RALEIGH— State Treasurer Dale R. Folwell, CPA, announced today that a preliminary actuarial review of the state’s unfunded liability related to Other Post-Employment Benefits (OPEB) for the Retiree Health Benefit currently stands at $43 billion as of June 30, 2016 under the new accounting standards to become effective later this year. That figure represents an increase of more than $10 billion from the previous calculated unfunded liability of $32.5 billion based on the prior accounting standard as of the same date.
These figures were taken from a preliminary draft of a report, due April 25, 2017, to determine the potential impact of new accounting requirements imposed by the Governmental Accounting Standards Board (GASB). These requirements address benefits other than pensions, such as health care, that governments provide to their retired employees. In North Carolina, OPEB liabilities are almost entirely retiree benefits under the State Health Plan for Teachers and State Employees, which is managed by the Department of State Treasurer.
The State Health Plan covers 700,000 employees, retirees, and dependents. North Carolina, like most states, uses a pay-as-you-go model to cover the Retiree Health Benefit, which is mostly subsidized by taxpayers. Little money has been set aside over the last 30 years for retiree medical benefits provided by the State Health Plan.
“Whether it is the new GASB standards or the considerations of credit rating agencies, we can no longer ignore the impact these liabilities will have on the financial future of the state,” said Treasurer Folwell. “Even as the General Assembly has fully funded the pension, we have witnessed the unfunded health care and pension liabilities of our state continue to grow. Deliberate, gradual action is required to preserve and strengthen these plans. North Carolina is certainly not alone on this issue, but we have the unique opportunity to lead the nation and make a generational difference for North Carolinians.”
In February, the Debt Affordability Advisory Committee, chaired by Treasurer Folwell, released its 2017 Debt Affordability Study advising the Governor and the General Assembly on the estimated debt capacity of the General and Transportation Funds for the upcoming 10 fiscal years.
For the first time, the primary recommendation of this year’s Debt Affordability Study suggests significant additional money be put toward North Carolina’s unfunded pension and Retiree Employee Health benefit obligations.
The State Health Plan, a division of the Department of State Treasurer, provides health care coverage to more than 700,000 teachers, state employees, retirees, current and former lawmakers, state university and community college personnel, and their dependents.