How Big a Burden Are State and Local OPEB Benefits?

Categories: National Developments,OPEB/GASB 45/75
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Center for Retirement Research at Boston College   by Alicia H. Munnell, Jean-Pierre Aubry and Caroline V. Crawford,  March 10, 2016

The Center for State and Local Government Excellence has released a new issue brief that examines the unfunded liabilities of retiree health benefits to state and local governments.

Since the Great Recession, state and local governments have been making substantial changes to their health care benefits, including benefits for retirees. New guidelines from the Governmental Accounting Standards Board will require governments to account for their unfunded Other Post Employment Benefit (OPEB) costs much like they book unfunded liabilities for pensions.

The brief’s key findings are:

  • State and local OPEB liabilities, largely retiree health, have received growing attention due to rising health costs and a change from cash to accrual accounting.
  • This analysis provides a comprehensive look at OPEBs in 2012-2013 at the state, county, city and school district levels.
  • The three key insights are:
    • aggregate unfunded OPEB liabilities are an estimated $862 billion – nearly two thirds of which is held at the local level;
    • these unfunded liabilities are equivalent to 28 percent of the unfunded liabilities of pensions (using the OPEB interest rate for pensions); and
    • while OPEB liabilities are large, several factors – such as sponsors’ flexibility to scale back benefits – limit their potential drain on resources.

Link to full brief…