A recent story in the New Hampshire Union Leader about retiree health benefits has justifiably alarmed many SEA members. The short article, headlined State $2b in hole to pay retired worker benefits, came about after Administrative Services Commissioner Linda Hodgdon told the Legislature’s Fiscal Committee that the state was not setting aside enough money for retiree’s healthcare.
Before you get too worried, it helps to understand exactly how retiree health benefits are paid. We’ll explain that below, and we’ll also explain how the SEA has been working to get out in front of this issue.
The state pays for retiree healthcare benefits in real time, meaning they don’t put money away for it throughout workers’ careers as they do with pensions. Instead, lawmakers budget money in current years for current retiree healthcare costs. The state used to cover the entire premium for retiree healthcare, but several years ago began requiring that retirees begin contributing through a deduction from their pension benefits.
“Because the state never put the money away for it, they did not prefund retiree healthcare, and yet by state law they have a responsibility to pay for retiree healthcare – as appropriated,” said SEA President Diana Lacey. “So because the state has a legal obligation to provide it but never put money away for it, they have an unfunded liability, estimated last year to be $2.2 billion.”
Beyond the dollar amount, unfunded liabilities pose a problem to the state because they can affect its bond rating.
“Because Hodgdon just had to present the 2012 annual report to the Fiscal Committee, the auditors that helped in the presentation mentioned ‘concerning’ things in the report and Hodgdon elected to expound on the OPEB liability and how it continues to grow,” Lacey explained. “Well, of course it grows as baby boomers are beginning to retire in droves!”
Lacey said that what this all means is that Hodgdon and her successors are likely to make a big deal of retiree healthcare costs for quite some time. It will become an increasing part of the state budget until we turn the corner and there are fewer people retiring, or until the state starts legally decreasing its commitment to retirees (future retirees – like new hires) for health care coverage in retirement.
This, Lacey added, is the primary reason the SEA began a path towards creating a retirement medical trust – a path with many road blocks that must be overcome one by one.
“Through the 2010-2011 CBA, we negotiated for the Health Benefit Advisory Committee to have the authority to develop recommendations for the state to secure alternative funding in order to provide for future retiree health expenses,” said Lacey.
Once that was in place, During the 2011 legislative cycle, the SEA fought for legislation that would amend the State law that defines retirees’ benefits. The new language in NH RSA 21-I:30 states, “Nothing in this section shall prohibit the state or state employees from making contributions to post-retirement medical savings plans for such employees, if authorized by a collective bargaining agreement, but only for the term of such agreement.”
The amendment was passed and the law now includes language that authorizes the state and employees to collectively bargain to pre-fund retirees’ healthcare costs. They are now able to bargain to start putting money away for future retirees’ out of pocket expenses or to minimize these expenses.
“If we collectively bargain money for retiree health care through the course of our active careers, when workers retire, there will be money in their own name, held in the SEA trust fund, to go towards their retiree health care costs,” she said. “This would allow the state to prospectively decrease what it anticipates having to pay for future retiree healthcare costs, and simultaneously reduce their overall post employment liability.”
In other words, this retirement medical trust will enable the state to meet its obligations to current retirees but for future retirees, it will create a new option for retiree healthcare –one that is either shared with the State or wholly at the retiree’s own choosing.