Retiree Health-Care Benefits: The Next Shoe to Drop?

Categories: OPEB/GASB 45/75
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Governing.com by Liz Farmer,  April 22, 2013

This month, Kentucky joined scores of states and municipalities in passing legislation that aims to tackle the state’s woeful funding of its pension plans for retired workers. But lurking in the background of that $33 billion unfunded liability is another multibillion dollar problem waiting to happen: how to pay for the rising cost of retiree health care.

Kentucky is taking a rather unusual approach and opting to issue bonds in order to cover its annual costs for “other post-employment benefits” (OPEB), which includes benefits like health care and life insurance for retired workers. In fiscal 2012, the state’s five main retirement health insurance plans combined for a total unfunded liability of more than $6 billion, while the state’s OPEB cost that year was nearly $850 million, according to an analysis of its Comprehensive Annual Financial Report. The tactic of borrowing money to pay for those costs has not won the state favor with ratings analysts.

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