WASHINGTON— Total unfunded state other postemployment benefit liabilities are stable from last year, despite low funding ratios, according to a report released Monday by Standard & Poor's.
Overall, states' OPEB liabilities totaled $529.8 billion, decreasing 0.1% compared to a year ago, suggesting an emerging trend of stability. Between 2011 and 2013, OPEB liabilities decreased by 3%, showing a higher volatility.
"Although the largely unfunded status of OPEB trusts, pay-as-you-go funding by most states, and the rising costs of health care would suggest rising OPEB liabilities over time, we believe proactive measures by some states to address OPEB liabilities have slowed the growth in total unfunded liabilities in the past several years," said Sussan Corson, an S&P credit analyst.
Despite the overall stability, several states reported significant changes in actuarial unfunded liability compared to a year ago. Michigan, North Carolina, and Hawaii reported the largest absolute declines in unfunded OPEB liabilities based on updated OPEB valuations.
Michigan, for example, recorded a decline as much as $6.3 billion, as of September 2012 compared to the same time in 2011, reflecting a change in the assumed discount rate to 8% from 4%. In contrast, Texas, New Jersey, and Alaska reported increased liabilities. Texas had the largest absolute increase in OPEB unfunded actuarial accrued liabilities at $5.7 billion, a 10% increase as of August 2013 compared to a year ago.
OPEB benefits vary widely among different states. More than one third of the states adopted a cost-sharing multiple-employer plan. North Carolina, for example, offers OPEB through its State Health Plan to employees of state, community colleges, local school boards, and local governments. Some states offer limited benefits but allow higher-cost retirees participate in the state's health care plan, while others only offer general benefits on a pay-as-you-go basis.
Most states have some flexibility to make some changes on OPEB by adjusting eligibility, employee contributions and benefits, the S&P report found. South Dakota, for instance, recorded a low implicit rate subsidy for OPEB, but recently eliminated the blended subsidized premium by increasing retiree contribution rates. As a result, South Dakota will report no OPEB liability in its next valuation.
Considering the different levels of benefits and actuarial assumptions, it's hard to have exact OPEB comparisons across states, the report noted. "Nevertheless, we believe it's still possible to make general credit distinctions among states with high and low unfunded OPEB," said Corson.
Meanwhile, S&P also released a report on Governmental Accounting Standards Board's proposed changes to OPEB reporting that could enhance the ability to compare reported OPEB across states. The rating agency said, however, that the changes could obscure information on a state's funding progress, since it proposes to eliminate actuarial required funding disclosure.
