Beach would pay $5,000 to help launch the trust and then pay roughly $36,000 in first-year program costs.

“If we were doing it somewhere else,” Phillips said, “it would be more.”

A new accounting standard requires localities to budget the costs of future retiree health benefits. The private sector has similar rules.

In Virginia Beach, the so-called “liability” is currently estimated at $157 million. That would cover the retiree benefits of the city’s current workforce and current retirees, including those of the school division.

To fund the city portion of the liability, Phillips said, the city should allocate an estimated $10 million a year. The school division liability is estimated at a little more than $9 million a year.

This year, the city allocation will be split between its budget and the trust.

Phillips said the school division may join the trust as well, but no decisions have been made.

Richard Quinn, (757) 222-5119, richard.quinn@pilotonline.com