Clarified concession deal puts retiree health care funds in lock box

State employees have never warmed to the idea of having to contribute a portion of their pay to help fund their retirement health care, and one of the arguments they make against it is the history of special accounts’ being used as a piggybank by legislators and governors when money is tight.

But while all unionized employees would have to start contributing toward their retirement health care under the concession package now undergoing a second vote, new language in the agreement guarantees this account can’t be raided to prop up future state budgets.

And Gov. Dannel P. Malloy, who criticized the one-time revenue gimmicks used to support the last budget signed by his Republican predecessor, said this week that while he never would support such a raid, he agrees it was wise to build the guarantee into the clarified agreement.

Malloy, who criticized former Gov. M. Jodi Rell and the last legislature for raiding a host of special funds in the $19.01 billion budget for 2010-11 that he inherited after taking office in January, said it’s no surprise state employees are worried after all of the fiscal “raiding and stripping” that has occurred in recent years.

The last state budget tapped special funds reserved for public campaign financing, public universities, biomedical research, and anti-smoking and other health care initiatives.

While that was going on, Rell and the legislature, with union permission, withheld $300 million earmarked for the state employees’ pension fund in between 2009 and 2011.

It took more than $2 billion in borrowing in 2007 to reverse decades of raids and reduced payments to the statewide teachers’ pension fund.

And the Association of Retired Teachers warned last fall that a supplemental health insurance program serving 33,000 former educators would become insolvent within the next two years because Rell and the last legislature withheld nearly $60 million over the last two years.

Malloy and the legislature restored funding in the new biennial budget.

“I plan to still be working for the state after 2017 and I worry that future retired state workers like me will lose retiree healthcare,” when the state’s current benefits contract with unions expires six years from now, Roland Bishop, a teacher in the Department of Correction and a union steward with CSEA/SEIU Local 2001, said this week.

The concession agreement would extend that benefits program through 2022.

“I came from the private sector where most workers long ago lost access to health coverage from their employer once they retired,” Bishop added “Now, more and more public employees are losing theirs, too. Especially in the uncertain economic times, every worker in America should be able to retire with dignity. And that includes having adequate, affordable healthcare for themselves and their family.”

Though state government has large unfunded liabilities in pension program for retired state employees, its retiree health care plan has been unidentified by several studies as one of the most fiscally at-risk programs of its kind in the nation.

That’s because Connecticut essentially ran retiree health care as a pay-as-you-go program until 2008. And though it has saved about $45 million to cover long-term costs since then, that savings represents one-sixth of 1 percent of the $26.6 billion obligation spelled out in the comptroller’s 2010 comprehensive annual financial report.

An analysis prepared last summer for a retirement benefits study panel launched by Rell projected that annual spending for retiree health care, which tops $565 million this fiscal year, would rise on the pay-as-you-go plan so that the average annual cost over the next 28 years will be $1.9 billion, with a total outlay in excess of $53 billion.

The analysis also said that if state government wants to fund retiree health care as it does its pensions – through a combination of savings and investment earnings – the annual contribution would jump immediately to $1.2 billion, but then stay relatively stable over 28 years, for a total outlay of roughly $34 billion.

Past governors and legislatures largely have ignored this problem with a few minor exceptions in recent years.

  • $10 million from the 2007-08 surplus was used to open a savings program for retiree health care, though no regular contribution plan was adopted at that time.
  • Another $14.5 million was reserved one year later – then almost immediately removed under a 2009 concession deal negotiated by Rell and state employee unions. That $14.5 million will be restored next month with funds from last fiscal year’s surplus, according to state Comptroller Kevin P. Lembo.
  • The 2009 concession deal did require new state employees and those with less than five years of experience to begin contributing 3 percent of their annual salaries toward retirement health benefits. That has added roughly $20 million more in total the fund.

But the tentative deal Malloy reached with state employees would require all workers to contribute toward retirement health care for 10 years through a phase-in process.

Those workers who don’t already contribute would forfeit 0.5 percent of their pay in the 2012-13 fiscal year, 2 percent in 2013-14 and 3 percent in 2014-15 and thereafter.

And starting in the 2016-17 fiscal year, when workers’ contributions are expected to reach about $68 million annually, state government will began matching their contributions.