Comptroller’s report lacks overdue analysis of concessions savings

Comptroller Kevin P. Lembo left a big question mark in the state’s new annual financial report, reflecting an overdue assessment of billions of dollars in promised long-term savings tied to union health care concessions ratified last summer.

State auditors John Geragosian and Robert M. Ward declined to certify that portion of the Comprehensive Annual Financial Report released last week, noting that it failed to reflect the labor deal.

And Lembo issued a written statement Monday indicating that the assessment of retiree health care — commonly called “Other Post-Employment Benefits” or OPEB — must address several complicated changes and should be completed in late March.

“Our audit disclosed that the required actuarial valuation was not performed within the two-year window permitted by GASB (Governmental Accounting Standards Board) and the State of Connecticut did not present information pertaining to the annual OPEB cost and net OPEB obligation,” Geragosian and Ward wrote in a letter included in the annual report.

Prior to the 2011 concessions deal, the rules governing retiree health care were last changed in May 2009 through an agreement reached by then-Gov. M. Jodi Rell and the State Employees Bargaining Agent Coalition.

Gov. Dannel P. Malloy struck a tentative deal with SEBAC leaders on a new concessions package last May. Union members rejected the deal in June, but ratified the package during a second vote completed in late August. Besides a two-year wage freeze, efficiency savings to be found by labor-management panels, and new pension restrictions, that deal also included several provisions that affected health care for current and retired workers.

One of the biggest changes increased from 10 to 15 years the minimum service time for a state employee to be eligible for retirement health coverage. The Malloy administration estimated this would save $3.8 million this fiscal year, $9.7 million next year, and $987 million cumulative over two decades.

Two other major components of the concessions package were aimed at health coverage for both current and new retirees.

• Both were required to participate in a new wellness program, receiving regular physicals and other types of health care screenings, or else pay a premium increase of $100 per month. Projected savings were $120.5 million both this fiscal year and next, and $2.38 billion over 20 years.
• Both new retirees and current workers also must participate in a mail order system for filling so-called “maintenance drugs” used to treat manageable, chronic conditions. They also face higher co-payments for for non-maintenance drugs. The administration estimates these changes will save $19.9 million this fiscal year, $20.5 million next year and $698 million over two decades.

The comptroller’s office commissioned The Segal Co. in October to provide periodic valuations of the retiree health care program, including assessing the savings associated with the union concessions changes. The contract calls for the New York-based consulting firm to be paid nearly $80,000.

The comptroller’s office had estimated that assessment would be available in late January and later pushed it back to the end of February.

“We expect the updated OPEB valuation report to be completed by the end of March,” Lembo wrote in a statement Monday. “The SEBAC agreement has resulted in significant changes that require more time and analysis to ensure accuracy.”

Lembo declined to be interviewed by telephone about the OPEB assessment.

Another analysis of concessions-related changes — this one tied the state employees’ pension system — sparked controversy earlier this year between the Democratic governor and Republican legislative leaders. The latter have charged several concessions savings estimates the administration offered were inflated.

Using an actuarial analysis of the pension fund completed in late January, the legislature’s nonpartisan Office of Fiscal Analysis reported that pension concessions would provide just over one-third of the $4.8 billion savings projected by Malloy’s budget office.

But administration officials said that while pension savings might not match the 20-year projection, long-term salary savings stemming from higher-than-anticipated employee retirements — also related to the concessions package — could easily make up most of the difference.

More than 2,600 workers elected to retire from state service between January and Oct. 1, 2011, about 1,000 more than the administration expected. Many new concessions aimed at controlling pension and retirement health benefits were scheduled to take effect last Oct. 1.