State and local governments, already feeling the fallout from the housing meltdown and the economic slowdown, have another big problem looming: how to pay the pensions and health care benefits for their retired workers.

Standard & Poor’s estimates that just for post-employment benefits, largely composed of health insurance, U.S. states are already on the hook for at least $400 billion — the estimated total future costs for retiree health care and other nonpension benefits. Add in pension costs and the figure likely will exceed $1 trillion.

“These liabilities will span many years and most governments will effectively manage their obligations,” says Standard & Poor’s public finance credit analyst Robin Prunty. “But we can also expect to see budget and balance sheet stress for those that do not actively manage their costs.”



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