History of Early Retiree Benefit Solutions
For years, public sector organizations championed early retirement, enticing employees to retire as young as 55. The strategy was simple: replace seasoned, higher-paid staff with fresh entry-level talent to cut costs. Over time, public sector employees 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 sector 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.
However, the landscape has shifted. Once affordable, health insurance costs have surged, with Medical expenses climbing 6-9% annually over the past decade. This increase has significantly impacted premium rates, making retirees 2.5 times more expensive than active employees on group plans.* Consequently, active employees frequently find themselves subsidizing retirees’ healthcare costs.
*www.pwc.com/us/en/industries/health-industries/library/behind-the-numbers.html (Accessed May 24, 2022).
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 public sector organizations 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.
