Retirement Insights
By Karen Gilgoff
As the population ages and the baby boomers head into retirement, the nation seems to be entering a new era of retirement insecurity. First came efforts to privatize Social Security. Then came attacks on public and private pension plans.
Retiree health benefits — critical to old age security — have also been under attack. Employers cite longer life spans and increased use of medical services as chief reasons for rising costs. With annual increases in double digits, employers have been trying to shift more of the costs to retirees.
In the public sector, employers' concerns over higher health costs could soon be reinforced by new accounting rules, which require they show all future retiree benefits on their books. The consequences could be very serious for workers: These long-range obligations may appear so costly that they'll trigger new — and unreasonable — efforts to cut benefits.
FULL REPORTING. At present, public employers are required only to show current-year expenses. But starting in 2007, they will have to show all retiree health costs, including future obligations for today's employees. This will expose their full liability for retiree benefits, which most employers currently fund on a pay-as-you-go basis.
The new rules, set by the Government Accounting Standards Board (GASB), will be followed by virtually all states and localities. When similar rules were established several years ago in the private sector, a startling number of companies canceled their retiree health benefits. Most feared falling stock prices if millions in unfunded obligations suddenly turned up on balance sheets.
GASB is now causing shock waves in the public sector. Though GASB rules won't require jurisdictions to actually pre-fund future benefits, governments fear that showing them on their books could alarm taxpayers and lower bond ratings.
Maryland recently assessed its retiree health care liability, claiming long-term obligations of over $20 billion — more than the state's annual budget! Michigan, with estimated obligations of nearly $30 billion, is already considering benefit cuts.
HARD-EARNED BENEFITS. The city of Duluth, Minn., claims its total retiree health care obligations will be around $178 million — high relative to its annual budget. "It's not the fault of the workers," Mayor Herb Bergson told The New York Times. "The people here who've retired did earn their benefits."
While most media stories paint the issue as a crisis, AFSCME thinks it's overstated and should be put in perspective. "Retirees need health care coverage — that's a fact," says AFSCME Pres. Gerald W. McEntee. "Public employers should set an example — protecting workers rather than reserving even more resources for the wealthy. If gov-ernments abandon their employees on health care and pensions, can any worker expect better treatment? In my estimation, that's the death of retirement security in America."
According to McEntee, taxpayers should recognize this and join in solidarity with public employees to protect workers' rights. "Governments have been managing their obligations pretty well, and GASB is only requiring bookkeeping changes. So if they try to use GASB to justify cutting retiree health care, we will fight them all the way," he explains. AFSCME also points out that:
Those and other ideas were detailed at a recent AFSCME seminar on GASB for council and local union bargainers. "We want to be sure our affiliates are fully prepared for the fights that lay ahead," McEntee said. "Wherever our members' benefits are threatened, AFSCME will be ready."
