More - and Less - Regarding that $7.5 Billion Retiree Benefit Liability

This morning I spoke with Wolfgang Opitz at the Office of Financial Management. He provided some additional and useful perspective on the actuary's GASB 45 report that I posted yesterday. The "less" in the title reflects OFM's view that the "unfunded liability" in the actuarial study is something of a misnomer.

The agency has prepared a three-page discussion of GASB 45. It's labeled a draft, because this issue's likely to linger and there'll be more questions.

The crux:

... [to align with the GASB-45 requirements] the actuary assumed the current practices of retiree participation in the community health insurance pool and the subsidy for Medicare-eligible retirees would continue – even though there is no legal obligation on the part of the state to do this. (Emphasis added)

As Opitz explains, the state does not have any contractual requirement to provide "other post-employment benefits." The decision to offer these benefits and the rates charged to pay them is made as part of each two-year budget cycle.

"If, in fact, we had a contractual obligation," he says, "the concept of an accrued, unfunded liability would make more sense." As it is, the $7.5 billion reflects, possibly, the cost of continuing into the future what's currently being done. But it's quite unlike the state's statutory pension obligations.

Opitz says the new rule is useful, it's important for governments to  appreciate the costs of obligations and be transparent.  Equally, it's important that folks don't overreact to the big number released yesterday.