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WEDNESDAY, FEBRUARY 28, 2007
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Committees OK state retiree bills

By M.J. Ellington
mjellington@decaturdaily.com (334) 262-1104

MONTGOMERY — The state Legislature took the first steps Tuesday toward a plan to pay for future state and education retiree health insurance.

Committees in the House and Senate gave unanimous approval to measures setting up trust funds to receive and invest contributions for future retiree health coverage. The State Employees' Insurance Board would administer the state retirees' plan, and the Public Education Employees' Health Insurance Board would do the same for education retirees.

The committees also approved a bill calling for Alabama voters to make the trusts irrevocable, assuring that with voter approval, funds in the trusts would go only to retiree health insurance. If approved by the Legislature, the vote would be June 5, the same day as a proposed referendum on increasing the state's debt limit.

The bills are all part of a package that Gov. Bob Riley called the Legislature into special session this week to approve. All have implications for industrial growth and the state's long-term financial stability, the governor has said.

"We recognize that we have an unfunded obligation for the future, and we're trying to set aside money for it and invest it just as we did on retirement income beginning in 1941," said Alabama Education Association Executive Secretary Paul Hubbert, who supports the measures.

State Finance Director Jim Main said by setting up the trusts, Alabama will be a national leader in developing plans to pay for retiree health insurance. The structure also would help assure that the state can borrow at lower interest rates.

Changes in federal accounting standards require states to list retire insurance costs as an unfunded liability unless states develop plans to address such expenses.

"Right now the state has a $20 billion unfunded liability for retiree coverage for the future," Main told the House Education Appropriations Committee. Main said if the Legislature passes the bills, the state will save $7 billion in interest because national bond agencies will give the state favorable interest rates as a result.

"If we do not do this, it will increase the state's cost of borrowing money by millions," Main added.

Main estimated the state will need about 30 years to fully fund the insurance trust funds. The Retirement Systems of Alabama will oversee administration of the funds.

Rep. Jeremy Oden, R-Eva, a member of the House committee, supports the measures. "I like it," Oden said. "It is something that businesses and individuals need to do for the future as well." Oden said he hopes state voters will understand that the trusts will help the state be more self-sufficient in the future and less at the mercy of economic downturns.

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