New fund for SC state retiree health benefits

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May 2, 2008

COLUMBIA, S.C.---Today South Carolina will put in motion landmark legislation designed to help ensure that school teachers and other public employees will have the medical coverage they need after they stop working.

More than $312 million will be transferred today into the new South Carolina Retiree Health Insurance Trust Fund, which is being established to pay for the future costs of providing health insurance to public sector retirees. These funds are a combination of legislative appropriations and money from the State Health Plan. Another $238 million will be deposited throughout the year as annual appropriations for retiree insurance become available.

The trust fund is a key feature of Act 195 which was signed into law last month. It is designed to respond to new national accounting rules that require governments to estimate to future costs of retiree insurance coverage. The rules suggest that states take steps to meet those expenses.

“This positive action that will help ensure greater fiscal accountability and is another step towards strengthening South Carolina’s future financial health,” said State Treasurer Converse Chellis.
The five-member Budget and Control Board will serve as trustees for the new fund which will be held by the Office of State Treasurer Converse Chellis. The Board’s Employee Insurance Program will administer the trust fund.

Traditionally, South Carolina and other states have covered retiree health insurance on a “pay as you go basis.” This meant that each year the General Assembly set aside funds in the state budget to pay for retiree insurance costs for the coming 12 months.
In 2004, the Governmental Accounting Standards Board issued a new rule requiring governments to estimate the total amount of money they expect to pay in the future to give health insurance to current retirees and those that will retire decades from now. Independent actuaries report that South Carolina has a 30-year liability ranging from $6 to $10 billion depending on funding options.

In 2006, the General Assembly created a nine-member committee to recommend how the state should respond to the new retiree insurance accounting rule. Their report was the basis for the new legislation. The committee was co-chaired by Sen. Thomas Alexander and Rep. Herb Kirsh.

Creating the trust fund will reduce the state’s liability beyond the actual dollars placed in the account. Accounting rules will allow the state to estimate how those funds will grow in calculating the long-term liabilities for retiree insurance. The exact impact of the contributions on the long-term liability will be known when outside experts evaluate the new trust fund annually.
In addition, the law changes the rules governing who is eligible for insurance after retirement. These changes involve only people who join the state or a school district for the first time on May 2, 2008 or thereafter. These changes will trim the state’s liability by $3.5 billion over 50 years.
Currently, employees become eligible for a full health insurance subsidy – which pays about 73 percent of the premium for a single person – in two ways. One is to retire after 10 years for the state or a school district as long as the last five are consecutive. Employees who work for 20 years but leave before retiring currently receive a full subsidy at age 60.
Under Act 195:
* Retirees with 5 to 15 years of service will receive no subsidy. They will still be able to get insurance by paying the state and retiree shares.
* Retirees with 15 to 25 years of service will be eligible for a 50 percent subsidy.
* Employees with more than 25 years of service will receive the full subsidy.
It is important to note that any person who has worked for the state or a school district prior to May 2, 2008 will still receive coverage under the old rules. This would include anyone rehired after leaving employment with the state or a school district.

Information from South Carolina Treasurer's Office.

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