A subcommittee exploring state retiree health plans on Monday voted to recommend that the General Assembly codify putting 1% of the state budget into a fund that pays retiree benefits to lower the billions of dollars of deficit.
The State Employee Benefits retiree subcommittee asked Cheiron, a consulting firm, to look into additional ways for the state to lower the state’s unfunded liability.
The recommendation concerns post employment benefits paid for out of what’s called the OPEB Trust Fund. It includes retiree benefits such as healthcare, life insurance and disability, but not pensions.
Money for those benefits should be accrued in advance of needing them, but Delaware has not done that.
Financial experts said there is an $8.3 billion shortfall as of July 1, 2022, and estimates will increase to $20.7 billion by 2042 if no way is created to close that gap.
Last year, Gov. John Carney put 1% of the state budget into that trust fund and has proposed doing it again this year with $51 million. It will not help close the gap fast enough, but does satisfy rating agencies who are aware that the deficit is hanging over the state finances.
The subcommittee, which was formed after the state tried to move retirees off their generous health plan to a more-restrictive Medicare Advantage plan because of budget fears, wants the state to make adding that 1% every year a law.
Even so, that money would only add up to about 60% of the gap by 2052.
Jeff Taschner, executive director of the Delaware State Education Association, said the legislature should also consider whether it would be possible to increase that to 1.25% 1.5% 1.75% and 2% of the state’s budget.
Joanna Adams, pension administrator with the Office of Pensions, said that if the state funded it at 2%, the money would amount to around 93% of the liability by 2052.
Rep. Mike Ramone, R-Pike Creek, said that because of the budget surpluses of the last three years, it may be possible for the state to kick in a higher percentage or even a flat dollar amount, but there should be a floor in the recommended budget line for both percentage and dollar amount.
“I would suggest we use a measurement, whether it’s one and a half or whatever, but not be below,” Ramone said. “So in other words, every year we are putting $100 million towards this, or 2%, whichever is higher or 1.5%t. Something that we have a bottom that we will not go lower.”
Ten committee members voted to recommend the set-aside. Four people abstained, all state officials: Claire DeMatteis, secretary of the Department of Human Resources; Richard Geisenberger, secretary of the Department of Finance; Sen. Brian Pettyjohn, R-Georgetown; and Ramone.
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In order to cover the remaining 40% of the OPEB Trust Fund liability, the subcommittee will look into reducing benefits, such as lowering coverage for spouses; increasing the minimum retirement age; adjusting the amount of benefits offered based on how length of service; and removing people who quit to work somewhere else before retiring.
Each option had an estimate for how much it would reduce the liability and how much it would make up for the gap in funding.
All four accounted for around 20%.
Removing those who quit would save the least at 18%. Increasing the minimum retirement age would save the most – 21%. It would mean the state police retirement age would increase to 55 and all other state employees would increase to 60.
The subcommittee didn’t vote on whether it would endorse any of those ideas, but it did ask Cheiron to see what impact each option would have on reducing the liability.
The subcommittee will discuss the impact of those options at their next May 19 and June 5 meetings.
Rep. Paul Baumbach, D-Newark, said he thinks all options are at least worthy for consideration.
Bill Oberle, the representative for the Delaware State Troopers Association, said increasing the retirement age would make it harder for them to hire more troopers.
“We currently have a crisis in terms of recruitment from state police.” Oberle said. “And I think it would have a negative impact on recruitment, quite honestly, a negative impact on public safety, if we would require troopers to work until age 55.”
Wayne Emsley, the retiree representative for New Castle County, put forward a motion to ask Cheiron to not model reducing spousal benefits because they don’t want to consider that option.
Geisenberger said that he wants the state to at least consider this option, as several other states have used that as a way to reduce their unfunded liability.
Geisenberger quickly pointed out that reducing spousal benefits would not affect anyone who is already retired.
“I think that’d be inconsistent with what we’re seeing in other jurisdictions, as well as certainly private plans…So I think it’s a mistake to take this entirely off the table, ” Geisenberger said.
The vote failed with eight members voting no, four members voting yes, and two members not voting.
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