Each year, our annual salary survey shows that cities and states are slowly but surely changing compensation, particularly the benefits side of the package. They're making employees pick up more costs, increasing the vesting period for new employees, exploring new plan designs, and shifting eligible employees to Medicare. Some are doing everything they can to maintain the benefits that for so many years lured people into lower-paying public service jobs, but sometimes a benefit has been eliminated.
Governments have long offered post-employment benefits (OPEBs) that include pensions and retiree health insurance. Last year, Moody's Investors Service estimated a pension shortfall of $3.5 trillion for federal employees; the Urban Institute estimated state and local pension liability at $800 billion to $4 trillion. Now the ability of cities and states to adequately fund retiree health care is in question.
The trend, says the Center for State and Local Government Excellence, is due to changing accounting requirements.
In 1999, Governmental Accounting Standards Board (GASB 34) required governments to provide full accrual and new capital asset accounting to make their reports easier for everyone else -- elected officials, governing boards, and residents -- to understand. The measure kicked off a frenzy of public infrastructure analysis.
In 2007, GASB 45 required governments to account for retiree benefits on an accrual basis rather than a cash basis.
Now GASB 75 looms. It will align retiree health costs accounting with pension reporting guidelines. Cities and states will have to account for their unfunded costs much like they book unfunded liabilities for pensions. The Center for Retirement Research at Boston College used this information to determine:
- Aggregate unfunded OPEB liabilities are estimated at $862 billion
- State and local governments hold two-thirds of that amount
- The amount is equivalent to 28% of unfunded pension liabilities when pension liabilities are calculated with an interest rate comparable to OPEBs.
To download the 12-page report, visit http://slge.org/wp-content/uploads/2016/03/16-03-SLGE-OPEBweb.pdf.