We Need To Start Talking About Post Employment Benefits

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State and local governments are struggling to keep their unfunded pension liabilities under control and are using misleading actuarial and pension fund performance assumptions to cover-up the severity of the problem. However, there is another huge gorilla of unfunded liabilities that many states and municipalities are also facing, namely “Other Post-Employment Benefit” (OPEB) liabilities. This is primarily lifelong healthcare benefits, but can also include other benefits such as dental, vision, and prescription coverage. It may even include insurance such as disability, long-term care, and even life insurance.

OPEB liabilities are perhaps the greatest single under-reported and under-scrutinized unfunded liability within our state and municipal employee retirement systems. Just as with pension liabilities, where pension systems typically underestimate how long their beneficiaries will live (using old and out of date actuarial assumptions), and over-estimate how much their pension system will earn in a year, so too with OPEB. I saw this first hand both as a Member of the Connecticut House of Representatives, and then as Connecticut State Treasurer.

When our politicians use assumed rates of return that are unrealistically high, and out of date mortality tables, both pension and OPEB liabilities skyrocket because it permits policy makers to underfund both, or if you are the State of Connecticut, not to fund OPEB at all. It is estimated that Connecticut has as much as $36 billion in unfunded OPEB liabilities  as of this year. Further, because of the state’s population of around 3.5 million, this amounts to over $10,000 per resident. This is on top of the billions of dollars the state already faces in unfunded pension liabilities. Crazy!

In 2008, ten years ago now, the Governmental Accounting Standards Board (GASB) estimated total OPEB liabilities to be over $1.5 trillion. Updated estimates will be much, much worse! Suffice it to say, going with GASB’s 2008 estimate, American taxpayers, face an enormous mountain of pension and OPEB liabilities that are underestimated, underfunded, and under-discussed. For all our retirees, from those who serve or served in our schools, communities, counties and states, unless things change, the coming reckoning will be worse than a mistake; it will be a blunder by our politicians.

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