What can governments do about retiree health costs?
Under GASB 45, many governments may report large unfunded retiree health liabilities. Left unfunded, these liabilities may continue to result in rapidly growing costs each year and could eventually impact bond ratings. Over time, addressing the costs of these liabilities will tend to consume a larger and larger percentage of governmental revenues.There are three basic approaches governments can take to address retiree health liabilities. Governments can either: • Continue to pay-as-you-go • Set aside money in a tax-advantaged trust in order to address part or all of the future costs of retiree health benefits (i.e. pre-funding”) • Change retiree health benefits in some way so as to reduce future costs. Because of the sensitive nature of employee benefits, many public entities will face tough choices in the coming months and years. Eliminating retiree health liabilities, for example, may require setting aside large amounts of money or implementing large cuts in benefits for some or all
