At the April 14 East Allen Township Board of Supervisors meeting, supervisors heard updates from account managers who handle the township’s pension and health accounts.

Township Manager Deborah Seiple set up the sessions.

“We need to look at where we are and what options we have as we get ready to set up next year’s budget,” Seiple said.

Bob Porambo took the microphone first. He is the township’s account manager for Pennsylvania Municipal Retirement System (PMRS). Porambo explained PMRS is an independent state agency, meaning funding is provided by members of the fund with assistance from the state. He implied the state is not solely responsible for the fund’s solvency.

Chairman Roger Unangst was particularly interested in the level of funding.

“You are funded to 93.4 percent of your obligations,” Porambo replied. “Anything below 90 percent is considered cautionary.”

Unangst asked what it would take to be fully funded. Porambo responded that a fully funded plan is not a top priority.

“We take into account the employees you hire and their expected work life. We have the funds to meet our obligations. The best way to keep the fund solvent is to pay your Minimum Municipal Obligation (MMO) every year,” he said.

According to Porambo, the only way the township sees a loss of funds is if it leaves PMRS.

“If you elect to leave the fund, we will pay out 93 percent of the money you put in. As the fund grows, it will approach fully funded, but there is enough to meet the pension payments for employees,” he said.

The township has a defined benefit plan, which is an expensive plan. The plan guarantees a specific payout to a retiree based on years of service and salary. Most public businesses use 401(k)-style funding because the costs are lower. Government entities are usually the entities with defined benefit plans.

Part of the reason the plan is less than fully funded is because the township raised its multiplier. Retiree pensions are calculated by taking the salary times the length of service times a multiplier. The township increased its multiplier from 1.25 percent to 1.75 percent, a 40-percent increase.

There are municipalities that participate in PMRS who are underfunded.

“They are making higher MMO payments to catch up,” Porambo said.

Next on the agenda was Danielle Omans of Benecon. The township selected Benecon as its consultant on its health care plan. The township is a member of Pennsylvania Health Insurance Cooperative (PHIC), which has 42,000 members.

“This is a self-insured plan, so we can customize benefits to meet the needs of our members,” Omans said.

Capital Blue Cross processes claims.

According to Omans, the plan pays ordinary medical costs for its members up to $35,000 per year.

“Anything over $35,000 is paid separately from our stop loss funds. We also have reinsurance that covers catastrophic loss,” she said.

Omans explained the township’s claims history has been poor.

“There has been at least one claim every year that was over $35,000. That is much higher than expected for such a small group,” she said.

The township has 12 employees covered under the plan. With the high incidence of claims, premiums increase.

“Normally when someone is in the plan for seven years, we expect two or three instances where the $35,000 limit is exceeded. When costs are below $35,000, we contribute the excess payments to stop loss … all participants in the plan contribute to stop loss. Your plan has not contributed to stop loss, so rates increase,” she said.

Increases in the township’s health care costs are higher than normal because of the high number of claims.

Omans offered various options to reduce rates. Most options are a combination of increasing deductibles, increasing payments and co-pays. Another option is to restrict the insurance to only employees and eliminate spouses. Some employees opt out of the township plan for spousal coverage because the other plan is more comprehensive.

Another option discussed was Health Savings Accounts (HSA). Under this plan, employees have a high deductible insurance and are reimbursed if they stay healthy. Typical deductibles start around $3,000. Healthy employees can accumulate funds in the HSA just as they would in an IRA account. Typically, funds accumulate to cover the cost of the deductible and continue to build in the account.

The funds are specific to the individual, so the employee benefits from a healthy lifestyle. Dollars in the account can be used for any medical-related expense.

The board made no decisions on changes to the health care fund.

“The information you provided on the options we have and the costs is valuable to us as we start our budgeting process,” Unangst said.