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Monday, February 22, 2010

Ind. Gov't. - "Promises with a Price: Public Sector Retirement Benefits"; Indiana impacts

"Promises with a Price: Public Sector Retirement Benefits" is the title to a new 73-page study released by the PEW Center on the States. (Here is the one-page overview.)

This story form the Feb. 18, 2010 Christian Science Monitor, reported by Tracey D. Samuelson , is headed "Top eight states with worst pension woes." According to the report, problems arise because of:

states’ own policy choices and lack of discipline, including:

– failing to make annual payments for pension systems at the levels recommended by their own actuaries;

– expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them;

– providing retiree healthcare without adequately funding it.

Many retirement investment funds have further taken a hit during the recent recession, but Susan Urahn, the managing director of the Pew Center on the States, notes in the report that “many states shortchanged their pension plans in both good times and bad, and only a handful have set aside any meaningful funding for retiree health care and other non-pension benefits.”

So which states received the worst grades for their pension performance?

In eight states – Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island, and West Virginia – more than one-third of the total pension liability was unfunded. Two additional states – Illinois and Kansas – had less than 60 percent of the necessary assets on hand.

Re Indiana, the report says:

Indiana's management of its long-term pension liability is cause for serious concern and the state needs to improve how it handles its retiree health care and other benefit obligations. It has funded only 70 percent of its total pension bill—well below the 80 percent benchmark that the U.S. Government Accountability Office says is preferred by experts—and the total unfunded pension liability is $10.5 billion. The Indiana State Teachers’ Retirement Fund is responsible for much of the state’s funding shortfall, covering only 48 percent of its $18.75 billion obligation. Although Indiana has very limited long-term retiree health care and other benefit liabilities, with a $442.3 million bill coming due, it—like 19 other states—has failed to sock away any money to cover these costs.

A chart on p. 25 of the report lists Indiana as 9th out of 10 leading states in funding the annual required payments. But the year is 2006.

Page 67 of the report is interesting. Funding retiree health care is one of the main issues in many of the states:

Until recently, Indiana and Nebraska were the only two states that offer no benefits for retirees over age 65 (although both do have some provisions for retirees who are not yet eligible for Medicare). Oregon also eliminated its coverage for Medicare eligible retirees who were hired on or after August 29, 2003, according to the GAO. Eight additional states—Idaho, Iowa, Kansas, Minnesota, Mississippi, Montana, South Dakota and Wyoming—pay no premiums for retirees, but do allow all eligible retirees to sign on to the state plan. This type of benefit provides an “implicit subsidy,” which comes from allowing retirees to participate in the same pool as younger and generally healthier state employees. Because retirees are much older than the average participant in state plans, they are more expensive to cover, bringing up the average costs of the entire plan. In Wyoming, for example, although the retirees pay for benefits themselves, the inclusion of these older men and women in the insured pool increases the costs to the state by some $72 million over a 30-year period. * * *

In Kansas, Indiana, Minnesota, Mississippi and Nebraska—five of the seven states where actuarial valuations were unavailable—the unfunded actuarial liabilities are likely small.

Also, from p. 44:

The data used for this report include information from 45 states. The data for 43 states are based on actuarial computations produced by the states themselves. As of mid-October 2007, the remaining seven states had not finished producing actuarial valuations. Five of those—Indiana, Kansas, Minnesota, Mississippi and Nebraska—are likely to show relatively small liabilities because they are among the 10 states where retirees pay their own health insurance premiums. In these states, the governments’ cost is limited to an “implicit subsidy,” which comes from allowing retirees to participate in the same insurance pool as younger and generally healthier state employees.

Here are some interesting earlier stories from the ILB on the actuarial requirement, including:

• Jan. 9, 2006 - "Lawmakers' benefits getting close look" - includes some quotes from a South Bend Tribune story:

  New reporting requirements from the federal government are casting light on lifetime health insurance benefits for Indiana lawmakers and their families. * * *

  Meanwhile, state Auditor Connie Nass is seeking administration approval to conduct an actuarial study of the benefit, whose lifetime costs remain unknown.

  Nass said the study is the only way she can comply with federal accounting standards that require corporations and governments to report all unfunded liabilities involving nonpension post-retirement benefits.

  The state already includes pension liabilities in its comprehensive annual financial reports.

  "There is any amount of guessing that can be done" about the insurance liability, Nass said, "but no one knows until an actuarial study is done."

  Indiana's benefits package for lawmakers is generous by most standards, according to state Sen. Luke Kenley, R-Noblesville.

  It provides health insurance for life for lawmakers, their spouses, ex-spouses and children younger than age 23 who live at home.

  It also allows the beneficiaries to remain on the state plan once they're Medicare-eligible, unlike most plans that reverse that order.

• Jan. 11, 2006 - "A bill to end legislative branch health perks appears doomed; budget agency refuses to approve acturial study of costs of perks"

Other than the program providing retirement health care benefits to members of the General Assembly, their families, and staffers (benefits which were available both before and after attaining age 65 Medicare eligibility), retirement health care benefits were not provided to any other state employees until 2007. Then, as Niki Kelly reported in the Fort Wayne Journal Gazette in 2007:

The governor also signed Senate Bill 501, a companion bill that establishes a retirement medical benefits account for state employees of all three branches of government as well as elected and appointed officers.

Legislators previously had authorized a special state-supported retirement health plan for only themselves. But it became a sensitive political issue, and they officially repealed it in the pay raise bill.

As a result, though, the General Assembly decided to set up a similar plan for all retiring state employees or elected officials who have served at least 10 years. * * *

Senate President Pro Tem David Long, R-Fort Wayne, said although legislators would be eligible “this is really more for state employees” to bridge the gap between retirement and Medicare coverage.

That is just part of this May 31, 2009 ILB entry.

Follow that with this Sept. 27, 2009 ILB entry about the costs of the Indiana program compounding. And recall the language quoted above from the PEW Report:

Although Indiana has very limited long-term retiree health care and other benefit liabilities, with a $442.3 million bill coming due, it—like 19 other states—has failed to sock away any money to cover these costs.

Posted by Marcia Oddi on February 22, 2010 06:47 AM
Posted to Indiana Government | Legislative Benefits