Saving You Money For Life

Many local governments and some state governments began turning to their pension funds to help pay for health care for retired public workers in the 1990s. Some are now regretting it. When the financial markets were producing soaring returns, governments sought to use the gains in their pension funds to help cover rising health costs.

About the time the stock market calmed down, the cost of health care took off. Municipalities and some state governments found themselves in situations similar to those of the big automakers, where commitments to benefit plans outstripped the revenue sources of the organization.

Rising medical costs are particularly wreaking havoc on public pension funds in Chicago; Battle Creek, Mich.; and the state of Alaska. They threaten longer-term harm in Cincinnati. In Chicago three separate pension funds for public workers have been paying for health benefits along with the usual retirement stipends.

For the Chicago Transit Authority’s pension fund, the problems are real now. A recent study showed that the plan, which covers nearly 20,000 people, could run out of money for retiree health care in early 2007 – and that the money to pay pensions could be gone by 2012.

Battle Creek’s pension fund for police and firefighters has been paying for retiree health care since 1980, when the benefits cost about $60,000 a year; now they cost $1.8 million. The pension fund was to run out of money for retiree health at the end of this year, but officials obtained an emergency 90-day appropriation from the city while they seek a longer-term solution.

In Alaska, where the state Constitution guarantees retired public workers’ health care, towns and school districts have been watching in amazement as their mandatory pension contributions doubled this year – even though Alaska tried to rein in costs by closing the state pension fund to new employees. The bills are growing to make up for prior years, when Alaska underestimated the cost of the health benefits by hundreds of millions of dollars.

This is really just a sampler. And then there’s Medicare and Social Security, two elephants on Capitol Hill that have been ignored by several administrations, both of which lost self-funding status years ago.

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