Auditor Points To Mounting Tab For Retiree Benefits

KPMG auditor Shawn Warren began his presentation with praise; telling lawmakers that for the first time in 4 years, his firm was signing off on an unqualified audit.

“That is the highest level of good housekeeping seal of approval you can get from auditor.”

Then Warren shared some less cheery observations. Specifically, about how by the logic of federal accounting standards, the state is putting itself in a deep hole by funding retiree health insurance at the solvency rate, which translates to just 24 percent of what auditors say is the true total cost.

“In fiscal 08 the state paid cash of 50 million dollars, which leaves a liability of 156 million dollars that you have not paid. That’s one year’s worth of activity”

Based on actuarial models, Warren told lawmakers the state’s total liabilities on this front would reach 2.5 billion dollars. Warren then added, that he might even be selling things short.

“Einstein said the greatest power in the world is the power of compounding, and as you get two or three more years, that 2.5 billion may be 3 billion. So I do want people to understand this, this is kind of like the social security lockbox of the state.”

But while lawmakers seemed to accept Warrren’s numbers, they didn’t all agree with his analogy.

“No one of the people I know in the legislature believes this in any way a statutory obligation to make these payments to people who are currently hired, or even to people who are retired and currently receiving them.”

Republican Neal Kurk of Weare sits on the House Finance committee. He points out that unlike the state retirement system, where requires payments, retiree health insurance is, as the statute puts it, “subject to available funding.”

Modifying state employee benefits is an eternally fraught topic at the statehouse. Kurk says voting for radical change to retiree health care would probably cost some lawmakers their seats in Concord. But he says the circumstances warrant an open discussion.

“In the past we have never looked at post-retirement benefits. I think in this environment it will be on the table – without making any judgment about the result of looking at it might bring.”

The State Senate’s top budget writer agrees the cost of insuring retirees poses challenges.

“They are older and they use it, and, as a result its expensive.”

But Manchester Democrat Lou D’Alessandro also believes the problem might be mitigated, or even eliminated, if President elect Obama succeeds in overhauling the nation’s health care system.

“There is great hope something will be done to bring a better situation about but it’s costly we know that.”

Exactly how costly, is a key question.