Delaware, once known for neglecting funds for state retiree healthcare benefits, is now witnessing a significant turnaround. This change holds great importance for the well-being of retirees and the financial stability of the state.

Delaware's Journey to Secure Retiree Healthcare Funding

Historical Neglect and Its Impact

For a long time, Delaware had been lax in setting aside funds specifically for state retiree healthcare. This lack of foresight had led to a substantial unfunded liability, reaching an estimated $8.9 billion in February, with $8.4 billion of that remaining unfunded. Such a situation posed a significant challenge to the state's financial health and the future of retirees.

However, recent legislative actions have begun to address this issue. State lawmakers passed a bill increasing OPEB pre-funding from 0.36% of payroll to 0.5%, with incremental annual increases until it reaches 10%. This move shows a commitment to rectifying the historical neglect and ensuring a more secure future for retirees.

The Role of Governor John Carney

In July 2023, Governor John Carney signed Senate Bill 175, which requires that every year, at least 1% of the grand total of the General Fund operating budget appropriations for the prior fiscal year is appropriated to the OPEB trust fund. This step is crucial in beginning to address the unfunded liability and laying the foundation for a more stable financial situation.

As Beth Mercer from Cheiron, the company conducting annual actuarial valuations for the OPEB trust fund, explains, these legislative changes are having a positive impact. "That's what's driving the increase in market value of assets and the funding ratio. So as additional changes are happening to the funding policy, this is just going to keep continuing to improve the funded status of the plan," she said.

The Current Status of the OPEB Trust Fund

Currently, the OPEB trust fund stands at $11.1 billion. This represents a significant improvement from a decade ago when the funded ratio was only 4.9%. Now, 8.6% of the total is funded, compared to just 7.2% last year. These figures highlight the progress that has been made and the positive direction in which the state is moving.

It's important to note that the valuation was conducted before the 1% General Fund contribution of $56 million and an additional $199 million deposit. If these were included, the market value of assets would be more than $1.2 billion, and the funded ratio would increase to more than 11%. This further emphasizes the potential for continued growth and improvement.

The Challenge of Rising Prescription Drug Costs

While Delaware is making strides in increasing its funding, Mercer also points out that prescription drug costs continue to rise. This has been driving short-term liability growth and presents an ongoing challenge that needs to be addressed.

The state must find ways to manage these rising costs while still ensuring that retirees have access to the healthcare they need. This requires a careful balance between funding and cost control to maintain the financial stability of the OPEB trust fund.