Tuesday, February 17, 2009

U.S. govt. short $1.2 trillion to pay own retirees' healthcare

US government short $1.2 trillion to pay its own retirees' healthcare

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There may yet be more bailouts in sight. Next time it might not be the banks -- it might be your retirement, and there might not be enough money left.

While it's relatively well-known that Social Security is short as much as $50 trillion needed to pay the benefits of future retirees, the shortfall needed to pay civil servants' retiree benefits -- split between the federal government and US states -- is a whopping $1.7 trillion, according to an estimate released Monday.

State and local governments have set aside "virtually no money" to fund medical benefits for retired state and federal employees, USA Today revealed.

The estimate has gotten almost no attention, but the unfunded toll continues to climb. While the US government can spend money it doesn't have in an effort to jumpstart the economy, many cities and states have laws requiring them to balance their budgets, meaning the only way they could meet retirement benefit mandates is to raise taxes or cut benefits and services, or both.

Such unfunded medical benefits includes those of city, state and town employees; teachers; principals; superintendents; librarians; administrative assistants; custodians; school district staff; judges; public attorneys; retired military personnel; federal employees; park rangers; and water district personnel.

On the federal side, the cost totals around $1.2 trillion -- which includes retirement benefits for the Pentagon and for the federal government, the report says. On the states' side, the cost is harder to estimate but is at least $500 billion, according to the report.

Despite a $787 billion stimulus package, little money has been allocated to long-term benefits.

In the 1980s, the federal government and other employers of civil servants exchanged pay raises for future medical benefits, the report notes. But that tradeoff may end up costing the states and government more.

The paper says states are:

* "Cutting health benefits. Most governments have the legal authority to reduce or end retiree health coverage — unlike pensions, which cannot be cut under most states' laws. When Rhode Island trimmed retiree medical benefits in October, 1,291 workers — 9 percent of the state's workforce — retired to keep the more generous old health plan."

* "Saving money. Alaska, Minnesota, Pennsylvania and Utah are among states that set aside some money last year to prepare for future medical costs."

Hawaii, meanwhile, plans to slash medical benefits for state and county employees. One plan eyes cutting benefits until a retiree reaches Medicare age, 10 years from when the plan originally kicked in -- at 55.

"That throws everyone's financial planning off, and at this late stage for someone who is 50, 55 years old, what do you do?" one critic said. "What options are you left with, because medical care is not free."

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