REPORT DIGEST

DEPARTMENT OF CENTRAL MANAGEMENT
SERVICES - STATE EMPLOYEES GROUP
INSURANCE PROGRAM

COMPLIANCE EXAMINATION – SCHEDULE OF
ALLOCATION
FOR THE YEAR ENDED JUNE 30, 2021

Release Date:  June 29, 2022

FINDINGS THIS AUDIT:  1

CATEGORY:  NEW -- REPEAT – TOTAL
Category 1:  0 -- 1 -- 1
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 0 -- 0
TOTAL:  0 -- 1 -- 1

FINDINGS LAST AUDIT: 2

Category 1: Findings that are material
weaknesses in internal control and/or
a qualification on compliance with
State laws and regulations (material
noncompliance).
Category 2: Findings that are
significant deficiencies in internal
control and noncompliance with State
laws and regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the
Auditor General
FRANK J. MAUTINO, AUDITOR GENERAL

To obtain a copy of the Report
contact:
Office of the Auditor General, Iles
Park Plaza, 740 E. Ash Street,
Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are
also available on the worldwide web at
www.auditor.illinois.gov

INTRODUCTION

This digest covers the Compliance
Examination of the Toll Highway
Specific Liability Percentage
Calculation, the Schedule of Employer
Allocations by Fund, the Schedule of
University Special Funding Situations,
the Schedule of Other Post Employment
Benefit (OPEB) Amounts by Fund, and
the Schedule of Deferred Amounts by
Measurement Year of the State Employee
Group Insurance Program (SEGIP) as of
and for the year ended June 30, 2021,
and the related notes to the
Schedules.

The Department of Central Management
Services (Department), with the
assistance of the public retirement
systems sponsored by the State, is the
administrator of this single-employer
defined benefit OPEB plan not
administered through a trust. The plan
was established to provide health,
dental, vision, and life insurance
benefits for certain retirees and
their dependents. Certain agencies and
funds of the State of Illinois present
financial statements in accordance
with generally accepted accounting
principles (GAAP) and those agencies
and fund employers must recognize
their proportionate share of the
collective OPEB amounts for OPEB
provided to members through the SEGIP
plan in order to present their
financial statements in accordance
with GAAP. The Governmental Accounting
Standards Board (GASB) Statement 75,
Accounting and Financial Reporting for
Postemployment Benefits Other Than
Pensions requires the participating
entities that prepare financial
statements in accordance with
Generally Accepted Accounting
Principles (GAAP) to recognize their
proportionate share of certain
collective OPEB amounts in their
financial statements, which includes
the net OPEB liability.

Prior to the implementation of GASB
Statement 75, the portion of the
Plan’s liability not covered by assets
was not allocated among the agencies
and funds for financial reporting
purposes. GASB Statement 75 changed
previously followed financial
reporting requirements and as a result
agencies and funds are required to
report their portion of the collective
OPEB amounts in their GAAP basis
financial statements.

Due to the agencies and funds needing
to report their proportionate share of
the collective OPEB amounts in their
financial statements prepared in
accordance with GAAP, the Department
has prepared the Toll Highway Specific
Liability Percentage Calculation,
Schedule of Employer Allocations by
Fund, the Schedule of University
Special Funding Situations, the
Schedule of OPEB Amounts by Fund, and
the Schedule of Deferred Amounts by
Measurement Year which provide the
necessary financial information for
each entity to report their
proportionate share of the collective
OPEB amounts in their financial
statements. By having these schedules
examined it also provides the entities
and the State’s auditors an
Independent Accountant’s Opinion on
the allocations and collective OPEB
amounts reported in the Schedules.

The SEGIP net OPEB liability at July
1, 2020 was $42.4 billion. At June 30,
2021, the SEGIP net OPEB liability was
$34.9 billion.

SYNOPSIS

• (21-01) The Department did not
ensure the repayment by the Illinois
State Toll Highway Authority (Tollway)
of the pro rata share of certain
retiree costs incurred by the State
Employees Group Insurance Program
(SEGIP) was complete and accurate.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

NONCOMPLIANCE WITH THE STATE EMPLOYEES
GROUP INSURANCE ACT OF 1971

The Department of Central Management
Services (Department) did not ensure
the repayment by the Illinois State
Toll Highway Authority (Tollway) of
the pro rata share of certain retiree
costs incurred by the State Employees
Group Insurance Program (SEGIP) was
complete and accurate.

During testing, we noted employee-
related costs incurred by the Tollway
include both Tollway employees and
staff of the Illinois State Police
(ISP) consisting of four groups, as
defined and further described below:

1) “True Tollway Employees” work for
the Tollway, including its
administrative, engineering, traffic,
construction, and maintenance staff.
These employees are paid on Tollway
payroll vouchers and participate in
the Tollway’s own group insurance
program. Upon retirement, they
transition to SEGIP for their OPEB.
SEGIP does not receive a “retiree-
load” charge (a charge added to
contributions for current employees to
obtain cash to pay benefit costs for
retirees on a pay-as-you-go basis) for
these employees’ current benefits
provided by the Tollway’s own group
insurance plan.

2) “ISP District 15 State Troopers”
consist of two groups providing
personal services within ISP District
15, which patrols the highways and
facilities which encompass the
Tollway’s operations.

a) The majority of these employees
participate in the SEGIP for both
their current employee benefits and
OPEB during retirement.

b) Master sergeants, however, can opt-
out of SEGIP for healthcare benefits
and participate in the Teamsters Local
No. 727 Health and Welfare Benefits
Fund for health insurance along with
SEGIP for vision, dental, and life
insurance benefits as an employee and
then transition to SEGIP for all of
their OPEB at retirement.

All troopers are paid on ISP’s payroll
vouchers which are charged against the
Tollway’s agency number and accounts.
These vouchers include contributions
to SEGIP for all troopers’ SEGIP-
provided benefits. In addition, the
Department prepares supplemental
billings charged to the Tollway’s
accounts for SEGIP to recover the
healthcare costs paid to the Teamsters
Local No. 727 Health and Welfare
Benefits Fund along with the
associated “retiree-load” for SEGIP.

3) “ISP District 15 Support Staff” are
Tollway employees supporting the
troopers assigned to ISP District 15.
These employees are paid on Tollway
payroll vouchers and participate in
the Tollway’s own group insurance
program until they transition to SEGIP
for their OPEB at retirement. SEGIP
does not receive a “retiree-load”
charge calculated on these employees’
current benefits from the Tollway’s
own group insurance plan.

The “True Tollway Employees” and “ISP
District 15 Support Staff” groups are
paid on Tollway payroll vouchers and
participate in the Tollway’s group
insurance program until they
transition to SEGIP for their OPEB at
retirement.  As these groups
participate in the Tollway’s group
insurance program until retirement,
the Department has not collected the
“retiree-load” charge (a charge added
to contributions for current employees
to obtain cash to pay benefit costs
for both employees and retirees on a
pay-as-you-go basis) built into
active-employee SEGIP contributions to
fund costs associated with retirees
participating in SEGIP.  Rather, the
State Employee Group Insurance Act
(Act) (5 ILCS 375/11) requires the
Tollway reimburse SEGIP for the pro
rata share of the cost of providing
retiree benefits to those retirees who
had service in “True Tollway
Employees” and “ISP District 15
Support Staff” positions compared to
their total service to the State.

To enable the Tollway and the
Department to follow this mandate
during Calendar Year 2020, the State
Employees’ Retirement System of
Illinois (SERS) sent the Tollway a
monthly extraction of Tollway-
associated retirees along with each
retiree’s total SERS’ service credit
months and months of total service at
the Tollway from SERS’ records.
Further, this extraction included the
State-paid OPEB costs for retirees,
except for the State’s costs for “CMS
Direct Bill” retirees, which SERS had
previously extracted from the
Department’s third-party administrator
of SEGIP benefits for another purpose.
The totality of this report was
imported into the Tollway’s systems to
generate a monthly invoice, where the
amounts due were aggregated together
across the calendar year for one
contribution to SEGIP in February
2021.

Under Section 11 of the Act, the
Tollway and the Department are solely
responsible for ensuring compliance
with this mandate.  While SERS has
some of the historical records
necessary for the Tollway and the
Department to fulfill this mandate,
neither the Department nor the Tollway
have communicated with nor entered
into a written agreement with SERS so
SERS officials could understand the
information needs of the Tollway and
the Department.  As a result, the
following occurred:

• Each retiree’s service months to the
Tollway were not calculated on the
same basis as SERS’ total months of
service credit.  After consultation
with officials at the Department with
input from SERS officials, it was
determined SEGIP benefits are
processed based on the service credit
granted by SERS.  As such, a month of
Tollway service should only be
included on the monthly extraction if
SERS also granted service credit with
the associated month of service.

• The monthly extraction from SERS did
not include all retirees from the
“True Tollway Employees” and “ISP
District 15 Support Staff” groups,
while some retirees from the Tollway’s
other groups were incorrectly included
within the monthly extraction.

• The monthly extraction from SERS did
not include the State’s costs for “CMS
Direct Bill” retirees.  These
retirees, as their pension is too
small to cover their retiree
contribution to SEGIP for their
benefits, receive a supplemental
billing from the Department for
balance due.

• Officials at the Tollway and the
Department failed to demonstrate the
amounts remitted by the Tollway for
the pro rata share of its retirees
from the “True Tollway Employees” and
“ISP District 15 Support Staff” groups
to SEGIP were complete and accurate.

After bringing these problems to the
attention of officials at the Tollway,
SERS, and the Department, it was
determined there was a net
underpayment of contributions to SEGIP
for the retirees from the “True
Tollway Employees” and “ISP District
15 Support Staff” groups. The
Department proceeded to work with
Tollway staff to reconcile the
underpayment. The Department received
a SERS prepared data extraction of
OPEB costs associated with retirees
from the Tollway for every month
starting calendar year 2018 through
June of 2021, the data was reviewed
and duplicates were removed to arrive
at a list of unique retirees. That
data was then shared with the Tollway
and ISP to review the data and remove
any retirees incorrectly included in
the report due to their employment
with ISP. Additionally, the Tollway
provided a list of all Tollway
employees that separated from active
service from July to December of 2021.
All of this data was provided to both
SERS and the vendor the Department
utilizes for benefits enrollment
(vendor). SERS reviewed each
individual to validate both their
total service credits and their
Tollway service credits. The vendor
used the data to provide the
employer’s cost of group insurance for
each month from July 2017 to December
2021 for each retiree. That cost data
was then summarized and adjusted to
reflect each individuals pro rata
share (Tollway service credits divided
by total SERS service credits). After
subtracting the payments previously
made by Tollway for July 2017 to
December 2021, it was determined the
Tollway’s net underpayment of
contributions to SEGIP was
$22,297,846.  The Tollway agreed with
the amount and sent payment to the
Department on May 20, 2022.  (Finding
1, pages 167-170)

We recommended the Department
communicate with the Tollway and SERS
so all parties have a complete
understanding of both the overall
process and Tollway’s various employee
groups so the factors unique to each
group can be considered in calculating
the Tollway’s monthly retiree OPEB
cost repayment pursuant to Section 11
of the Act. Further, we recommended
that when an understanding has been
reached, the parties should enter into
a formal, written interagency
agreement to memorialize each party’s
roles and responsibilities to fulfill
this mandate.

Lastly, we recommended, that if, after
investigation, the Department and the
Tollway determine it is not possible
and/or not practicable to comply with
Section 11 of the Act for future
periods, the Department and the
Tollway work with the Governor and the
General Assembly to develop a
legislative remedy that addresses both
the financing needs of SEGIP and
facilitates financial reporting in
accordance with generally accepted
accounting principles.

The Department accepted the finding
and stated the Department is in
process of working with both the
Illinois Toll Highway Authority and
the State Retirement Systems to
develop an agreed upon documented
process by which each organization
provides the necessary inputs and
communication to develop an accurate
and timely invoicing of the amounts
due to the Department from the
Tollway.  The Department also stated
that in addition to the development of
the expected written procedure, the
Department intends to seek legislative
action that will provide for a more
consistent treatment of Tollway
employees and retirees as they relate
to the reimbursement by the Tollway to
the Department.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of specified requirements
regarding the Toll Highway Specific
Liability Percentage Calculation, the
Schedule of Employer Allocations by
Fund, the Schedule of University
Special Funding Situations, the
Schedule of Other Post Employment
Benefit Amounts by Fund, and the
Schedule of Deferred Amounts by
Measurement Year of the State
Employees Group Insurance Program as
of and for the year ended June 30,
2021, and the related notes to the
Schedules.  The accountants stated the
Agency complied, in all material
respects, with the criteria set forth
in Notes D through M of the Notes to
the Schedules in the report.

This compliance examination was
conducted by Sikich LLP.

JANE CLARK
Division Director

This report is transmitted in
accordance with Section 3-14 of the
Illinois State Auditing Act.

FRANK J. MAUTINO
Auditor General

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