Senate bill targets retiree health benefit changes - Winston-Salem Journal

Republican legislators are making another attempt at creating a joint legislative committee whose charge could be recommending controversial changes to the state retiree health benefit fund.

Sen. Joyce Krawiec, R-Forsyth, is co-sponsor of Senate Bill 22, which was introduced Tuesday. She could not be reached for comment on the bill Wednesday.

The genesis for the bill came from the joint legislative Program Evaluation Oversight committee in July 2015 that focused on the unfunded liability in the retiree benefits fund.

A legislative staff report said North Carolina had a $25.5 billion unfunded liability for retiree health benefits as of July 2015, which ranked the state 41st in the nation. The unfunded liability is projected to climb to $37.5 billion by 2020.

The bill could affect, as of January 2015, about 136,400 retirees who receive Medicare and about 53,000 early retirees who aren't covered by Medicare.

The same legislation was introduced last year as House Bill 1027 and Senate Bill 808. The House passed its bill by a 111-1 vote, but it was not taken up by the Senate committee on Pension and Retirement and Aging. The Senate bill did not emerge from committee.

The state currently uses a pay-as-you-go strategy to fund retiree health benefits, which means the state “recognizes costs when benefit is provided in retirement.”

North Carolina is among 26 states that pay less than 50 percent of the annual contributions needed to fully fund the retiree health benefits for the long run, legislative staff said.

Potential recommendations include:

• Adding more state appropriations to the fund.
• Establishing an automatic enrollment of more than 35,000 Medicare-eligible retirees into Medicare Advantage programs.

The legislative staff report said the state could save at least $64 million annually, and eventually reduce unfunded liability by $3 billion, through this recommendation.

• Offering incentives to early retirees to enroll in a federal health-exchange plan — if they continue to exist under the Trump administration.
• Shifting from a defined benefit plan to a defined contribution model, such as health reimbursement arrangements and health savings accounts;

The staff said this recommendation “shifts risks of rising health-care costs and poor investment returns to employees.”

• Increasing the service time required to become eligible for retiree benefits, from 20 years currently, to potentially 25 to 30 years.
• Requiring state employees to contribute financially to the retiree health benefit fund.

Legislative staff recommended having active state employees contribute up to 3 percent of their salary for retiree health benefits, just as they do 6 percent toward their pension.

• Increasing what retirees pay for the benefit through higher premium or out-of-pocket expenses.

Legislative staff said “no legal precedent exists regarding the state’s obligation to maintain certain levels of retiree health benefits.”

The state has been sued at least once, in 2012, over breach-of-contract charges related to elimination of some retiree health plans.

“Options discussed can be made for new hires without threat of new lawsuit,” legislative staff said.

The committee would have 10 voting members — five appointed each by the House and Senate — and three non-voting members, including state Treasurer Dale Folwell.

If established, the committee would be required to present a report during the 2018 session.

The state Treasury Department issued a statement Wednesday that said it “supports any forum charged with investigating options for reducing the unfunded liability of the retiree health benefit fund.”

Folwell has indicated his preference to be a voting member.

“The expertise and perspectives of the state treasurer and the state health plan are important to those policy discussions,” the Treasury Department said.