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Pre-fund the OPEB liability through a
trust. Currently, Connecticut is paying
for retiree and dependent healthcare
on a pay-as-you-go basis. In 1992,
the state paid $60 million in
retiree/dependent healthcare costs. In
2008, the state paid $464 million in
retiree/dependent healthcare costs.
The ARC for 2008 was $1.65 billion.
That's a $1.2 billion shortfall. The
ARC is projected to be $4 billion with-
in 20 years.
Increase
member
contributions.
These contributions must be funneled
directly into the OPEB trust where
they can be invested for the future.
Increase the retirement age and elim-
inate incentives to retire early.
Other plan design changes to consid-
er: eliminate the "spiking" of final
salary and tie state public pension
retirement ages to the changing fed-
eral retirement ages.
For OPEB, increase premium sharing
and rethink allowing people separated
from service to return for full benefits.
Create an ARC funding strategy, set-
ting benchmark dates for growth in
the funding percentage. Because of
the disparity between the ARC and
the amounts paid, paying the ARC
will require cuts in other spending
and tax increases, difficult choices.
Actuarial analysis and projections
should be created to account for all of
the remaining years of the amortiza-
tion period.
An actuarial analysis to ascertain the
long-term costs must be developed
before changes are made to the
retirement/OPEB system.
Everything has to be on the table.
My biggest take-away?
Healthcare is the key.
The largest unfunded liability on all
states'
financials,
not
just
Connecticut's, is for healthcare. The
largest unfunded entitlement on the
federal balance sheet is healthcare in
the form of Medicare. As for the mili-
tary, 10 years ago, healthcare cost the
Pentagon $19 billion; five years from
now it is projected to cost $65 billion.
1
For many businesses, the expense
growing faster than the rate of inflation
is healthcare. As costs are pushed
down to individuals, families have to
choose how much they can spend on
healthcare. Until we are willing to deal
with healthcare systems, cost, and
access, we, and future generations,
will remain tied to debilitating debt.
I learned the details of Connecticut's
obligations and liabilities by serving on
the OPEB Commission. Viewing these
promises and obligations through a
wider lens is necessary to arrive at
realistic long-term solutions. There is
an abundance of other information
available on the demographic wave
and the federal role in this growing
problem. As CPAs, we can leverage
our knowledge to educate others
through local chambers of commerce,
business meetings, and reaching out to
our legislators.
Julie McNeal, CPA is
CSCPA's Membership
and Finance Director.
She served on the
Connecticut
Other
P o s t - E m p l o y m e n t
Benefits Commission
along with state, union, and other busi-
ness community participants. She can
be reached at juliem@cscpa.org.
advocacy community education
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Other sources of information:
FY 2009 Public Fund Survey, National Association of State Retirement Administrators
http://www.publicfundsurvey.org/publicfundsurvey/pdfs/Summary of Findings FY09.pdf
The Trillion Dollar Gap, The Pew Center on the States
http://downloads.pewcenteronthestates.org/The_Trillion_Dollar_Gap_final.pdf
The Concord Coalition
http://www.concordcoalition.org
1 The New York Times, November 28, 2010, Gates Seeking to Contain Military Health Costs
The demographics of the baby boomer generation and the
structure of federal entitlements guarantees that the federal
Social Security and Medicare systems will be most stressed at
the same time as Connecticut is facing huge shortfalls.
The Relentless Rules of Humble Arithmetic
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