Civitas Review

Senate Budget Plan Includes Retiree Insurance, Pension Reform

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Jul
27

As highlighted in this Asheville Citizen-Times article, the NC Senate budget proposal  includes measures to address two issues very critical to the long-term fiscal health of the state government: retiree health benefits and realistic measures of the state pension fund.

North Carolina lawmakers are looking at changes they say will shore up important benefits for hundreds of thousands of state employees and teachers when approaching retirement.

Some public employee advocates worry the changes will create more uncertainty and erode incentives that attract and retain state workers.

The Senate budget approved last month contained a provision that would prevent retirees hired after 2015 from obtaining or buying health insurance for themselves or dependents through the State Health Plan. Another Senate budget item would automatically decrease a fixed rate of return on state pension fund investments that helps calculate the state's annual contribution to that fund.

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Senate Republicans say the insurance change would give the state better control over an unfunded liability of $25.5 billion in projected state medical expenses for current and future retirees. The liability has fallen by several billion dollars since 2010. The General Assembly's government watchdog agency will examine the liability in a study being released Monday.

Still, "it is the largest unfunded liability we have in the state right now," said Sen. Ralph Hise, R-Mitchell, a health budget-writer, and capping the future retirees covered creates a "fixed number we're targeting and addressing over 30 years."

Civitas has been writing for years about the massive unfunded liability for state retiree health benefits, including these recommendations written nearly three years ago.

And many financial experts agree that most states, including North Carolina, are using unrealistic discount rate assumptions when calculating the state's unfunded pension liability. North Carolina continues to use 7.25%, far above more realistic rates in the 4% to 6% range recommended by firms like Moody's. Another provision in the Senate budget would begin to slightly bring down the discount rate used by the treasurer's office to determine the unfunded pension liability.

These financial issues have been building for a long time and are in urgent need of being addressed.

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