States Facing Big Bill for Retiree Health Benefits

STATES FACING BIG BILL FOR RETIREE HEALTH BENEFITS

Volume 29, Issue 506 January 7, 2008

Matthew Gever

State governments owe their current employees $381 billion in retiree health benefits, but have only funded 3 percent of that total, according to a new study from the Pew Center on the States. According to the study, 11 states have liabilities in excess of $10 billion, led by New York at $50 billion, California at $48 billion, and Connecticut and New Jersey at $22 billion each.

The study looks only at state government employees and does not cover local government employees. When factoring in this sector, researchers at the Cato Institute estimate the total unfunded liability for retiree health care at $1.4 trillion.

Pew recommends states fully fund their obligations when possible in order to earn capital on investments and to cut down on costs from long-term interest. Other recommendations include raising the retirement age, increasing retiree co-pays and increasing the required number of years worked to qualify for retiree health benefits.

See the Pew report, Promising With a Price, for individual state and national fact sheets. For more about the looming crisis in unfunded retiree benefits, please see the SHN article High Noon in the Accounting Department: States Confront GASB 45 (September 17, 2007).

State liabilities

SOURCE: Pew Center on the States; Based on States' Comprehensive Annual Financial Report and Actuarial Valuation Data