R P E N M
Retired Public Employees of New Mexico
An E-Mail Response
E-Mail Response Concerning NMRHCA Article In RPENM's Summer 2007 Newsletter
Here is a response Doug Crandall , NMRHCA Board Member, wrote to an RPENM member regarding his RHCA article in the Summer Newsetter. This has some good information regarding the reason for the current underfunding/solvency issue with the Retiree Health Care Authority:
From: n/a@aol.com
To: n/a@msn.com
Sent: Monday, 27 Aug 2007 5:50 pm
Subject: Re: NMRHCA
Maggie: Thanks for your e-mail. You are right that we cannot blame all of the RHCA problems on the national health care issue, but, unfortunately, many of the agencies problems pre-date, or are not related to the Governor's ill advised interference.
First and foremost, the fund has been affected by new federal rules (GASB 43) that require us to state our unfunded liabilities, which exceed $4 billion. This is not the fault of the previous administration, the current administration, or the Governor. It is a problem that affects all retiree health care plans. For example, as I stated in the RPENM newsletter, the liabilities of the retiree health care program for General Motors exceeds the assets of the entire corporation.
The other major problem has resulted from faulty assumptions from the actuary that were accepted by the administration and board regarding the percentage of retirees who would eventually enroll in RHCA. The previous assumption was that only 35% of PERA and ERA retirees would take advantage of the plan. Intuitively, that seemed wrong to me when I got on the board, and it was. The actual number is closer to 75%. This drastically affected our solvency and moved it from 25 years to less than nine years.
Another problem involves the eligible agencies who wished to join RHCA after 1998. The formula to decide how much they should pay was only about half what was actually required, and that figure was based on the 35% enrollment assumption. An example is New Mexico State University. They were given a figure of approximately $18 million to join when the correct figure is over $90. That means that every agency who joined between 1998 when the law was past, and 2007 when the RHCA Board changed the rule for payment, paid about 20% of RHCA's actual liability.
There is also a problem with the employee and employer contribution which is too low and must be addressed. Not only that, but 100% of the employee/employer contributions are being used to subsidize current retirees and nothing is being contributed to the RHCA trust fund. In fact, the RHCA trust fund was never placed in an irrevocable trust and technically belongs not to RHCA, but to the state legislature.
On top of everything else, RHCA has never had a professional investment consultant. We have relied entirely on the State Investment Council to handle our investments. I served on the PERA board for almost ten years, most of that time as board chair or investment committee chair. I understand the need for professional investment advice if we are to grow our fund in a safe and prudent manner. We hired a consultant earlier this year to review our asset allocation and investment plan and we are now in the process of hiring a permanent consultant to see that we get the most bang for our bucks!
So, as you can see, the board has a lot of work to do! We have not had any overt interference from the Governor for the past couple of years, but he is proposing a universal health care plan for all New Mexicans, which would obviously affect us. We are watching vigilantly to see what develops.
As to the current administration of RHCA, I am aware of many of the issues you have addressed and we are monitoring the situation carefully.
Thanks again for your e-mail and thanks for being a member of RPENM! Do not hesitate to contact me if you have any further comments or questions. My home phone number is 505-294-5243.
To: n/a@msn.com
Sent: Monday, 27 Aug 2007 5:50 pm
Subject: Re: NMRHCA
Maggie: Thanks for your e-mail. You are right that we cannot blame all of the RHCA problems on the national health care issue, but, unfortunately, many of the agencies problems pre-date, or are not related to the Governor's ill advised interference.
First and foremost, the fund has been affected by new federal rules (GASB 43) that require us to state our unfunded liabilities, which exceed $4 billion. This is not the fault of the previous administration, the current administration, or the Governor. It is a problem that affects all retiree health care plans. For example, as I stated in the RPENM newsletter, the liabilities of the retiree health care program for General Motors exceeds the assets of the entire corporation.
The other major problem has resulted from faulty assumptions from the actuary that were accepted by the administration and board regarding the percentage of retirees who would eventually enroll in RHCA. The previous assumption was that only 35% of PERA and ERA retirees would take advantage of the plan. Intuitively, that seemed wrong to me when I got on the board, and it was. The actual number is closer to 75%. This drastically affected our solvency and moved it from 25 years to less than nine years.
Another problem involves the eligible agencies who wished to join RHCA after 1998. The formula to decide how much they should pay was only about half what was actually required, and that figure was based on the 35% enrollment assumption. An example is New Mexico State University. They were given a figure of approximately $18 million to join when the correct figure is over $90. That means that every agency who joined between 1998 when the law was past, and 2007 when the RHCA Board changed the rule for payment, paid about 20% of RHCA's actual liability.
There is also a problem with the employee and employer contribution which is too low and must be addressed. Not only that, but 100% of the employee/employer contributions are being used to subsidize current retirees and nothing is being contributed to the RHCA trust fund. In fact, the RHCA trust fund was never placed in an irrevocable trust and technically belongs not to RHCA, but to the state legislature.
On top of everything else, RHCA has never had a professional investment consultant. We have relied entirely on the State Investment Council to handle our investments. I served on the PERA board for almost ten years, most of that time as board chair or investment committee chair. I understand the need for professional investment advice if we are to grow our fund in a safe and prudent manner. We hired a consultant earlier this year to review our asset allocation and investment plan and we are now in the process of hiring a permanent consultant to see that we get the most bang for our bucks!
So, as you can see, the board has a lot of work to do! We have not had any overt interference from the Governor for the past couple of years, but he is proposing a universal health care plan for all New Mexicans, which would obviously affect us. We are watching vigilantly to see what develops.
As to the current administration of RHCA, I am aware of many of the issues you have addressed and we are monitoring the situation carefully.
Thanks again for your e-mail and thanks for being a member of RPENM! Do not hesitate to contact me if you have any further comments or questions. My home phone number is 505-294-5243.
Need Additional Information?
Please contact:
Ann Crandall
RPENM Executive Director
1-505-280-8459
RPENM Executive Director
1-505-280-8459