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The County Commissioners Association of Pennsylvania (CCAP) now officially endorses the National Association of Counties (NACo) Prescription Discount Card Program, which is one of the largest discount programs in the country serving county residents.

Since the NACo program began seven years ago, it has saved county residents nationwide more than $470 million. Nearly 38 million prescriptions have been filled through the program. Currently, 46 of Pennsylvania's counties participate in the NACo program.

The association considered many factors before making the endorsement. Those factors include the program's past successful track record, staff and marketing support, history of proven savings, size of the participating pharmacy network, legal compliance and customer service.

The new endorsement agreement includes funding for the association of $.40 for each prescription when the NACo card gives the best price and does not affect the savings percentage to residents. CCAP will partner with NACo and the program administrator, CVS Caremark, to grow the program and get cards into the hands of more county residents so they can benefit in these tough times.

By John Molloy, CFA, Managing Director, PFM Asset Management LLC 

The second and final part of a series Defining Other Post Employment Benefits and Understanding their Financial Effect on Municipalities.

In April's article, titled OPEBs on the Horizon, we defined the types of other Post-Employment Benefits offered by municipalities to their employees (basically any retirement benefit outside of pension payments), looked at recent accounting standards that require OPEB liabilities be reported as part of the annual financial reporting process and discussed some of the ways that this liability can affect the budget and creditworthiness of a public entity.

With the problem defined, how can municipalities prudently plan for these long-term obligations? What steps, if any, can be made to mitigate these future costs? Are there any consequences for not doing anything?

We will not discuss making benefit changes to employees, other than to make clear that even if benefit changes are made within collective bargain agreements or to new hires, a calculated OPEB liability includes obligations for current employees and retirees. Changing benefits or renegotiating contracts may not affect an employer's current liability.

GASB 45 requires that local governments report their Annual Required Contribution (ARC), a figure determined by actuarial valuation that includes the costs of benefits in the current year, and a calculated portion that accounts for accrued benefits for current employees and retirees in covered by the benefits offered by their employer. GASB 45 also requires reporting of the employer's total accrued liability. There is no requirement to fully or partially-fund either the ARC or the total accrued liability, only to report them to follow GAAP standards.

Aside from the new reporting, your government can maintain the status quo in the short run. When talking about OPEB funding this is known as a "pay-as-you-go" or "PAYGO" funding method because the employer is making premium payments as they occur. Governments opt to pay-as-you-go because the annual premium payments are usually less than the ARC, since the ARC includes accrued costs for future retirees. While a simple method that requires no change, over time the PAYGO amount will increase as health care costs rise and may quickly exceed the ARC as employees retire. PAYGO is not really viewed by rating agencies or others as a funding strategy as much as a budget strategy.

PLANNING TO FUND

A first step in a real funding strategy to mitigate OPEB liabilities begins with an internal service fund or a designated reserve fund. Employers usually begin by setting aside the ARC amount in this reserve fund and then making their premium payments from this fund. Employers can also designate part of the government's fund balance or other reserves toward this designated OPEB fund, which is sometimes titled "OPEB Stabilization" or other similar term.

A designated reserve funding strategy usually does not have a major impact on the employer's budget and does not significantly impact staff accounting. This approach does not affect any calculations of the liability or provide any offsetting assets under GASB 45 though, because these funds can be re-designated for other uses by the employer at any point. Another potential constraint on these reserve funds is that, even though they are long-term assets set aside to match a long-term liability, they must be invested in a manner consistent and compliant with the codes and investment policies pertaining to short-term operating funds of the local government.

Another funding strategy is the investment in a trust, much like how pension and retirement funds are separate from the local government's operating accounts. A trust will allow for investments to be made following a "prudent person" rule; that is, in longer-term investment vehicles beyond the options available for the investment of local government operating funds.

SECTION 115 TRUSTS

An employer can set up any number of trusts under different parts of the Internal Revenue Code; however, the most common strategy when investing funds to match an OPEB liability is to establish or invest in a Section 115 governmental trust for qualified OPEB expenses. A Section 115 Trust is an irrevocable trust established for the purpose of paying a governmental expense like OPEB. Funds can be invested longer-term and in a manner more consistent with these long-term liabilities, and the assets of an employer's Section 115 Trust can be used to offset their liabilities under GASB 45. Trust funds can only be used to pay for qualified OPEB expenses, but withdrawals from the trust can be made at any time, so premium payments can be made from the trust instead of from an employer's operating funds for instance.

Investments in a Section 115 Trusts are also used by actuaries when determining the discount rate for accrued liabilities. The "discount rate" takes into account, in part, the expected investment returns for any designated OPEB funds. If the funds are held in an internal service account, expected investment income will match short-term fixed-income rates. If the funds are held in a Section 115 Trust, the actuaries may set a higher discount rate more consistent with longer-term historical returns across a more balanced asset mix. A higher discount rate will result in a lower ARC and a lower calculated liability. These trusts have set up costs associated with them, including legal costs, custodial and/or trust bank costs, the establishment of an oversight board with the employer and other costs. A trust may be the correct option if your government's overall liability is substantial and if your government can invest substantial funds in the trust at the outset.

Funding a separate trust, even starting small in the initial investments, shows a commitment to employees, who can take comfort in the knowledge that a funding strategy is in place and funds will be held in an irrevocable trust for their benefit. The trust provides evidence of financial planning which is viewed favorably by rating agencies and bondholders, sets up a plan for future boards to follow (and removes the option of using the fund for another purpose by a future board) and more appropriately matches longer-term investments to long-term liabilities.

Planning for these future obligations must be done incrementally and with the knowledge that, just like a pension fund, very few governments can totally fund their outstanding accrued liability. If your municipality has an OPEB liability it is important to begin the process of educating the board and the public on these long-term liabilities, and then charting a course for your municipality to deal with the future costs.

John Molloy is a Managing Director with PFM Asset Management LLC, working in its Harrisburg office. Mr. Molloy holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the CFA Society of Philadelphia. He can be reached at molloyj@pfm.com.

This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities.

Hot summer months pose special hazards for outdoor workers who must protect themselves against heat, sun exposure and other hazards. County employers and employees should know the potential hazards in their workplaces and how to manage them.

SUN

Sunlight contains ultraviolet (UV) radiation, which causes premature aging of the skin, wrinkles, cataracts and skin cancer. There are no safe UV rays or safe suntans. Be especially careful in the sun if you burn easily, spend a lot of time outdoors or have any of the following physical features: Numerous, irregular or large moles; freckles; fair skin; or blond, red or light brown hair. Here's how to block those harmful rays:

• Cover up. Wear loose-fitting, long-sleeved shirts and long pants.
• Use sunscreen with a sun protection factor (SPF) of at least 30. Be sure to follow application directions on the bottle or tube.
• Wear a hat. A wide brim hat, not a baseball cap, works best because it protects the neck, ears, eyes, forehead, nose and scalp.
• Wear UV-absorbent sunglasses (eye protection). Sunglasses don't have to be expensive, but they should block 99 to 100 percent of UVA and UVB radiation. Before you buy sunglasses, read the product tag or label.
• Limit exposure. UV rays are most intense between 10 a.m. and 4 p.m.

OSHA Card-Protecting Yourself in the Sun: Protecting Yourself in the Sun

HEAT

The combination of heat and humidity can be a serious health threat during the summer months. If you work outside or in an environment that is hot (i.e. kitchen, laundry, etc.) you may be at increased risk for heat related illness. So, take precautions.

Here's how:

• Drink small amounts of water frequently.
• Wear light-colored, loose-fitting, breathable clothing - cotton is good.
• Take frequent short breaks in cool shade.
• Eat smaller meals before work activity.
• Avoid caffeine and alcohol or large amounts of sugar.
• Work in the shade.
• Find out from your health care provider if your medications and heat don't mix.
• Know that equipment such as respirators or work suits can increase heat stress. 

There are three kinds of major heat-related disorders; heat cramps, heat exhaustion and heat stroke. You need to know how to recognize each one and what first aid treatment is necessary.

OSHA Heat Stress Fact Sheet: Heat Stress Fact Sheet

OSHA Heat Stress Quick Card: Heat Stress Quick Card

LYME DISEASE/TICK-BORNE DISEASES

These illnesses (i.e., Rocky Mountain spotted fever) are transmitted to people by bacteria from bites of infected deer (black legged) ticks. In the case of Lyme disease, most, but not all, victims will develop a "bulls-eye" rash. Other signs and symptoms may be non-specific and similar to flu-like symptoms such as fever, lymph node swelling, neck stiffness, generalized fatigue, headaches, migrating joint aches or muscle aches. You are at increased risk if your work outdoors involves construction, landscaping, forestry, brush clearing, land surveying or park and wildlife management.

Protect yourself with these precautions:

• Wear light-colored clothes to see ticks more easily.
• Wear long sleeves; tuck pant legs into socks or boots.
• Wear high boots or closed shoes that cover your feet completely.
• Wear a hat.
• Use tick repellants, but not on your face.
• Shower after work. Wash and dry your work clothes at high temperature.
• Examine your body for ticks after work. Remove any attached ticks promptly and carefully with fine-tipped tweezers by gripping the tick. Do not use petroleum jelly, a hot match or nail polish to remove the tick.

OSHA Lyme Disease Fact Sheet: Lyme Disease Fact Sheet

WEST NILE VIRUS

West Nile virus is transmitted by the bite of an infected mosquito. Mild symptoms include fever, headache and body aches, occasionally with a skin rash on the trunk of the body and swollen lymph glands. Symptoms of severe infection include headache, high fever, neck stiffness, stupor, disorientation, coma, tremors, convulsions, muscle weakness and paralysis.

You can protect yourself from mosquito bites in these ways:

• Apply Picaridin or insect repellent with DEET to exposed skin.
• Spray clothing with repellents containing DEET or permethrin. (Note: Do not spray permethrin directly onto exposed skin.)
• Wear long sleeves, long pants, and socks.
• Be extra vigilant at dusk and dawn when mosquitoes are most active.
• Get rid of sources of standing water (used tires, buckets) to reduce or eliminate mosquito breeding areas.

OSHA West Nile Virus Fact Sheet: Fact Sheet

Centers for Disease Control and Prevention NIOSH - West Nile Virus: CDC - NIOSH

POISON IVY AND RELATED PLANTS

Poison ivy, poison oak and poison sumac have poisonous sap (urushiol) in their roots, stems, leaves and fruits. The urushiol may be deposited on the skin by direct contact with the plant or by contact with contaminated objects, such as clothing, shoes, tools and animals. Approximately 85 percent of the general population will develop an allergy if exposed to poison ivy, oak or sumac. Forestry workers and firefighters who battle forest fires have developed rashes or lung irritations from inhaling the smoke of burning plants.

Utilize the following precautions when working near poison ivy and related plants:

• Wear long-sleeved shirts and long pants, tucked into boots. Wear cloth or leather gloves.
• Apply barrier creams to exposed skin.
• Educate workers on the identification of poison ivy, oak and sumac plants.
• Educate workers on signs and symptoms of contact with poisonous ivy, oak and sumac.
• Keep rubbing alcohol accessible. It removes the oily resin up to 30 minutes after exposure.

NIOSH and Poisonous Plants: Poisonous Plants

• A sloppy housekeeping tradition may be fuel for ignition.
• A cleared work space is a safe work place.
• Don't let the heat cut you like a knife. Keep cool while working, it could save your life!
• Many hazards can occur, so read the MSDS to be sure.
• Near misses are safety warnings: treat them that way!

Coverage Corner 

Quote of the Month

"Don't major in minor things".