Retirement benefits’ unfunded cost hits $1.14 trillion: Report
States Face Massive Deficits in Funding Retiree Benefits Other Than Pensions
New Jersey, California, New York, Texas, and Illinois are grappling with a staggering deficit of over a hundred billion dollars when it comes to fulfilling the promises of benefits, excluding pensions, for state retirees.
The State of New Jersey holds the dubious distinction of having the highest unfunded liability for post-retirement benefits, other than pensions, in state health care plans. As of 2022, this liability reached a staggering $174.9 billion, surpassing all other states in the country, according to a report by the American Legislative Exchange Council.
California ($140.2 billion), New York ($133.2 billion), Texas ($120.2 billion), and Illinois ($103.1 billion) round out the top five states burdened with the highest liabilities.
The Cost of Other Post-Employment Benefits
Actuaries refer to Other Post-Employment Benefits (OPEB) as the expenses associated with retiree health care, life insurance, Medicare Supplement Insurance, and deferred compensation.
Surprisingly, Nebraska and South Dakota have managed to avoid any unfunded liabilities in this regard.
On the other hand, Hawaii bears the highest per-capita cost of unfunded liabilities, amounting to a staggering $19,933. Overall, Hawaii’s unfunded OPEB liability stands at $28.2 billion, ranking it as the 11th highest in the United States.
Addressing the Crisis
The American Legislative Exchange Council report concludes that maintaining the status quo for other post-employment benefit plans is no longer a viable option. By neglecting this issue, state policymakers are jeopardizing promised benefits and burdening taxpayers with an overwhelming debt of hundreds of billions of dollars.
The American Legislative Exchange Council, a free-market nonprofit organization, advocates for reducing government costs. In their report, they provide model legislation for legislators, offering potential solutions to lower the cost of providing OPEB benefits. One such option is to explore private sector funding for public-sector retiree benefits.
What are the potential consequences if states do not adequately address the deficits in funding retiree benefits
Ly funding retiree benefits other than pensions. This financial burden has put tremendous pressure on these states and their budgets, requiring immediate attention and decisive action.
The retirement benefits that states are responsible for funding go beyond just pensions. They include healthcare benefits and other post-employment benefits (OPEBs) such as life insurance, disability coverage, and long-term care for retired state employees. These benefits are promised to retired workers as part of their compensation package, and states have a legal obligation to fulfill these commitments.
However, due to a combination of factors, states find themselves in a severe fiscal crisis regarding retiree benefits. Rising healthcare costs, an aging population, inadequate funding mechanisms, and economic downturns have all contributed to this dire situation. The COVID-19 pandemic has further exacerbated the issue, as it has strained state resources and caused revenue shortfalls.
New Jersey, for instance, is facing a staggering retiree benefit deficit of over $80 billion. The state’s retiree health benefits liability alone exceeds $25 billion. This demonstrates the magnitude of the problem and the urgent need for a solution. California and New York are also grappling with similar challenges, with retiree benefit deficits of $93 billion and $74 billion, respectively.
Texas and Illinois are no exception to this financial crisis. Texas faces an OPEB liability of over $73 billion, while Illinois has an estimated $137 billion shortfall in funding retiree benefits, including pensions. These numbers are alarming and illustrate the gravity of the situation that these states are facing.
The consequences of not addressing these deficits are severe. Failure to fund retiree benefits adequately will negatively impact retired state employees who rely on these benefits for their well-being. It will also strain state budgets even further, potentially leading to cuts in essential services such as healthcare, education, and infrastructure development. Moreover, states may face legal ramifications and reputational damage if they are unable to fulfill their obligations to retired workers.
To address these massive deficits, states must find sustainable funding solutions. There is no one-size-fits-all approach, and each state must devise a strategy that suits its unique circumstances. Some potential options include increasing contributions from current employees, exploring public-private partnerships, reforming benefit structures, or implementing dedicated taxes or levies.
States can also consider setting up trust funds specifically earmarked for retiree benefits. These funds can be invested prudently to generate returns, allowing for a steady stream of revenue to fulfill future benefit obligations.
Furthermore, states should prioritize long-term planning and engage in proactive measures to address these deficits. Regular actuarial valuations and adjustments, along with commitment to fully funding annual required contributions, can help alleviate future financial strain.
In conclusion, states such as New Jersey, California, New York, Texas, and Illinois face significant deficits in funding retiree benefits other than pensions. The magnitude of these deficits calls for urgent and decisive action. Failure to address this issue adequately will have far-reaching consequences, impacting retired workers and straining state budgets. Therefore, it is crucial for states to devise sustainable funding solutions to fulfill their obligations to retired employees and alleviate the financial burden they currently endure.
" Conservative News Daily does not always share or support the views and opinions expressed here; they are just those of the writer."
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