Administration July 26, 2007

NJ Faces $58B Retiree Health Care Tab with no Fund Pool

July 26, 2007 (PLANSPONSOR.com) - A seven-month analysis has concluded the tab for the health insurance benefits New Jersey will owe to retired schoolteachers and government workers is about $58 billion, for which the state has no funds set aside.

Reported by

Rebecca Moore

The Newark Star-Ledger reports the new estimate is an improvement on a previous rough calculation of $78 billion, but Governor Jon Corzine took little comfort in the improvement, calling the amount a “pretty heavy body blow.” The health insurance tab is in addition to a $110 billion pension debt for the state, which is partially covered by an investment fund worth about $82 billion, the newspaper said.

State officials had been making deposits into an account to cover retiree health cost, but in 1994 then-Governor Christie Whitman discontinued the contributions and used the $400 million set aside to help balance her state budget, according to the Star-Ledger. Since that time, the state has paid for retirees’ health insurance costs through the annual state budget.

Since the passage of Government Accounting Standards Board (GASB) Statement 45 in 2005, which requires governments beginning in 2008 to apply the same accounting standards used for pension liabilities to payments and services provided for retirees other than pensions (See GASB Issues New Standards for Post-Retirement Benefits ), several states have been forced to analyze their retiree health care liabilities.

New York’s Budget Office estimates that the cost of providing health benefits to government retirees stands at about $47 billion spread over the next three decades (See NY Estimates Retiree Health Care at $47B ). The Massachusetts comptroller’s office announced that the state faces a potential $13.3 billion shortfall for the retirement benefits it has already promised (See MA Looking at $13.3B Retiree Benefits Shortfall ).

The California Public Employees’ Retirement System (CalPERS) announced it approved regulations that would authorize the system to develop a pre-funding plan for retiree health care coverage after a Legislative Analyst’s Office report concludedgovernment retiree health liabilities are likely to be in the range of $40 billion to $70 billion (See CalPERS Approves Plan for Pre-funding Health Benefits ).