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F I S C A L I M P A C T R E P O R T

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

2/20/07

HB 1086

SHORT TITLE Retiree Health Care Fund as Irrevocable Trust

SB

ANALYST Propst

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Retiree Health Care Authority (RHCA)

Higher Education Department (HED)

SUMMARY

Synopsis of Bill

House Bill 1086 establishes the Retiree Health Care Fund an irrevocable trust. It is intended to

help ensure that the assets of the Fund are used solely for the provision of health care benefits for

eligible participating retirees, their spouses and dependents. Additionally, HB 1086 provides

that administration of the benefits will be an allowable expenditure.

SIGNIFICANT ISSUES

HB 1086 creates the Retiree Health Care Fund, an irrevocable trust that will hold in trust all

funds, assets, proceeds, income, contributions and payments from any source whatsoever paid to

or otherwise accruing to the Fund. The Board of RHCA will serve as the trustees of the Fund,

and have the responsibility for administration and investment of the Fund. Investment of the

assets of the fund shall continue to be managed by the NMSIC. The Board of RHCA will also

provide for the collection of premiums from eligible retirees and eligible dependents of

participating public institutions. That money, when combined with other money appropriated to

the Fund, should be sufficient to provide the required group health insurance coverage and to pay

the expenses of the Authority. Assets held in trust will be legally protected from creditors of the

House Bill 1086 – Page

2

employers participating in or eligible to participate in the Retiree Health Care Act and from

creditors of all members of the Board of RHCA. All money in the Fund shall be invested and all

income earned from investment of the Fund shall be credited to the Fund. Funds remaining at

the end of any fiscal year will not revert to the State General Fund.

RHCA reports that in addition to protecting the assets of the fund for the provision of retiree

health care benefits, HB 1086, if passed, will reduce the valuation of the agency’s unfunded

actuarial accrued liability (UAAL) from $5,000,000.0 to $3,730,000.0. This valuation is the

result of a new General Accounting Standard Board requirement 43. Although bond rating

agencies have said they will not revise state bond ratings in the first year of GASB 43

implementation, this bill seeks to lower the unfunded liability prior to any revision of the State

Bond Rating by placing the assets (and all future assets) in an irrevocable trust. Several states

have already placed their post employment other than pension benefits (OPEB) in irrevocable

trusts for the very same reason. Please note that if the State Bond Rating is dropped, this will

affect the State’s rate at which it borrows capital.

ADMINISTRATIVE IMPLICATIONS

RHCA reports that, all premiums and other money collected by RHCA will be received and

disbursed directly by the RHCA. Receipts and disbursements are subject to audit by the State

Auditor. The Board of RHCA will determine which money in the fund constitutes the long-term

reserves of the Authority. The State Investment Officer will invest the long-term reserves of

RHCA in accordance with the provisions of Sections 6-8-1 through 6-8-16 NMSA 1978. All

premiums and other money collected by RHCA will be received and disbursed directly by the

Authority.

WEP/csd