Benefits December 18, 2007

States Far Behind in Funding for OPEB Promises

December 18, 2007 (PLANSPONSOR.com) - A report by The Pew Charitable Trusts' Center on the States indicates states have saved enough to cover about 85% of their long-term pension costs, but only 3% of the funds needed for promised retiree health care and other post-employment benefits (OPEB).
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The report found states have promised at least $2.73 trillion in pension, health care, and other retirement benefits for public employees over the next three decades, according to a press release on the document. States already have set aside about $2 trillion to meet their long-term obligations, but they still need to come up with about $731 billion – a figure Pew described as conservative, noting that it does not include all costs for teachers and local government employees.

Good Shape

State pension plans are in reasonably good shape, the report found. At the end of fiscal year 2006, states had set aside over $1.99 trillion of the $2.35 trillion they had made in pension promises – leaving about $361 billion unfunded.

However, Pew found that states’ obligations for retiree health care and other non-pension benefits is about $381 billion for state employees alone (excluding teachers and other local government workers). About 97% of their 30-year obligation was unfunded at the end of FY 2006. A new rule by the Governmental Accounting Standards Board – GASB 45 – requires states to identify the costs for OPEB in their FY 2008 financial reports (See GASB Issues New Standards for Post-Retirement Benefits ).

“Other” Findings

Other key findings of the Pew report include:

  • Only six states – Arizona, North Dakota, Ohio, Oregon, Utah, and Wisconsin – were on track at the end of FY 2006 to have fully funded their non-pension promises for the next 30 years.
  • Half of the states account for almost 94% of the non-pension liabilities.
  • None of the five largest states – California, Texas, New York, Florida, and Illinois – had put aside money for non-pension benefits as of FY 2006.
  • Per capita costs for retiree health care and other benefits range from less than $200 in North Dakota, South Dakota, and Wyoming to more than $5,000 in Delaware, Hawaii, and Connecticut.
  • Eleven states face long-term liabilities in excess of $10 billion, including New York at $50 billion, California at $48 billion, and Connecticut and New Jersey at nearly $22 billion each.

Pew found some states were taking measures to address the problem, such as adopting hybrid pension plans, changing benefit plan designs, and setting up trust to pre-fund benefit obligations (See AL Sets Up Trust to Fund OPEB Obligations ).

The report, Promises with a Price, is here . Access to state-level information is here (scroll to the bottom).

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