Report: Retiree health care plans 'time bomb'

If you or I were doing it, it would probably be called misfeasance or nonfeasance.

Today's Bergen Record points out (as I said yesterday) that the failure to adequately fund New Jersey's retiree health care obligation began a long time ago --

New Jersey used to save up for future retirees' medical costs, just as it does with pension costs. Saving money, or "pre-funding," makes financial sense, because it saves taxpayers big dollars in the long run -- just like making a bigger down payment on a house saves on interest down the road.

But Governors Whitman and later McGreevey raided the funds set aside by their predecessors to balance the budget and pay for tax cuts.

Now, officials say the state simply doesn't have the spare cash to set aside for the future.

And you know who's being asked to foot the bill.

It might, however, have been years more until the state was called to account, except for the change in accounting rules which is beginning to affect how states calculate -- and publicize -- their future obligations --

In 1992, new accounting rules required private companies to calculate the costs of the long-term retirement benefits. The rules did not require companies to actually fund the future obligations, but they might as well have: When companies figured out how much they owed, they started scaling back retirement health benefits.

Now, state governments are also being required to calculate and disclose the costs of health-care retirement benefits, and the numbers are just as alarming. Like private companies, state and local governments are not required to pay toward those estimated future obligations.

Working the same story, the Ledger's Dunstan McNichol comes up with an estimate of a $69 billion unfunded obligation and points out the role of Gov. Whitman in starting down this slippery slope --

Until 1994, the state banked funds to cover the future cost of the health insurance provided without charge to retired public employees and teachers who put in at least 25 years on the job.

Then-Gov. Christie Whitman suspended the prefunding, and used the $400 million that had been saved to help balance one of her first state budgets.

At the time, the bill for post-retirement health insurance was $247 million.

Since then, the annual cost for health insurance coverage has risen by almost $1 billion, and the tab is projected to top $2 billion per year by 2012, according to the Aon report.

Michael Morfe, the Aon executive in charge of the actuarial study allowed as how state officials could either avoid doing advance funding or adopt a plan and stick to it --

"Advance funding is not required," he said. "Pay as you go can continue to be maintained."

That strategy, however, adds billions to the ultimate cost of paying the retiree expenses, Morfe's report shows.

If lawmakers boosted payments enough to pay down the liability over 30 years, he noted, the full tab would actually end up being only $37.3 billion measured in current dollars, not the $69 billion cited in the report.

Where is Jimmy the Greek when you really need to get the odds right?

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More information and resources --

• Ledger - 7/27/2007: "Public retiree health plans could cost state $69 billion"
• Bergen Record - 7/27/2007: "Retiree health costs 'time bomb' for N.J."

-- Dan Damon

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