Unfunded OPEB Promises Put Taxpayers in Jeopardy
Without real policy reforms, defined benefit OPEB plans will place a severe burden on taxpayers and other state spending priorities.
New annual reporting on Other Post-Employment Benefits provides states with roadmap for reforming benefits to protect taxpayers
For Immediate Release
Media Contact: Catherine Mortensen
[email protected], 703.478.4643
Arlington, Va. – The American Legislative Exchange Council (ALEC) released its 5th iteration of the annual report, “Other Post-Employment Benefit (OPEB) Liabilities,” which shows the need for continued reform if states are to stay solvent and avoid substantial tax increases.
Other post-employment benefits cover all the benefits a retired public employee is eligible to receive in retirement that do not count as a pension. These benefits include health insurance, life insurance, Medicare Supplement Insurance and other benefits.
Unfunded state OPEB liabilities total $959 billion or roughly $3,000 for every man, woman and child in the United States. Overall, OPEB plans have worse funding ratios than state pension plans. OPEB plans have an average funding ratio of merely 11.94 percent, a critically low amount. Many OPEB plans have no prefunded assets whatsoever. Also known as “pay-as-you-go” plans, plans that forego prefunding allow liabilities to grow rapidly year over year.
ALEC Chief Economist and Executive Vice President of Policy Jonathan Williams said, “Without real policy reforms, defined benefit OPEB plans will place a severe burden on taxpayers and other state spending priorities. By offering a range of defined contribution options for new employees, states can keep the promises made to both public employees and taxpayers.”
Williams pointed to Nebraska, South Dakota and Utah as examples of states that have successfully reformed their OPEB plans to keep promises to their public workers while also protecting taxpayers from needing to provide a bailout.
“Well governed states such as Nebraska and South Dakota have switched to defined contribution plans to reduce the burdens on taxpayers to zero,” ALEC Center for State Fiscal Reform Research Manager Tom Savidge explained. “Utah’s common-sense reforms in recent years have led to a drop in their unfunded OPEB liabilities for the past 5 years. Today that liability is down to just $35 per person in Utah.”
The report is produced by the ALEC Center for State Fiscal Reform by authors: Lee Schalk, Thomas Savidge, Nick Stark, Jonathan Williams.
|Rank||BEST FUNDED OPEBs||Unfunded OPEB liability||Rank||WORST FUNDED OPEBs||Unfunded OPEB liability|
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The American Legislative Exchange Council is the largest nonpartisan, voluntary membership organization of state legislators in the United States. For more information about the American Legislative Exchange Council, please visit: www.alec.org.