As a Union representative with over 25 years of experience representing both private and public sector employees, I believe the time has come for big, bold ideas that could secure the pensions and health benefits promised to retired state employees while limiting the state’s costs.

The challenge is to deal with the financial reality regarding the finite amount of taxable dollars available to fund such benefits. That reality exists because past legislative majorities and governors in Connecticut failed to adequately set aside funding to pay for future retiree pensions and benefits.

Retirement Health Insurance

Between 2005 and 2019 health insurance in the U.S experienced an average inflation rate of 2.58 percent annually. In other words, health insurance costing $20 in 2005 would cost $28.57 in 2019. Compared to the overall inflation rate of 1.83 percent during this same period, inflation for health insurance is much higher. This means that the cost of providing these post-employment benefits have become exponentially more expensive and this expense appears to have no end in sight.

This brings us to the current outstanding state employee post-retirement health insurance obligation. (As of October of 2018, officially identified as Connecticut’s other post-employment benefits, or OPEB.) OPEB benefits are underfunded by an estimated $20.7 billion. Keep in mind that this figure grows annually, which means that the current situation is unsustainable.

The VEBA Trust

During the height of the Great Recession, when the Big Three U.S. Automakers were on the verge of collapse, the United Auto Workers worked with the three major domestic automakers to develop an innovative approach regarding the huge health insurance obligations. It involved using an Internal Revenue Service approved vehicle known as a Voluntary Employees’ Beneficiary Association or VEBA.

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[naviga:li]VEBA trust plans are considered to be welfare benefit plans under federal law and are tax-exempt.[/naviga:li]

[naviga:li]VEBA trusts can provide payments for such things as retiree health insurance.[/naviga:li]

[naviga:li]Any group of employees sharing an employment-related common bond may establish a VEBA.[/naviga:li]

[naviga:li]There are, generally, no limitations on either the size of the entity or the amounts of benefits that may be provided, only upon the types of benefits and the person to whom benefits may be provided.[/naviga:li]

[naviga:li]Benefits can be limited based on membership status i.e., union membership. This becomes a powerful post-Janus court ruling mechanism to help unions maintain membership.[/naviga:li]

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Unfortunately, in the event you thought it might be possible, pensions are specifically exempt from VEBAs.

How it would work

The state, working in conjunction with State Employee Bargaining Agent Coalition (SEBAC) would create a VEBA trust. The parties would agree to use monies already set aside by the state to fund the current retiree health insurance with the idea that any initial shortfall could be bonded by the state projecting the future funding need.

It’s a potential win-win.

The benefit to the state is obvious; it would relieve the $20 billion and growing liability for retiree health insurance from the books forever in exchange for a one-time lump sum payment. Employees would benefit by retaining retiree health insurance that would be provided by the VEBA. SEBAC wins because its members retain forever the benefit. SEBAC could even consider removing the benefit from bargaining (as long as properly constructed statutes were put in place preventing any state effort to gut it after the current SEBAC agreement expires).

It’s an idea worth exploring. Doing nothing will ultimately mean additional cost to the taxpayers or a loss of a promised benefits, or both.

Greg Kotecki lives in New London.