Neither the state nor officials of the Hawai‘i Employer-Union Health Benefits Trust Fund plan to introduce legislation to begin addressing the massive $14 billion in unfunded liabilities taxpayers owe for public-employee retiree health benefits. Barbara Coriell, administrator for the trust
Neither the state nor officials of the Hawai‘i Employer-Union Health Benefits Trust Fund plan to introduce legislation to begin addressing the massive $14 billion in unfunded liabilities taxpayers owe for public-employee retiree health benefits.
Barbara Coriell, administrator for the trust fund, told lawmakers Thursday that the liability is outside of the fund’s realm and needs to be dealt with by the employers — the state and counties.
“I’d be very interested in participating in a discussion, but it’s larger than the EUTF,” Coriell told members of the House committees on Finance and Labor and Public Employment. “The OPEB liability is created by the employers’ commitment to provide health care through retirement. The EUTF is simply the administrator.”
OPEB is an accounting term that stands for “other post-employment benefits,” which refers to retiree health benefits in Hawaii’s case.
Rep. Barbara Marumoto said the Legislature wants guidance from the EUTF and its board of trustees on ways to begin tackling the future debt.
“We need a road map on how we get to solvency,” Marumoto said.
Rep. Isaac Choy was clearly agitated with Coriell’s responses.
“It seems like the board doesn’t understand that it has an OPEB liability,” Choy said sharply.
“So the EUTF board is more interested in benefits and administration, and as far as the funding is concerned, give it to Kalbert?” he said, referring to state Budget Director Kalbert Young.
Coriell simply replied, “That’s my understanding.”
The state’s share of the unfunded liability stood at $9.8 billion as of July 1, 2009, the most recent valuation performed. (The rest of the $14 billion is the counties’ responsibility.)
That’s in addition to the nearly $9 billion in unfunded liabilities facing the Hawaii Employees’ Retirement System. The trustees for that fund proposed sweeping reforms last session to help rein in benefits costs. This year, the public retirement system is seeking changes to prevent employees from “spiking” their pay to dramatically boost their retirement benefits.
To pay off the state’s portion of the EUTF’s $9.8 billion in liabilities, Young said the state would have to pay $450 million to $550 million a year over 30 years. That would be on top of the approximately $500 million in annual payments the state makes for active employees.
Unlike the state, the counties — Kauai, Honolulu, Maui and Hawaii — do pre-fund their costs for future retiree health benefits to varying extents.
“The state is literally on a pay-as-you-go system. Whatever annual cost is, we find a way to pay it,” Young told lawmakers. “The counties are paying their pay-go amount, but also contributing on top of that” toward their future liabilities.
Young said the Abercrombie administration would not be proposing legislation this session to address the health fund’s unfunded liability.
He noted that a controversial measure introduced by the administration last session is still alive that would help reduce some of the liability. That bill called for eliminating Medicare Part B reimbursements for all current and future retirees and their spouses, affecting more than 30,000 current pensioners and their spouses. The attempt was strongly opposed by labor unions, retirees and AARP. The legality of taking away earned benefits was also questioned.
Young made clear that the situation is serious. He said the growing liability will have a negative impact on the state’s bond rating.
He said when the state went out for its record $1.3 billion bond sale last year, bond rating agencies had praised Hawaii’s efforts to cut down its pension liabilities, but had criticized the lack of action on addressing the health benefits liability.
The state at that time had assured the ratings agencies that it would be looking at ways to address the issue.
“The liability does not correct itself,” Young said. “The clock, I think, is ticking, and we’ll have to show that we’re serious … The point here is that because Hawaii has a very high unfunded liability for this liability — and we’re doing nothing about it — we expect that Hawaii will continue to fall on the rating scales.”
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