Gloucester's retiree health care bill is now $181 million on the books, and the city has set aside 2 percent of it

Gloucester's Budget and Finance Committee heard Thursday that the city's promise to pay part of its retirees' health insurance is now worth $181.2 million on the city's books, and that the trust fund set up to pay for it holds about 2 percent of that. No vote was taken on the report. The committee did recommend a small cost of living increase for city pensioners and two grants, each 3 to 0, from the meeting video.

What happened

• Actuaries from Stone Consulting presented the city's two year OPEB valuation. OPEB stands for other post employment benefits, mainly the share of retirees' health premiums the city pays.
• Measured for funding purposes, the liability was $139.8 million as of July 1, 2025, up 16 percent from $120.2 million in 2023. The trust had $3.0 million, about 2.2 percent of the liability. Under the accounting rules used in the city's financial statements, the liability is $181.2 million as of June 30, 2026.
• The actuaries suggested the city decide in the next year to put part of the money freed up when the pension system is fully funded in 2034 into the OPEB trust. That commitment alone would lower the number on the city's books.
• The committee recommended raising the base on which retirees' cost of living adjustments are figured from $14,000 to $15,000, worth about $30 more a year per retiree starting July 1, 2027.
• It also recommended a $24,476 federal traffic safety grant for the police and a $14,000 Mass Cultural Council grant.

What OPEB is, and why the number keeps growing

The city pays part of the health insurance premium for its retirees and their families, the same way it does for current workers. Every two years an actuary estimates what all those future payments are worth today. That is the OPEB liability. The city pays the bills as they come due, about $7.5 million in fiscal 2026, and puts a little into a trust fund, $200,643 last year. If the city wanted to pay the whole liability down over 30 years, the actuaries said, it would take about $10.6 million a year.

Kevin Gabriel, the health actuary on the report, walked the committee through why the liability rose $19.6 million in two years. Interest on the unpaid amount added $16.3 million. Two more years of service by current employees added $5.9 million. Higher premiums and a higher assumed rate of medical inflation added $6.2 million, and changes in who is covered added $4.1 million. The $12.9 million the city paid in benefits over the two years came off the total.

The biggest surprise was premiums, Joan Moreau, the pension actuary, said. The state Group Insurance Commission, which covers Gloucester's employees and retirees, was hit by a surge in pharmacy spending, largely weight loss drugs called GLP-1s. The governor asked the Legislature for an extra $240 million in April 2025, and the commission still started fiscal 2026 with a $77 million shortfall. Premiums for commercial plans rose close to 9 percent a year over four years, she said; a family plan now costs about $35,000 a year. The commission has since limited coverage of the weight loss drugs.

The actuaries raised the assumed long term growth in medical costs to 5 percent a year from 4.5 percent. They did not change some other assumptions that the city's own experience says are too low. The report assumes 75 percent of retirees take the city's health plan; 86 percent do. It assumes 25 percent of retirees under 65 cover a spouse; 49 percent do. Updating those assumptions would add almost $20 million to the liability, Gabriel said. Leaving them as they are does not make the cost go away, he said; it only means the estimate runs low and the plan shows losses year after year.

Two numbers for one promise

The report gives two liability figures. For deciding how much to fund, the actuaries use the trust's expected investment return of 6.75 percent and get $139.8 million. For the city's audited financial statements, accounting rules require a blended rate that leans on the municipal bond rate when a trust is expected to run out. The bond rate fell from 5.2 percent to 4.76 percent over the year, so the book value rose from $152.2 million to $181.2 million. The net liability after assets is $177.6 million. That is the figure bond rating agencies see.

Under those rules the trust is projected to run dry in 2035. Moreau said that date matters because the city's pension system is scheduled to be fully funded in 2034. If the council adopted a formal policy now to put a set share of the money that frees up into the OPEB trust, she said, the accountants could use the higher rate and the book liability would fall. She gave two examples: $5 million a year starting in 2035 or 2036, or $3.5 million a year starting in 2036 and growing 3 percent a year. Either would remove the depletion date. She also suggested the city adopt a target mix of investments for the trust.

City Auditor Kenny Costa said he agrees the city should write a formal policy within the next year, with room to change it as markets move. He said retirees are not affected by the funding gap: the city budgets the health premiums every year through the general fund and the water and sewer funds. "Nobody in our population is harmed," he said.

A $30 a year raise for pensioners

The Gloucester Contributory Retirement Board voted unanimously in July to raise the COLA base, the part of a pension on which the yearly cost of living adjustment is paid, from $14,000 to $15,000. State law lets a retirement board do that in $1,000 steps with the approval of the city council, and the decision cannot be undone.

Costa, who sits on the retirement board, said the board usually votes a 3 percent COLA each year. On a $14,000 base that is $420; on $15,000 it is $450, so each retiree would get $30 more a year starting July 1, 2027.

The state's retirement oversight agency, PERAC, approved the revised pension funding schedule on Sept. 22. It keeps the system on track to be fully funded in fiscal 2034, with the city's contribution rising 7 percent a year to about $24 million in fiscal 2033 and then dropping to about $15 million in 2034. The retirement system is a separate entity from the city, Costa said. The Gloucester Housing Authority and CATA, the transit authority, are also members and pay their own shares; the city is about 94 percent of the membership. The committee recommended the increase 3 to 0.

The rest of the agenda

• Traffic enforcement grant, $24,476. Interim Police Chief Michael Gossom said the department has applied for this federal highway safety grant every year since 2019. It pays officers for targeted patrols for distracted driving, speeding and impaired driving. There is no requirement to write tickets, he said; the goal is awareness. The grant runs Nov. 1, 2026 to Sept. 15, 2027, with no city match. Recommended 3 to 0.
• Mass Cultural Council grant, $14,000. The yearly state grant that the Gloucester Cultural Council regrants to local artists and groups, Oct. 1, 2026 to June 30, 2027, no match. The committee voted on it Oct. 22 and redid the motion Thursday to fix a procedural error. Recommended 3 to 0.
• Overspent accounts. Costa said the list of accounts with spending over their authorization is down about $127,000 since the last report, mostly because a Council on Aging grant was straightened out. One Council on Aging payroll item of about $3,000 should be fixed by the next meeting, and a Community Development item should be covered by a federal block grant. Accepted 3 to 0.

What was decided

• Fiscal 2027 Municipal Road Safety grant, $24,476: recommended, 3 to 0, from the meeting video.
• Mass Cultural Council grant, $14,000: recommended, 3 to 0, from the meeting video.
• COLA base increase from $14,000 to $15,000: recommended, 3 to 0, from the meeting video.
• Auditor's report on accounts exceeding authorization: accepted, 3 to 0, from the meeting video.
• OPEB valuation: presentation only. No vote.

Budget and Finance only recommends. The full City Council takes the final votes.

What happens next

• Tuesday, Nov. 10: the next City Council meeting. The grants and the COLA increase go to the council for final votes when they appear on its agenda.
• By the end of fiscal 2027 (June 30, 2027): the actuaries' suggested deadline for the city to adopt a written OPEB funding policy tied to the 2034 pension date. That would be the council's choice.
• 2034: the year the pension system is expected to be fully funded, which the auditor called a windfall that could begin to fund OPEB.

Where to find the records

• Budget and Finance agenda, Nov. 5
• Budget and Finance packet, Nov. 5, with the auditor's OPEB memo, the grant paperwork and the retirement board's COLA memo and funding schedule
• Meeting recording, on the city's November 2026 Past Meetings page

Earlier coverage: Gloucester committee backs keeping the same tax split for homes and businesses (Oct. 24), the committee's Oct. 22 meeting, where the OPEB report and the cultural grant were continued to this one.

How we did this: Cape Ann Current watched the meeting online and checked names and figures against the agenda, the packet, the slides shown at the meeting and the council's committee roster on the city website. These are our meeting notes, not the city's minutes.