Real Structural Changes, Billions of Dollars in Savings for Taxpayers
The Senate is set to vote on Monday on significant contractual concessions and structural changes–the types of structural changes many of us have long sought–to our state employee labor agreements. This agreement is the latest step toward making government more affordable and more efficient for taxpayers, and this agreement represents the most critical piece of the budget equation–eliminating 30 percent of the projected deficit.
$24 Billion in Savings
An outside independent analysis confirmed that the new SEBAC agreement makes important long-term changes to our state employee pension and benefit programs resulting in significant savings for taxpayers–roughly $24 billion over the next 20 years. The independent analysis found the plan produces cumulative savings of $1.569 billion over fiscal years 2017 and 2018 and nearly $5 billion in the first five years
In recent years, we’ve taken significant steps to reduce the size of government and fund our long-term pension obligations for our current workforce. Over the last ten years state government has shrunk its bargaining unit workforce by nearly 15 percent (52,193 to 44,130). Additionally, it has reduced the number of managers in classified service over the last ten years by 33 percent (2,348 to 1,559)
A New 401k-hybrid Retirement System for New State Workers
The agreement completely restructures our pension system for the future, while respecting the promises made in the past. The agreement takes advantage of our demographic reality. It is estimated that at least a quarter of our workforce is likely going to retire before the existing SEBAC agreement ends. This deal allows the state to change the benefits structure five years sooner, meaning there will be more than 10,000 employees enrolled in the new Tier IV pension plan prior to the termination of the current SEBAC agreement on July 1, 2022. Without a new SEBAC agreement, these new employees will be enrolled in the current Tier III pension plan. This attrition will save the state almost $77 million in the first two years, with the savings increasing to $97 million annually by 2037.
Additional Savings and Structural Changes:
The proposed pension changes will save the state $210 million in FY18 and $238 million in FY19. Over the course of the deal, the Actuarial Determined Employer Contribution could decline by $400 to $500 million per year, creating a new peak of about $2.2 billion, but with an average of $1.8 billion.
The agreement modernizes health benefit plans to reflect the best thinking about how to keep employees healthy at the lowest cost. These proposed health benefit changes will save $136 million in the first two years, but both the premium cost sharing and formulary changes ratchet up those savings to well over $100 million per year into the late 2020s and early 2030s.
This proposal makes major changes to the retiree health benefits program, producing significant immediate savings and gradually shifting costs onto employees and retirees into the future. These savings quickly eclipse $200 million per year in the 2020s as retirees move to the Medicare Advantage program. Additionally, the agreement provides for wage freezes that save $716.4 million over the biennium and nearly $500 million per year thereafter.