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WEDNESDAY, DECEMBER 13, 2006
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Riley wants trust fund to save for state retiree health care

MONTGOMERY (AP) — Gov. Bob Riley will ask the new Legislature to create a trust fund to help pay for retired public employees’ health care coverage, but his state finance director said Riley won’t ask active or retired workers to pay more for it in the first year.

“That is an issue for another day,” State Finance Director Jim Main said Tuesday.

Developing a trust fund is necessary for Alabama to get a favorable bond rating that would allow Riley to pursue a $500 million bond issue for an education building program, Main and state Superintendent of Education Joe Morton said.

Beginning Jan. 1, the Government Accounting Standards Board is requiring all governments to take into account the future health insurance costs of their retirees. Alabama has been paying the costs for retired state workers and public education employees on a pay-as-you-go basis and has not been saving for the health costs like it does with public employees’ pension funds.

Finance experts estimate Alabama’s cost at up to $20 billion to pay for health insurance coverage for current retirees and future retirees over the next 30 years.

That amount would be less if Alabama invests money in a trust fund soon and lets it start earning interest. The trust fund — which would have to be approved first by the Legislature and then by Alabama voters as a constitutional amendment — would be legally protected against raids by state officials.

Main said he has discussed the trust fund idea with bond rating agencies in New York and they “have indicated they are happy with it.”

Main discussed the proposal Tuesday with the Public Education Employees Health Insurance Board, which oversees the health insurance for active and retired education employees. The State Employees’ Insurance Board, which oversees the health insurance for active and retired state employees, has discussed the same thing.

Both boards have a surplus in their reserve funds — $190 million for the educators and $50 million for the state employees — due to the effect of cost-saving measures taken over the last two years.

Still to be decided is whether to begin the trust fund with all or part of that extra reserve money, or to use that extra money now to cover current health insurance costs.

The more money the state puts into a trust fund now, then the less that will have to be put in later on, said Marc Reynolds, who directs the educators’ health insurance program.

Discussions about how to fund the trust fund have not progressed beyond the extra money. “It’s premature to do any long-term funding until we get a trust fund in place to protect it,” Main said.

In addition to proposing the trust fund to the new Legislature when it meets in March, Riley will also seek a $500 million school construction bond issue that was one of his campaign promises.

If bond rating agencies like what Alabama is doing to address the new government accounting rules, then Alabama will get a better interest rate on the bonds and save millions in interest costs, Main and Morton said.

“Hopefully, this will keep the state’s bond rating in good shape and we’ll have some new schools before long,” said Paul Hubbert, chairman of the Public Education Employees Health Insurance Board and executive secretary of the Alabama Education Association.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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