How Big a Burden Are State and Local OPEB Benefits?

In addition to pensions, most state and local governments provide other post-employment benefits (OPEBs), the largest of which is retiree health insurance. Retiree health plans have received increased attention in recent years due to rapidly ris ing health costs and new reporting guidelines from the Governmental Accounting Standards Board (GASB). These guidelines, which were released in 2004 and became effective in 2007, require states and localities to change the way they account for the cost of retiree health plans from a cash to an accrual basis, essentially applying to OPEB plans the standards used for pensions. This brief provides an updated accounting of OPEB commitments, with data for 2012 or 2013. These data cover virtually all OPEB plans administered at the state level as well as a large sample of plans administered by counties, cities, and school districts. The analysis also looks beyond the sample of local governments to estimate aggregate OPEB liabilities for all local governments excluded from our sample. The discussion proceeds as follows. The first section describes the evolution of the new reporting framework. The second section discusses the OPEB sample and introduces our methodology for capturing OPEB liabilities for entities not in our sample. The th ird section compares OPEB and pension liabilities in the aggregate and discusses the need to use the same discount rate when comparing these liabilities. The fourth section puts the OPEB liabilities in perspective. The final section concludes that: 1) a ggregate unfunded OPEB liabilities are estimated to be $862 billion – nearly two thirds of which is held at the local level; 2) these liabilities are equivalent to 28 percent of unfunded pension liabilities – when pension liabilities are calculated with an interest rate comparable to OPEBs; and 3) while OPEB liabilities are large, several factors limit their potential drain on state and local resources.