BOSTON – Senator Michael R. Knapik (R-Westfield) is pleased to announce the special commission to investigate and study retiree health care and other non-pension benefits, or “OPEB,” voted in favor to adopt a set of recommendations to refer to the Governor and Legislature for the upcoming legislative session. These recommendations seek to provide quality retirement benefits to career employees while attempting to ensure fiscal sustainability for compensation packages offered by the Commonwealth and its municipalities.
“I am honored to have served on this commission,” Knapik said. “It is essential that the Commonwealth recognize the increasing strain the OPEB liability will have on the state and the municipalities in the coming years. This report contains strong recommendations that will better align Massachusetts with other states, the federal system, and the health care cost containment and pension legislation passed in recent years.” Knapik continued.
The commission consisted of 12 members including two private citizens, four members of the legislature and representatives of the Secretary of Administration and Finance, the Treasurer, the Group Insurance Commission (GIC), the Massachusetts AFL-CIO, the Massachusetts Municipal Association, and the Retired State, County, and Municipal Employees Association of Massachusetts.
The term “OPEB” refers to all benefits, other than pensions, that retirees receive. For example, this includes life insurance, dental coverage, prescription drug benefits, vision, and beneficiary benefits.
In Massachusetts, the unfunded OPEB liability for state and local government amounts to an estimated $46 billion. Massachusetts has been affected by the dramatic increase in the cost of healthcare and an aging population. These trends, coupled with relatively low eligibility requirements and high benefit levels, have created OPEB liability now faced by the state and local governments in the Commonwealth.
The commission recommends that existing retirees be exempt from the recommended benefit design change. Benefit design change would apply to all future employees and current employees who are within 5 years of retirement age and current employees within 5 years of Medicare age and 12 months of vesting as of the effective date of the legislation.
The commission recommends increasing the minimum age at which a former employee becomes eligible for retiree health care by five years. Under the new recommendations, Group 1 minimum age of 60; Group 2 a minimum age of 55; and Group 4 a minimum age of 50. The five year increase is intended to align the Commonwealth with similar minimum age requirements in other states and the private sector, increased life expectancies, and with the 2011 pension law which apply to current employees hired after April 2, 2012 and new employees.
The final report adopted by the commission recommends increasing the minimum years of service required to receive retiree health care from 10 to 20. This change is intended to preserve retiree health care benefits for career employees and aligns the Commonwealth eligibility standards with similar policies in other states.
The commission also recommends pro-rating benefits based on the retiree’s years of service. Under the new proposal, retirees with a minimum of 20 years of service would be eligible to receive 50% employer premium contribution. For those retirees with 30 years of service, the employer premium contribution would increase to the maximum available benefit. This change is intended for those retirees who spent a full career in public service, while providing a smaller yet generous benefit to retirees who work only a portion of their career in public service.
Further, the commission recommends a 3 year moratorium on changes to employer premium contributions following enactment of the OPEB reform legislation. This will allow municipal officials ample time to observe the impact of recent municipal health care, pensions and health care cost containment laws.
The increased focus on government OPEB obligations comes as a result of the requirements issued by the Governmental Accounting and Standards Board (GASB) in June 2004. These standards, statements 43 and 45, require disclosure of OPEB costs and liabilities beginning in 2008.
As part of his upcoming Fiscal Year 2014 budget, Governor Patrick intends to include a retiree benefit reform plan that will build off of the recommendations outlined in the commission’s final report.
