Tuesday, 2 June 2009

United Nations Faces Billions in Retiree Health Care Obligations

By George Russell


The United Nations is staring at a multi-billion-dollar shortfall in unfunded health insurance obligations to past and present employees, a gaping financial deficit that has been growing rapidly while the U.N. dithered for the past five years.

According to internal documents examined by FOX News, the U.N. has roughly $2.4 billion in unpaid retirement health insurance obligations for its staff alone, as of the end of 2007. When the sprawling U.N. system of programs and organizations around the world is thrown in, the total could be more than $4.9 billion, as tallied in a March 2007 report.

Click here to see the total.

Not all parts of the U.N. universe are equally affected by the health insurance crisis. The $5 billion United Nations Development Program, for example, had a liability of roughly $466 million at the end of 2007, but has since funded more than half of it. At the United Nations High Commissioner for Refugees, the liability hit was $308 million, at a time when the agency's global expenditures have been rapidly increasing.

The U.N.'s health insurance deficit is similar to problems that have threatened to crush private sector organizations. U.S. automakers, which granted gold-plated pension deals to their retiring employees years ago, are still struggling to fund those payments, even as American car sales have dwindled.

So far, the U.N. has not made up its mind what to do about the retirement health insurance issue. The main reason: the ugly realization that it will either have to ask member states who already fund its operations to increase their funding, or force staffers who pay 8 percent of their current salaries toward health care costs, to cough up vastly more than they already do. Or perhaps some variation on those two.

In an effort to begin to get the mammoth deficit under control, the U.N. has raised the number of years of service employees must put in before qualifying for the lifetime retirement health insurance benefit from five years to 10.

In some of the financial scenarios that the U.N.'s top bureaucrats have been examining for years in order to deal with the issue, the money required to level the health insurance mountain runs to hundreds of millions of additional dollars per year — for decades.

And at a time of global economic meltdown and financial turmoil, there is no guarantee that U.N. member states will be willing to bail out the world body.

Meantime, the problem continues to compound, while the U.N. Secretariat doles out roughly $98 million every two years (the U.N. has a biennial budget cycle) to fund in pay-as-you-go health-care funding for its current pensioners — similar to the way the U.S. handles its massive Social Security deficit. At the same time, U.N. management is scrambling for ways to lower the staggering bill, or perhaps continues to kick the problem down the road, as it already has done for years.

Without a fix, the total gap is likely to become even more unmanageable, and taking it off the books even more expensive than it already is.

The mammoth unfunded retirement health insurance problem is once again on the agenda of the United Nations General Assembly this month, and U.N. Secretary General Ban Ki-moon is expected to come up with answers. According to a spokesman for Ban's office, an updated report on the problem and proposed solutions "will be issued shortly."

According to a variety of U.N. internal documents examined by FOX News, various solutions have been on the table since 2003. These have included:

• Hitting up member states — which means the two-dozen or so, led by the U.S., that pay most of the U.N.'s assessment bills — to cough up the $2.4 billion in one mega-payment — and then pay $177 million more every two years to keep the debt from rising again;

• spreading the pain of debt reduction across 24 to 26 years, in $550 million increments, with even more additional dollops of cash till required to keep the system above water;

• slapping an additional payroll charge against U.N. employee salaries that would average roughly 13.8 percent per person, again, for decades.

All three of those alternatives were judged to be "not considered practicable," by the U.N.'s own Board of Auditors in a report issued in early 2007.

Click here to see the Board of Auditors report.

Yet another option considered was to raid the U.N. peacekeeping budget to the tune of more than $660 million annually for 25 to 30 years, and still roughly triple the amount that the U.N. takes from employees' salaries, which currently runs at anywhere from 4 percent to 8 percent. The peacekeeping contributions have been justified in U.N. documents as recognition that the U.N.'s peacekeeping forces, which have grown rapidly in size in the past decade, have become major consumers of retirement health care services.

In the past, the suggested remedies for the deficit have also included such dubious ideas as taking money from peacekeeping projects that had ended with budget surpluses on the books — money that would normally be returned to the nations that gave it. This idea was dubbed an "inappropriate financial management practice," in one report examined by FOX News.

The option most recently favored, as outlined in a report by the U.N.'s board of auditors last year, calls for a grab bag of measures, including a onetime contribution of $503.5 million from peacekeeping, taking money from various medical benefit reserves, plus a further 8 percent charge against employee salaries.

Even that would not be enough, the auditor's report notes. Funding the liabilities would still require a yearly infusion of $102.7 million from the U.N.'s regular budget, plus the addition of any savings from other U.N. operations that shut down with a surplus.

(The report delicately calls the money shifted from accounts in surplus "fortuitous savings which would otherwise be returned to the Member States.")

The chief virtue of the last funding option is that it wouldn't require the U.N. to go back to its members asking for a half-billion extra dollars.

Such a request would come after Secretary General Ban successfully appealed only in September to U.N. member states, led by the U.S., for an additional $16.2 billion in a pledge to help the U.N. meet its ambitious environmental and anti-poverty targets known as the Millennium Development Goals.

What has triggered a new sense of urgency in the U.N.'s consideration of the funding black hole is, ironically enough, a change in its accounting procedures that was instituted to ensure greater transparency in its operations.

Prior to that accounting change, which only hit the U.N.'s financial statements at the end of 2007, the retirement health care liability was not carried on the U.N.'s books as anything but a footnote to its financial statements — and thus never hit the organization's formal bottom line.

Actual funding of retirement health care insurance costs were handled as they still are, on a pay-as-you-go basis, with no regard for the longer term factors such as an aging and expanding U.N. work force.

That changed in 2006 when the U.N. adopted what are known as International Public Sector Accounting Standards. These demand that the full cost of such long term liabilities be recognized as realities that needed to be funded.

In other words, the liability was already there; the accounting standards put new pressure on the U.N. to deal with it.

Click here to see the suggestion that a decision come this year.

But while the accounting change has raised the funding of those health care costs to the level of a crisis issue, the fact is that the General Assembly has known about the looming problem for a decade.

A General Assembly resolution passed in May of last year noted that it had taken seven years for the U.N. Secretary General's staff to prepare an initial report on the extent of the liability, after an initial Assembly request in 1997.

In that 2003 report, the liabilities were only about $1.5 billion. In an updated report in 2005, they had risen to $2.07 billion.

In each case, after being presented with the report, the General Assembly decided to ask for more information before taking action — in effect, continuing to sweep the problem under the rug.

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