Sixty-first General Assembly

Fifth Committee

41^st Meeting (AM)

BUDGET COMMITTEE TAKES UP FUNDING PROPOSALS TO MEET GROWING

COSTS OF AFTER-SERVICE HEALTH BENEFITS

 

The Fifth Committee (Administrative and Budgetary) this morning took up proposals on how to deal with the growing costs of after-service health benefits for United Nations staff, with their accrued liability expected to approach $5 billion in 25 years.

Introducing the Secretary-General’s report on the matter, United Nations Controller, Warren Sach, said that, in 1995, there had been about 3,400 enrolees, and the Organization’s biennial cost of after-service health insurance had been about $28.7 million.  The accrued liability had been determined to be $786.8 million.  By the end of 2005, the programme covered over 7,800 enrolees, with a 2006-2007 biennial budget of $102.7 million, and accrued liability of over $2.07 billion.  Projecting 25 years into the future, it was anticipated that the after-service health insurance population would exceed 14,000 enrolees, with the 2030-2031 budget requirements estimated at $666 million and accrued liabilities approaching $5 billion.

Under those circumstances, the current pay-as-you-go approach to after-service health insurance was no longer sustainable, he stressed.  The Secretary-General had, therefore, set forth five potential funding alternatives, four of which would result in either immediate or projected full funding over a period of 12-15 bienniums.  The fifth option -- the recommended one -- aimed at initiating and progressively increasing the level of funding through predictable and flexible contribution levels.  It consisted of a one-time infusion of $503.5 million and a long-term funding strategy.  The establishment of an independently segregated after-service health insurance reserve fund would be required under each of the alternatives proposed.  Also recommended were cost containment initiatives through more restrictive eligibility requirements and changing the cost sharing basis for new recruits.

Several members of the Committee, while expressing full support for post-retirement health benefits as a vital element of social security for United Nations staff, emphasized the great significance and complexity of the issue, posing numerous questions with regard to an appropriate funding mechanism and practices followed by other United Nations entities. 

Noting that there was no specific time frame within which the liabilities in question must be fully funded, the representative of Germany, speaking on behalf of the European Union, expressed the Union’s readiness to discuss all practicable strategies of addressing the issue, including proposed modifications in the requirements for eligibility for after-service health benefits, as well as adjustments of the health insurance programme itself.  Such modifications would reduce future liabilities and bring the system more in line with other United Nations entities.   Member States and the Secretary-General had a shared responsibility to establish provisions for new staff to avoid creating new unfunded liabilities.

The representative of Malawi, speaking on behalf of the African Group, said that after-service health benefits of the United Nations staff should be in line with those of members in other international organizations.  In that regard, the determination and valuation of the Organization’s liabilities and the participants’ benefits were arrived at by following internationally acceptable accounting standards and were compared with other large organizations and Governments.  While the Group was aware that the liabilities would continue to accumulate as long as the matter remained in abeyance, it was prudent to discuss the reasons and circumstances that had led to the accumulation of the Organization’s liabilities and avoid a recurrence.

Japan’s representative said that, in view of the huge financial implications to the Organization, the Committee needed to seek absolute clarity on the rationale behind the need to fund such estimated liabilities and justification for the proposed funding strategy put forth by the Secretary-General.  With the introduction of the International Public Sector Accounting Standards (IPSAS) -- an audit standard -- by 2010, he wanted to know more about the costing of staff-related expenditures and its implications for the 2008-2009 budget.  It was necessary to understand what was required by IPSAS and what was required from the point of view of prudent financial management. 

On the funding for an estimated after-service health insurance liability, he shared the Advisory Committee’s observation that IPSAS by themselves did not require full and immediate funding of liability.  His delegation was not convinced whether full funding was an absolute requirement of IPSAS, in view of the United Nations ability to apportion the Organization’s expense among the entire membership.  His delegation was also not certain whether full funding of liabilities within the framework of 12 to 13 bienniums, as envisioned by the Secretary-General, constituted a “reasonable planning horizon”, when no specific time frame existed within which the liabilities must be fully funded.

Also participating in the debate were representatives of Pakistan (on behalf of the “Group of 77” developing countries and China) and the United States.  The report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) was introduced by its Chairman, Rajat Saha.

The Committee will meet again at a time to be announced.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to take up the issue of after-service health insurance. 

Before the Committee was the Secretary-General’s report on liabilities and proposed funding for after-service health insurance benefits (document A/61/730).  In his previous report on the issue (document A/60/450), the Secretary-General proposed the approval of a number of recommendations to begin recognizing and funding the United Nations liability for after-service health insurance benefits. 

In its resolution 60/255, the General Assembly recognized the end-of-service accrued benefit liabilities reported by the Secretary-General and requested him to take the necessary steps to disclose those liabilities in the United Nations financial statements, the report states.  The Assembly also decided to defer its consideration of the Secretary-General’s remaining proposals and requested him, among other things, to provide further explanation of the after-service health insurance programme and updated information on the status of liabilities, clarify the assumptions used to determine liabilities and provide alternative strategies to fund the liabilities. 

The Secretary-General requests the Assembly to approve the updated recommendations to begin funding the United Nations liability for after-service health insurance benefits.  Among other actions, the Secretary-General asks the Assembly to approve the establishment of an independently segregated special account for an after-service health insurance reserve fund to be used to meet current and future after-service health insurance liabilities. 

The Secretary-General also asks the Assembly to approve the funding of the Organization’s current and future after-service health insurance liabilities, starting 1 January, and transfer it to the special account for the after-service health insurance reserve fund with initial funding of some $503.5 million, including the transfer of $410 million from unencumbered balances and savings on or cancellation of prior-period obligations of active peacekeeping missions as of the end of fiscal year 2005-2006; $61.5 million from the medical and dental reserves; and $32 million from the compensation fund to partially fund the United Nations liability. 

Regarding ongoing funding, the Secretary-General asks the Assembly to continue biennial appropriations and partial funding under annual peacekeeping support account appropriations to cover subsidy payments in respect of current after-service health insurance participants.  The Assembly would also establish a charge equivalent to 8 per cent of salary costs to be applied against the budgets to which staff salaries are charged and use unspent budget appropriations in United Nations regular and peacekeeping budgets. 

Among other recommendations, the Secretary-General asks the Assembly to approve changes to the after-service health insurance provisions for new recruits by aligning after-service health insurance eligibility and subsidy requirements to 10 years minimum participation in United Nations health insurance plans, eliminating the buy-in provision after 5 years of participation.  The application of a theoretical pension of a minimum of 25 years of service would be introduced as the basis of assessing retiree contributions, as opposed to using the actual number of years of service when less than 25.  A minimum participation requirement for eligibility of dependents of at least five years at the time the United Nations employee retired, or two years if the spouse has coverage with an outside employer or a national Government, would also be introduced.

Regarding the funding of current and future after-service health insurance liabilities of the International Criminal Tribunals for the Former Yugoslavia and Rwanda, the Secretary-General requests the Assembly to establish a charge equivalent to 8 per cent of Tribunal salary costs to fund the liability and to transfer any excess over Tribunal estimated miscellaneous income.  Among other measures, the savings due to liquidation of the Tribunals’ prior-year obligations would be used, as would unspent budget appropriations from the Tribunals’ biennial budgets.  The Assembly is also asked to approve funding of after-service health insurance liabilities of the United Nations Compensation Commission as part of the Commission’s wind-up costs. 

In accordance with the Assembly’s approval of those measures, separate special accounts for post-retirement benefits and retiree premiums would be established for the United Nations, the Tribunals and the United Nations Compensations Commission.  Those reserves would be used to account for all transactions from various sources mentioned above and to record ongoing expenditures for after-service health insurance.  All balances in those reserves would be earmarked for after-service health insurance to ensure that adequate funds are available to meet future costs.

Introduction of Documents

United Nations Controller, WARREN SACH, introduced the Secretary-General’s report before the Committee, saying that health insurance protection for staff and retirees continued to be an important element in overall conditions of service.  The United Nations provided health insurance protection that was comparable with the programmes of large employers and Government groups.  While there were a number of similarities between after-service health insurance and the Pension Fund, the two programmes differed importantly in how they were accounted for and how they were funded.  In contrast to the Pension Fund, the Organization’s share of after-service health insurance costs had been accounted and provided for on a pay-as-you-go basis, with expenditures based on annual payment requirements for current retirees.  Funds for the United Nations share were appropriated on a biennial basis in the programme budget.  However, that approach was no longer sustainable, given the growth in costs attributable to an increasing population of participants and current demographic and medical trends.  A number of organizations had, therefore, started funding such liabilities as they accrued.

He said that, when after-service health insurance liabilities had been first disclosed in 1995, there had been about 3,400 enrolees, and the Organization’s biennial cost had been about $28.7 million.  The accrued liability had been actuarially determined to be $786.8 million.  By the end of 2005, those numbers had grown.  The programme now covered over 7,800 enrolees, with a 2006-2007 biennial budget of $102.7 million, and accrued liability of over $2.07 billion.  Those trends were expected to continue.  Projecting 25 years into the future, it was anticipated that the after-service health insurance population would exceed 14,000 enrolees, with the 2030-2031 budget requirements estimated at $666 million and liabilities approaching $5 billion.

Given the size of the liabilities, full funding of the accrued liabilities could not be achieved in the short to intermediate term, but would require a dedicated long-term funding strategy.  The current report set forth five potential funding alternatives, the first four of them resulting in either immediate or projected full funding over a period of 12-15 bienniums.  The fifth alternative was the recommended option and represented an updated version of the strategy proposed by the Secretary-General in A/60/450.  It was aimed at initiating and progressively increasing the level of funding through predictable and flexible contribution levels.  It was a two-tiered funding approach consisting of a one-time infusion of $503.5 million and a long-term funding strategy with systematic and flexible components.  The establishment of an independently segregated after-service health insurance reserve fund would be required under each of the alternatives proposed.  Also recommended were cost containment initiatives that would be imposed through more restrictive eligibility requirements and changing the cost sharing basis for new recruits.

A related Advisory Committee on Administrative and Budgetary Questions (ACABQ) report was introduced by the Chairman of that body, RAJAT SAHA.  According to the document, the International Public Sector Accounting Standards (IPSAS), adopted by the Assembly in resolution 60/283 and intended to be instituted system-wide by 2010, required the disclosure of after-service health insurance liabilities.  While there was no specific time frame within which the liabilities must be fully funded, ACABQ was of the view that the framework of 12 to 13 bienniums seemed to be a reasonable planning horizon.  The Assembly would need to consider whether it wished to apportion the full cost to the regular budget, or whether to apportion costs to all funding sources that gave rise to costs for after-service health insurance liabilities.  Alternatives 3 and 5 put forward scenarios for full financing in 12 to 13 bienniums, in the former case without any immediate infusion of funds, and in the latter with an immediate infusion of $503.5 million.

He said that the Advisory Committee recommended against making an exception to financial regulation 5.3 and was of the view that the balance of $410 million in unencumbered balances and savings on the cancellation of prior-period obligations under peacekeeping operations at the close of the financial period 2005-2006 should be returned to member States.  In connection with the proposed transfer of $61.5 million from the medical and dental reserves and $32 million from the compensation reserve, ACABQ recommended the transfer of those amounts.  Should the Assembly approve that course of action, the estimated after-service health insurance liability would be correspondingly reduced.

Among other things, the Advisory Committee also encouraged the Secretary-General to further develop his long-term investment strategy for after-service health insurance and recommended that the General Assembly authorize the establishment of a separate special account for after-service health insurance funds.  Having recommended approval of the previously proposed revisions to the after-service health insurance programme, the Advisory Committee also addressed the Secretary-General’s current proposal to increase the minimum period of service required for eligibility from 5 to 10 years, thereby eliminating the 5-year buy-in provision for all new staff hired after the revision was adopted.  The current service requirement of 10 years for cost-sharing benefits would be retained, however, rather than increasing it to 15 years, as previously proposed.  That revision to earlier proposals had been suggested in the interest of harmonization with other entities of the United Nations system.  The Secretary-General was requested to provide the Assembly with further information on the financial and other issues associated with that revision.

As for accrued unfunded liabilities relating to retirees from the United Nations Compensation Commission, ACABQ recommended approval of the funding of after-service health insurance liabilities as a part of the winding-up costs of the Commission.  It also recommended that the measures proposed in the report regarding the funding of after-service health insurance liabilities related to the International Tribunals be duly considered, recognizing the temporary nature of the courts.

Statements

THOMAS THOMMA ( Germany), speaking on behalf of the European Union and associated States, recognized the efforts of the Department of Management in delivering a breakdown of the after-service health insurance programme and the status of liabilities, as requested in Assembly resolution 60/255.  The disclosure of liabilities was a necessary condition for the application of International Public Sector Accounting Standards, although there was no legal obligation to fund those liabilities.  The Secretary-General’s report provided alternative strategies to fund the disclosed liabilities.  In view of the complexity of the matter, he appreciated the Advisory Committee’s analysis of the situation and recommendations for funding the liabilities articulated in the report.

Noting ACABQ’s comment that there was no specific time frame within which the liabilities in question must be fully funded, he said that the Union stood ready to discuss all practicable strategies of addressing the issue.  The Union was willing to discuss the proposed modification in the requirements for eligibility for after-service health insurance benefits, as well as adjustments of the health insurance programme itself.  Such modifications would reduce future liabilities and bring the system more in line with other United Nations entities.   Member States and the Secretary-General had a shared responsibility to establish provisions for new staff to avoid creating new unfunded liabilities.  After-service health insurance benefits were not only a liability, but an asset of staff and the Union stood ready to share responsibility for it.

IMTIAZ HUSSAIN (Pakistan), speaking on behalf of the “Group of 77” developing countries and China, said the Group attached great importance to the agenda item, noting that after-service health insurance costs were in the character of common staff costs and their recognition as such was a common international practice.  Many staff members were not able to benefit from Member States’ national social security schemes due to their service with the Organization.  The Group was genuinely sympathetic to the issue of post-retirement health insurance benefits for all United Nations staff.  Given the issue’s significance and complexity, many questions needed to be clarified with regard to specific data and accruing methods, an appropriate funding mechanism, practices followed by other United Nations entities and related issues during the Committee’s discussions.  ACABQ’s report provided a good basis for discussion on the agenda item. 

After-service health insurance liabilities was an issue with long-term implications for both Member States and United Nations staff, requiring a long-term strategy, he said.  It deserved the Committee’s careful consideration, as it searched for a comprehensive and long-term solution.  The Group would participate in consultations on the item in a constructive manner, bearing in mind the significance of the implications and impact of after-service health insurance, especially in the context of the introduction of International Public Sector Accounting Standards for the United Nations system with effect from 2010.

FELIX FAISON CHANDO ( Malawi), speaking on behalf of the African Group, said the issue concerned a vital element of social security for the Organization’s retired staff members.  The Group, therefore, supported the view that United Nations staff members should have after-service health benefits that were in line with those of members in other international organizations.  In that regard, the determination and/or valuation of the Organization’s liabilities and the participants’ benefits were arrived at by following internationally acceptable accounting standards and were compared with other large organizations and Governments.  The Group would, however, seek some clarification, especially on the technical concepts of the valuation methodology, in order to have a better understanding and appreciation of the accrued liabilities.

While the Group was aware that the liabilities would continue to accumulate as long as the matter remained in abeyance, it was prudent to discuss the reasons and circumstances that had led to the accumulation of the Organization’s liabilities and avoid a recurrence, he said.  The Group wanted clarification on those issues, including those raised in section III of Assembly resolution 60/255, during informal consultations to facilitate a speedy and comprehensive solution on the matter.  The Group had taken note of the Secretary-General’s proposals and recommendations, as well as ACABQ’s observations.

HITOSHI KOZAKI ( Japan) said after-service health insurance was counterintuitive in many aspects.  In view of the huge financial implications to the Organization for the present and future, the Committee needed to seek absolute clarity on the rationale behind the need to fund such estimated liabilities and justification for the proposed funding strategy put forth by the Secretary-General.  His delegation would like to receive full information on the administrative and budgetary implications of the introduction of the International Public Sector Accounting Standards -- an audit standard -- by 2010 in a comprehensive manner, including, but not limited to, the costing of staff related expenditures and its implication to the budgeting of the 2008-2009 proposed programme budget.  It was necessary to understand what was required by IPSAS and what was required from the point of view of prudent financial management. 

On the funding for an estimated after-service health insurance liability, he shared the Advisory Committee’s observation that IPSAS required the disclosure of such liability as after-service health insurance, emphasizing that IPSAS, by itself, did not require full and immediate funding of an estimated liability.  His delegation was not convinced whether full funding was an absolute requirement of IPSAS, in view of the United Nations ability to apportion the Organization’s expense among the entire membership.  His delegation was also not certain whether full funding of liabilities within the framework of 12 to 13 bienniums as envisioned by the Secretary-General constituted a “reasonable planning horizon”, when no specific time frame existed within which the liabilities must be fully funded.

Continuing, he said his delegation was not clear if a distinction was made between liabilities as such, potential liabilities and actuarially estimated liabilities.  He wondered whether the accrual basis accounting standard required full funding of actuarially estimated after-service health insurance liabilities, including those staff members who did not meet the eligibility requirements set out in ST/AI/394, to whom the Organization was not yet obliged to pay for their after-service health insurance liabilities.  He also wondered if it was a necessity from the point of view of the Organization’s prudent financial management.

Regarding the funding of after-service health insurance liabilities from peacekeeping budgets, he said after-service health insurance liabilities, if they were to be funded at all, should be funded from all sources appropriately and proportionately, taking into account those after-service health insurance liabilities related not only to the regular budget, but also the budgets of the Tribunals and peacekeeping operations.  ACABQ had rightly recognized that peacekeeping missions, active ones in particular, should fund their share of the cost of after-service health insurance liabilities, as well as accrued liabilities attributable to them.  He shared ACABQ’s concern that transfer of an unencumbered balance to entirely alternative uses represented an inappropriate financial management practice.  However, the use of some of the unencumbered balance for the purpose of funding after-service health insurance liabilities attributable to those active peacekeeping missions, at least those attributable to the mission for fiscal year 2005-2006, did not necessarily constitute “entirely alternative use” and, therefore, could be justifiable.

On estimated after-service health insurance liabilities related to the International Tribunals, he said the Secretary-General’s proposals did not provide a clear and concrete picture of how he wanted to deal with the issue in the context of the two Tribunals, given their mandated closure at the end of 2010.

LEROY POTTS ( United States) said that his country was aware of the issue and supported the efforts to address it in a thoughtful and careful manner.  Caring for staff, many of whom had served in difficult and perilous spots across the globe, should be high on the Committee’s agenda.  His delegation would work with other Member States to ensure a lasting and cost-effective solution.  As the costs involved were significant, it was imperative to approach the matter in a thoughtful manner.  It was also necessary to take note of the ACABQ recommendation that after-service health insurance liability could be addressed within a framework of the 2012-2013 biennium without undermining the Organization’s commitment to following the International Public Sector Accounting Standards.  Under the proposed option five, funds from medical and dental reserves and the compensation reserve fund were tapped.  He would like to hear more about that proposal.  He also wanted to find out more regarding how other United Nations bodies were addressing after-service health insurance, including any pitfalls in staying with the pay-as-you-go system.

* *** *

For information media • not an official record