Most Governments Not Pre-Funding OPEB

December 23, 2009 ( – A new government study found that most state and local governments are paying for their retiree health liabilities for active and retired workers from their current revenues.

That was a conclusion of the research by the Government Accountability Office (GAO), which analyzed financial data from 89 state and local governments about how they are funding their other post-employment benefits (OPEB).

State and local governments face an aggregate OPEB liability total of more than $530 billion, the GAO said, and spending on state and local government retirees’ health benefits is projected to more than double as a share of total operating revenues to 2.1% by 2050.

About 35% of the 89 governments that the GAO studied had set aside assets to pre-fund at least a portion of their OPEB total. The governments varied about the source of the money used in the pre-funding and how they figured out how much to commit to that effort, the GAO found. Ten selected governments doing benefit pre-funding were relying on irrevocable trusts.

A December 2008 survey of state officials found that the states had adopted, or were more likely to adopt, a section 115 governmental trust than a section 401(h) health benefits subaccount or a VEBA.

On a larger scale, the GAO found that even among governments not pre-funding, officials are instituting one or more retiree health benefit changes: alterations to the type of benefits, changes to the level of government contribution, and eligibility requirements. The GAO said the changes were most often applied to the retiree health benefits of newly hired employees or currently active employees.

GAO reviewed the financial reports for 50 states and the 39 local governments with at least $2 billion in total revenue. GAO also reviewed the actions taken to address retiree health liabilities by 10 state and local governments, selected based on geography and variation in approaches to address their liability

The GAO report is available here.