Romney Budget Hits Retirees

MARCH 2004
- Derails COLA Base Increases - Governor Mitt Romney's long-awaited budget proposal for the coming
fiscal year (FY05) contains language that would stand in the way of the
Association's goal of raising the base to which the pension
cost-of-living adjustment (COLA) is applied.

After
hearing the Governor's hollow promise not to impact retirees with his
proposed "reform" of the pension system, it was discovered that one key
section of his pension changes would in fact have a disastrous effect
on retirees.

The section in question
would establish a requirement that any new benefits added to a pension
system (state and local), including changes to the COLA base, must be
fully paid for within three years of taking effect. For example, if the
COLA base was increased by $3,000.00 ($12,000 to $15,000) the unfunded
liability associated with the new benefit must be fully paid off within
three years.

While the current
pension law does require that all new benefits be fully funded, it
allows for the liability to be spread out over the life of the funding
schedule. In the case of the state and teachers' systems, the funding
schedule runs through the year 2023.

By
way of example, a $3,000 increase in the maximum COLA base would add
approximately $50 million a year to the state's pension funding
schedule. This amount would be paid over the life of the schedule,
which in the case of the state is currently nineteen years. If the
state were required to fully fund the new benefit sooner (within three
years according to Romney) the annual cost would be enormous.

Despite
the inclusion of the annual 3% COLA, for state and teacher retirees, in
his budget, Romney's proposed funding method overshadows any good will
that otherwise could have been extended to public retirees.

"In
dealing with this Administration there is always a catch. The devil is
always buried away in the details," said an angry Association President
Ralph White. "To offer retirees a 3% COLA, while simultaneously
derailing our hopes of raising the base is, at best, underhanded.

"We
support full funding and understand the need to maintain a schedule,
but it has to be done in a reasonable way. There is no way that the
state or a municipality could fully fund a new COLA base over three
short years. It simply is not possible."

State Insurance Targeted

In addition to Romney's pension proposals, the Governor has targeted the state-run retiree/employee health insurance plans.

As
was the case last year, Romney is once again proposing higher
contribution rates, upping the percentage for employees and also those
who retire after June 30, 2004 to 25%. At first blush, it appears that
our members have been left unscathed, as the Governor's proposal keeps
the 90/10 and 85/15 contribution rates in place for those who retire
before this July 1.

However, Romney
is once again proposing carefully crafted changes to the Group
Insurance Commission's pricing policies that could dramatically
increase retirees' insurance premiums. He has included in his budget's
rate setting language a convoluted section that appears to grant the
GIC the ability to charge retirees and employees differing amounts,
depending upon the insurance coverage that is selected. Currently, a
retiree is charged 10% or 15% (depending upon date of retirement) of
the total premium, regardless of the plan.

According
to Association Legislative Liaison Shawn Duhamel, "The language, being
proposed by the Governor, is a major departure from the standard budget
provision that safeguards the retiree's premium contribution. In fact,
it closely resembles the language that the Governor proposed last year,
which would have done tremendous harm."

This
new proposal would mark a significant change in the policy governing
retiree health plans, in that the state may be allowed to contribute
less than 90% or 85% towards a retirees insurance premium. It is
believed that this move would allow the GIC to charge retirees
substantially more for coverage under the indemnity plan than for the
HMOs.

"Here we go again. The
Governor obviously wants to have it both ways. He wants to claim to be
holding retirees harmless, while at the same time saving a quick buck
off their backs," said Duhamel. "This seems to be nothing more than a
thinly disguised ploy to undermine the indemnity plan and corral
retirees into what many consider to be an inferior managed care system."

In
addition, Romney has chosen not to restore the reimbursement of the
Medicare Part B premium, which was discontinued last year. Association
lobbyists have been working to reestablish the reimbursement and codify
the GIC's optional policy under state law.

"What
angers me is that the Governor will not stop with his attacks on public
retirees. He wants to limit our ability to raise the (COLA) base, while
at the same time driving the cost of health insurance for our members
through the roof," continued White. "Maybe it does not seem like a big
deal to him, but in our world Romney's policies devastate people.

"Thankfully,
the Governor does not have the final word. The proposal now goes to the
Legislature, where we can deal with reasonable people who better
understand people's hardships."

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