The state faces a large gap in the funding of its long-term retirement and health plan obligations: a $60 billion long-term gap, about two-thirds being related to health care, and a third to retirement benefits. Fortunately, these are so far only projections into the future. Unfortunately, if unaddressed they are projections that very likely to get larger over time and then come true, with devastating effect.
On Friday, March 17, as a guest on the “What Matters in North Carolina” podcast, NC Treasurer Dale Folwell said new accounting standards that must be used in actuarial projections of unfunded liabilities for the state health plan set that long-term amount at $42 billion as of June 30, 2016.
Folwell said, “I think that from here forward, now that we have a snapshot of the reality of this situation, I look forward to doing what I told the voters I would do, and working toward reducing this liability, which will make a generational difference in North Carolina’s future.”
While the North Carolina General Assembly has fully funded the pension and health care liabilities over the past six years (since the Republican majority in both the NC House and NC Senate have been in place), the long-term liabilities for both plans continue to grow as more employees retire and the cost of health care increases.
The challenge of unfunded liabilities is not new. A decade ago this topic made the rounds on statewide forums as a concern that should be addressed. However, the enormity of the growing dollar amounts required to fund projected retiree benefits and health care can be overwhelming to lawmakers, and it has been easier to delay action than to appropriate money from the state’s general fund.
Folwell appears to be finding an attentive ear in Gov. Cooper and in the General Assembly. Folwell said that appropriating money into the state’s solvency fund will go toward paying for the future obligations. He said, “The governor put $150 million in his budget for this purpose, and we look forward to carrying this momentum into the General Assembly.”
In the past, the state health plan has been characterized by years of apparently doing well in good times – followed by times of financial jeopardy when the economy has gone sour. That has required large amounts of money being directed to it by lawmakers to keep it going. Many are aware that the Democrats left the state with a budget deficit of close to $3 billion when the Republicans assumed the majority after the 2010 election.
What is not as widely known, however, is that the State Health Plan was also left in disarray which required legislative action such as appropriating money to keep it solvent, and moving the administration of the plan to the NC Treasurer’s Office.
Sen. Andy Wells (R-Catawba) introduced reform legislation this week that proposes changes in the operation of the state health plan. One such change would have new employees receiving state health insurance benefits only during the time they work for the state. Currently, after 20 years of service as a state employee, the state will pay for a person’s health insurance for the rest of his or her life.
Also in Well’s proposed bill is a change for new state employees regarding retirement. If passed, the bill would require that new state employees would have a 401(k) plan to participate in for their retirement, versus the pension plan currently in place.
Current employees and retirees would not be affected by the changes in the reform legislation.
Folwell said, “We need to provide certainty to our state employees. We need to provide certainty to the legislature, certainty to the General Assembly, about how we are going to financially sustain and preserve these programs on a long-term basis.”