History of Early Retiree Benefit Solutions
Historically, many organizations in the public sector have encouraged early retirement as early as age 55. The thinking was that by encouraging higher-salaried staff to retire early, cost savings would be achieved by replacing them with lower-salaried, entry-level staff. Over time, school, city and county staff began to rely on these promised benefits to be there for them during retirement and they planned their retirement accordingly.
In order to encourage early retirement, one of the incentives public employers provided was a benefit bridge between early retirement and Medicare eligibility by allowing retirees to stay on the group Health Insurance plan until age 65. Retirees enjoyed low premiums at group rates and the employer covered all or a large portion of those premiums.
When these promises were made, Health Insurance was relatively affordable, and the common practice of denying insurance claims resulting from pre-existing conditions made staying on the employer plan the only real option for retirees. But as we know know, things didn’t stay that way…and Health Insurance rates climbed… and climbed… and climbed.
In 2004, The Governmental Accounting Standards Board, GASB, spotlighted the issue when they required all public sector organizations to actuarially determine how much those years-old promises were ultimately going to cost. GASB also required public employers to report that liability on their financial statements, which impacted their bond rating. This made schools, cities, counties and other public employers explicitly aware of what they were facing, which news organizations reported widely. With fixed funding and budgets, escalating costs of Health Insurance, and a pay-as-you-go philosophy many organizations are now facing immense unfunded liabilities.