Public retiree health liabilities

Today the Government Accountability Office (GAO) released a study on state and local governments' retiree health liabilities, specifically: (1) what has been reported in their annual comprehensive annual financial reports (CAFR), (2) actions they have taken to address retiree health liabilities, and (3) the overall fiscal pressures they face.

Under accounting standards issued by the Governmental Accounting Standards Board (GASB) in 2004, governments are required to account for costs of other postemployment benefits (OPEB) when they are earned (during employment) and not when they are paid (during retirement). The largest component of OPEB is retiree health benefits. Historically, governments have not funded these benefits when they were earned, therefore much of their liability may be unfunded. According to GAO, the total unfunded OPEB liability in state and the largest local governments exceeds $530 billion.

For this study, GAO selected 10 governments and reviewed their actions in more detail: four states--Alaska, Nevada, New Jersey, and South Carolina; three counties--Montgomery County, MD; Harris County, TX; and Oakland County, MI; and three cities--Gainesville, FL, New York, NY; and Thousand Oaks, CA.

GAO found that some governments have addressed retiree health liabilities through prefunding using irrevocable trusts, and making benefit changes such as: (1) changing the type of health benefit plan, (2) changing the level of government contributions, and (3) changing eligibility requirements.

State and Local Government Retiree Health Benefits: Liabilities Are Largely Unfunded, but Some Governments Are Taking Action, GAO-10-61 (pdf, 49pp/772kB), Nov. 30, 2009