Selected SLC Research


Policy Analysis | June 19, 2015

Retiree Health Care and GASB Statements 74 and 75

Sujit CanagaRetna

The impact of the Governmental Accounting Standards Board (GASB) Statements 74 and 75, designed to improve the accounting and financial reporting by state and local governments for Other Post-Employee Benefits (OPEB), primarily retiree health insurance, varies across the United States.

Along with challenges related to funding their pension plans, states also face critical challenges related to adequately funding their retiree health care costs. GASB Statements 74 and 75, designed to go into effect in the fiscal year beginning after June 15, 2016 (Statement 74) and in the fiscal year beginning after June 15, 2017 (Statement 75), pose additional complications for policymakers as they seek to devise mechanisms to adequately fund these expenditures.

In the last decade or so, the number of state governments offering retiree health care benefits has been declining. In recent years, states have deployed a number of different strategies to transfer a greater portion of the cost of providing retiree health care to employees and retirees compared to earlier periods.

In probing the states with the highest unfunded actuarial liability (or UAAL) in terms of their OPEB, of which retiree health care costs are the most significant component, the following top 10 loom large:

  • California ($63.8 billion)
  • New York ($59.7 billion)
  • Illinois ($33.3 billion)
  • North Carolina ($29.6 billion)
  • Texas ($20.8 billion)
  • Ohio ($18.2 billion)
  • New Jersey ($18.1 billion)
  • Connecticut ($17.9 billion)
  • Massachusetts ($16.3 billion)
  • Michigan ($14.3 billion)
Another way to assess the ranking of states in terms of the fiscal position of their retiree health care systems is to explore their per capita UAAL by state. On this front, the top 10 states with the largest UAAL are:
  • Hawaii ($8,408)
  • Delaware ($6,151)
  • Alaska ($5,522)
  • Connecticut ($4,987)
  • West Virginia ($3,766)
  • New York ($3,049)
  • North Carolina ($3,036)
  • Illinois ($2,586)
  • Massachusetts ($2,452)
  • New Jersey ($2,039)
The statistical data presented are from a number of sources, including the Center for State and Local Government Excellence and the National Association of State Retirement Administrators.

States and local governments also face the possibility of negative repercussions from the credit rating agencies if they choose to ignore these GASB Statements. Since the end of the Great Recession, the credit rating agencies have made it quite clear that they intend to take a more comprehensive view of a state's fiscal position when assigning a particular rating, i.e., look beyond whether the state's budget is balanced, sustainable and on a firm footing. The rating agencies have indicated that they will assess the state's unfunded liabilities in a number of categories such as pensions, retiree health care, unemployment insurance trust funds and other trust funds. Consequently, the failure of states to adequately devise a plan to account for their retiree health care responsibilities and their failure to adhere to GASB rulings could result in credit downgrades, a development that would raise borrowing costs for state and local governments.