How Big a Burden are State and Local OPEB Benefits?
While tough economic times and rising health care costs have driven some of the post-recession changes that state and local governments have made to health care benefits, governments have also been concerned about new accounting requirements. Guidelines for Other Post-Employment Benefits (OPEBs) from the Governmental Accounting Standards Board (GASB 45) went into effect in 2007 and changed the way governments must account for new retiree health costs. Additional changes are on the horizon with GASB 75, which will align the accounting for retiree health costs with pension reporting guidelines.
The authors of this brief developed a methodology to put OPEB liabilities into perspective and provide an updated accounting of OPEB commitments, with data for 2012 or 2013. Key findings include:
- 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 when pension liabilities are calculated with an interest rate comparable to OPEBs; and
- While OPEB liabilities are large, several factors — such as sponsors’ flexibility to scale back benefits — limit their potential drain on resources.