State Treasurer Dale Folwell wants to be more than North Carolina’s version of the Dutch boy, his finger plugging the dike of underperforming state health and pension plans. Rather, he plans to vigorously attack the massive unfunded liabilities.
Folwell, sworn into office Jan. 1 as the first Republican to hold that seat since 1876, said he has determined the State Health Plan has unmet obligations of $32 billion. The state retirement system has $13 billion in unfunded liabilities “and growing.”
“We didn’t create these $45 billion of unfunded liabilities. We discovered them. Now we have the responsibility to fix them,” Folwell said. The repair is starting gradually.
“We’re focused on pennies and paperclips,” he said. “We didn’t get in this problem overnight. We’re not going to get out of it overnight.
“(W)e’re going to start aggressively doing things like enrollment audits to make sure that the people who are getting these benefits deserve to get these benefits, for example,” Folwell said.
He harked back to his campaign stump speech in which he was the only candidate talking about the huge State Health Plan and pension liabilities.
“Whoever the 28th treasurer of North Carolina was,” he said, “that person is in a position to make a generational difference in the future of our state. That comment is not emotional, or political. It’s mathematical.”
The General Assembly might jump on the bandwagon.
State Sens. Joyce Krawiec, R-Forsyth, and Chuck Edwards, R-Henderson, on Wednesday filed Senate Bill 22. It would create a 13-member study committee to investigate options for reducing the retiree health benefit fund. Its findings would be reported back to the General Assembly when completed, or upon convening the legislature in 2018.
State Reps. Pat Hurley, R-Randolph, and Rena Turner, R-Iredell, filed a companion bill in the House.
The proposed legislation provides for a 13-member committee comprising five members each appointed by Senate leader Phil Berger, R-Rockingham, and House Speaker Tim Moore, R-Cleveland. Nonvoting members would be Folwell or his designee; Mona Moon, the executive administrator of the State Health Plan; and a representative of the Board of Trustees of the State Health Plan.
“I’m in favor of any conversation, any time, any place, anywhere that puts the sunshine on these health care and pension liabilities,” Folwell said.
Ardis Watkins, spokeswoman for the 55,000-member State Employees Association of North Carolina, isn’t so enthusiastic about the proposed legislation.
“It’s curious to me, with a new treasurer in office, that a bill like this would be filed,” Watkins said. “That’s generally something that is filed, that kind of policy change, when somebody has already been there and had time to address the problems in the system.”
Watkins said she has confidence in Folwell — he was one of only two Council of State Republican candidates endorsed by SEANC during the 2016 campaign — to find solutions without legislative mandate.
The proposed study committee would be tasked with exploring at least six options for reducing the unfunded liability:
- Increasing assets in the Retiree Health Benefit Fund by legislative appropriations.
- Increasing costs paid by the federal government by automatic enrollment of Medicare-eligible retirees in Medicare Advantage or offering financial incentives to early retirees to get insurance through the Affordable Care Act’s health exchange.
- Transitioning the retiree health benefit from a defined benefit to defined contribution model.
- Reducing the number of eligible recipients by increasing the service time requirements to receive the benefit, or by eliminating certain groups.
- Requiring employees to contribute to the fund, similar to the Teachers’ and State Employees’ Retirement System.
- Increasing the amount retirees pay for their health benefits through premium increases or out-of-pocket costs.
- Any other proposals that come before the committee.
“Four of those seven options would … pay for this on the backs of employees and retirees who did not create this mess,” Watkins said of the third through sixth alternatives.
“The irresponsibility of previous politicians should not be something the employees and retirees should be responsible for cleaning up,” Watkins said. “Remember that retirees did the yeoman’s share of funding for retirement. It’s only in recent years that the state employer contribution has become significant … while employees have consistently put 6 percent in it.”
Watkins worries that the benefits provided to state employees “are really the only thing the state has to offer at this point to get qualified employees,” and they already are being eroded. Minimal pay raises have not kept pace with the cost-of-living increases, she said.
Asking retirees to pay higher premiums or out-of-pocket costs is particularly shocking, Watkins said, because retirees are living on restricted incomes after giving a minimum of 30 years’ service to the state to receive the benefits.
She said a better option would be to allow Folwell to investigate where the state invests its money, and look to shift it from gambling on high-risk investments to higher performing ones that don’t require paying hundreds of millions of dollars in fees to Wall Street investment managers.
Last year, the Treasurer’s Office said that the annualized return of the retirement system over the last was seven years was 8.5 percent, Watkins said. Yet basic mutual funds got 11.2 percent returns. That 2.7 percent difference in a $90 billion fund would have been $20 billion in higher returns to the state, she said, and that could be used to pay down the unfunded liabilities.
Folwell also has called into question the negative cash flow of the state’s pension system.