State and local governments were just beginning to cope with the implications of retiree health benefit costs when the economy nose-dived, body-slamming their budgets. Though this limited their ability to set aside funds in current years for future obligations, it also opened the door for agents to offer services and products in a market that has long been closed to them.
In the past, public employers have been intent on attracting and retaining workers with generous retiree benefits. Even as the cost of these benefits became clear, they were inclined to stick with existing strategies, bowing to the clout of unions and avoiding stirring up their employees.
But dramatic revenue shortfalls across the country have forced many local governments to take another look at their options. That makes the time right for agents to brush up on their GASB 45 knowledge, partner with experienced vendors, and reach out to public employers with a portfolio of viable solutions. And all of this is important for Medicare agents to know, because Part D integration with GASB requirements is included in the actuarial valuation.
GASB 45 basics
The driving force behind the bind public employers find themselves in is GASB (pronounced gaz-bee) 45. Now in effect for all levels and sizes of public entities, from the largest state governments to the smallest one-school districts, GASB 45 requires reporting the 30-year accrued cost of retiree health benefits on current balance sheets. This is the cost that employers have promised to pay to provide what is known as Other Post-Employment Benefits (OPEBs) – health insurance, dental care, and other items that are not direct pension payments, including Medicare Part B and Part D premiums.
Just a few examples illustrate how underfunded retiree benefits are. California recently revised its estimate for state retiree benefits upwards, from $48.2 billion last year to $51.8 billion this year. New York City pegs its liability at $63 billion. Overall, international financial services group Credit Suisse has estimated the state and local government unfunded liability at $1.5 trillion.
Dropping revenues and diminishing return on investments have made the situation worse. Across the country, state and local government tax revenues declined an average of 7 percent in the third quarter of 2009, with 22 states seeing a decline of more than 10 percent. The Boston College Center for Retirement Research has reported that municipal pension funds have lost $1 trillion in value during the recent economic turmoil.
The huge costs, both overall and at individual public agencies, are echoed on a much smaller scale in cities and districts across the country. Agents who have no interest in working with a large school district should note that smaller public agencies face the same liability issues, just for smaller amounts of money. And that universal liability gives agents an opening to be a problem-solver for small government agencies in their area.