Ever wonder why we are unionized? It is pretty simple, because if we didn't have a collective voice, the elected officials would eliminate every benefit and wage increase we have ever attained. Yet again this year, the Governor's State of the State speech spoke to adjusting State Employee benefits. We have given, and frozen, and furloughed enough over the last 10 years yet we still remain in the spotlight...and this is from the people we have supported...the elected officials we haven't supported think we should be targeted far more. So today, Gov Ned Lamont said he would be asking State Employees to consider a "shared-risk" COLA on our pensions...the panic can stop there. Before we try to explain a "shared-risk" COLA, let's start with: we will not be doing this. The Governor has already heard directly from A&R on this and it isn't even worth another breath, it's dead already.
So, what is a shared-risk COLA? They can take many forms and the details can vary drastically, however, the gist is this: our pension funds are invested in various forms of "Wall St". In a shared risk scenario, if the pension fund doesn't meet its expected return rate (in our case a 6.9% return), then the pension COLA of retirees is adjusted downward to reflect the poor return on investments. Therefore, our pensions share the risk of the market-returns. It essentially reduces any Cost of Living Adjustment based on whether the expected rate of return on investments is acheived. Perhaps you could look on the flip side and think maybe it works, if the pension fund exceeds its 6.9% return expectation, then the pension COLA gets a boost...nope...in this offering, you share the risk, not the rewards...if the fund loses, you lose, if the fund wins, you get your normal COLA formula...it's a loser's game. Who would accept a deal where you lose when they lose and you break even when they win?...well, not A&R. It is a non-starter. I'm not even sure why the Governor would pitch such a silly concept, so don't waste any time thinking about it, it won't happen.
As for his other idea: re-amortorizing the pension fund, that is something to be considered, that is a no-harm change and the last re-amortorization plan was a bit aggressive. Our last plan was aimed at front-loading payments to decrease the unfunded liability quickly. It was a necessary adjustment as the bond-rating agencies were getting a bit viscious about the liabilities, however, the high payments were consuming a large amount of the State budget. If another plan is put forth, it is worth considering. To be clear, re-amortizing the debt would not change any benefits, it would only change the Annual Required Contributions the State would have to pay towards the unfunded liability.
Lastly, the Governor proposed expanding the SmartShopper portion of our healthcare plan. This program compares the cost of medical procedures at different medical facilities and then pays a cash reward for selecting the cheaper facilities. Currently, this program only covers a few medical procedures but if it is expanded, this could have significant savings for the state and the insured individual gets to share in that savings via a cash reward. This is a shared-risk offering that we can accept, if they win, you win...see how shared-risk could be implemented and be positive? SmartShopper is a voluntary offering and is explained further on our website under the Health Insurance Plan/Forms section.