Andover and its employees team up to tackle unfunded liabilities

MMA Innovation Award winner, From The Beacon, February 2020

With its employees’ help, the town of Andover is targeting one of the biggest financial pressures municipalities face: the costs associated with its pension and other post-employment benefit liabilities.

Since late 2018, the town has been working with labor counsel, unions, and nonunion employees to implement the Unfunded Liability Offset, a 1% deduction from employees’ gross regular pay that will go toward the town’s OPEB trust fund or to its pension fund.

To establish this new funding source, the town focused on collective bargaining agreements that were expiring at the end of June 2019, so that the new union contracts could include the offset, and paycheck deductions could start after July 1.

As of early 2020, five of the town’s seven unions have adopted the offset, which means that more than three-quarters of Andover’s employees are now part of the effort to reduce the town’s unfunded liabilities, said Town Manager Andrew Flanagan.

“It was an effort, really, to preserve the benefits of today’s employees,” Flanagan said.

Ultimately, the town expects that all of its unions will adopt the offset. Flanagan credits the effort’s success to employee education that explained how collective bargaining costs fit into the town’s overall finances.

“By giving them a baseline idea of the challenges we’re facing, it was a good starting point to have them buy into this,” Flanagan said. “We’re really sharing the responsibility.”

Though Andover has been negotiating this offset at the union level, employees individually still must decide whether to authorize the 1% deductions from their paychecks. Employees who decline to do so forfeit a 2% cost-of-living adjustment, and workers hired after contract ratification will receive 2% less than the collective bargaining wages if they don’t participate.

According to the town’s projections, participation by all Andover employees would reduce Andover’s OPEB funding schedule by 13 years.

In general, Flanagan said, communities can benefit from providing more financial transparency.

“If nothing else, it’s worth having this conversation with employees,” Flanagan said.

For more information, contact Town Manager Andrew Flanagan at aflanagan@andoverma.gov.