Unfunded OPEB Liabilities for Oregon Public Employers: A $2.6 Billion Time Bomb

January 27, 2015 0

By William Newell with John Glennon and Brandon Maxwell

Most Oregon taxpayers are likely to have heard of the multi-billion dollar problem of unfunded pension debt for public sector workers. Oregon’s Public Employee Retirement System (PERS) is one of the most generous in the country, and paying for it has forced cities, counties, and school districts to repeatedly cut services to current residents in order to transfer large amounts of revenue to retirees. Despite robust stock market returns on PERS investments, the PERS fund is still billions of dollars short of being fully funded.

While this problem has been well chronicled by the news media over the past 15 years, there is another aspect of retirement debt that has received much less scrutiny: Other Post-Employment Benefits (OPEB). These are benefits promised to employees that will be paid out during retirement years in addition to pensions. Such promises typically include health care coverage, but may also include life insurance, longterm disability insurance, or any other benefit negotiated by the employee.

More than a decade ago, the Government Accounting Standards Board (GASB) recognized that such promises imposed real obligations on public employers, but the amount was not being specifically identified in annual financial reports. Therefore, GASB adopted Statement 45, which requires that all units of government undertake regular valuations of their OPEB obligations and clearly state those obligations in annual financial reports.

OPEB audits must calculate liabilities for all current and future retirees, amortized over a period not to exceed 30 years. Based on these calculations, actuaries determine what the Annual Required Contribution (ARC) would be if each entity paid for current OPEB benefits as well as future obligations, on an amortized basis.

However, the ARC is not actually mandatory, despite use of the word “required;” governments must publish information about net OPEB liabilities, but are not required to create OPEB trust funds or pay anything for future obligations.

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