SilverLink - Fall 2008 - (Page 21)

EMPLOYEE BENEFITS Post-Retirement Benefits Securing Retiree Healthcare Keeping the Promise for American Workers by Mike Ehmke, ASA, EA Healthcare costs are soaring and the number of retirees receiving health benefits has increased, which will remain the trend as record numbers of Boomers retire. Consequently, governmental entities are paying more than anticipated to provide healthcare to retired employees and their dependents. Due to changes in healthcare beneﬁt accounting mandated by the Governmental Accounting Standards Board (GASB), the amount of liability for retiree healthcare has been measured and—for the ﬁrst time—the amount is staggering. For the vast majority of governmental entities, the current method for funding these beneﬁts is to defer payment of these costs to future generations. Now is the time to determine the appropriate funding of these beneﬁts to secure the promise of retiree healthcare for the present and the future. Although retiree health beneﬁts, like pensions, are earned during an employee’s working years, they are paid out after retirement. Unless enough funds and assumed future investment earnings are set aside to cover the accrual of these beneﬁts while an employee is working, future taxpayers will pay all or part of the costs of the employee’s healthcare after retirement. For example, a governmental employee was hired years ago with the promise of health beneﬁts upon retirement. However, the employer did not set aside any funds for these future health costs earned during the employee’s working years. As a result, current taxpayers must pay thousands of dollars every year for the employee’s health costs during retirement. While these beneﬁ ts were earned doing work for the prior generation of taxpayers, the current generation of taxpayers bears the ﬁnancial burden of paying for them. Because healthcare costs are rising and retirees are living longer than ever before, future costs could be in the tens of thousands of dollars per year, with future generations of taxpayers expected to foot the bill. At some point, the promise of healthcare during retirement could become unaffordable and require elimination of these beneﬁts, resulting in a broken promise. A Promise to be Broken Almost all United States governmental entities pay for retiree health beneﬁts in the year the beneﬁts are used by retirees and their dependents. This method of funding, commonly referred to as the “pay-as-you-go” approach, has led to the accumulation of massive ﬁnancial liabilities to pay health At some point, the promise of healthcare during retirement could become unaffordable and require elimination of these benefits, resulting in a broken promise. beneﬁts for future retirees. These liabilities are now being quantiﬁed under new GASB accounting rules, which have already come into effect for some large governmental entities or will become effective in the near future for remaining governmental entities. Pre-Funding Retiree Health Benefits The alternative to pay-as-you-go funding is to pre-fund retiree health beneﬁts during an employee’s working years. This approach has many advantages over pay-as-you-go funding: • Same Approach is Used for Pensions. There is virtually no dispute that pre-funding is the best way to fund a pension system. Most governmental entities sponsor some type of pension system and provide funds for the beneﬁts during an employee’s working years. In fact, statutes commonly require pre-funding of pension beneﬁts. Since pension beneﬁts are earned during an employee’s working years and paid out upon retirement 21 SILVERLINK — FALL 2008

Table of Contents Feed for the Digital Edition of SilverLink - Fall 2008

SilverLink - Fall 2008 Table of Contents Risk Management: Toto A Marriage Made to Last Cashier’s Check Fraud? Selection Validation Digital Tool Box When the Curtain Falls Lightning Strikes Increased Fuel Economy Employee Benefits: To Infinity & Beyond Securing Retiree Healthcare Private Client Services: Batter Up! Shaking Things Up STOLI Under Attack Client Spotlight: Bellevue University Internal Happenings: SilverStone Group Wellness Activities Group

SilverLink - Fall 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.