This $700 Billion Public Employee Ticking Time Bomb Is Only 6.7% Funded; Most States Are Under 1%

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Top Tier Gear USA

debt

We’ve spent a lot of time of late discussing the inevitable public pension crisis that will eventually wreak havoc on global financial markets. And while the scale of the public pension underfunding is unprecedented, with estimates ranging from $3 – $8 trillion, there is another taxpayer-funded retirement benefit that has been promised to union workers over the years that puts pensions to shame…at least on a percentage funded basis.

Other Post-Employment Benefits (OPEB), like pensions, are a stream of future payments that have been promised to retirees primarily to cover healthcare costs. However, unlike pensions, most government entities don’t even bother to accrue assets for this massive stream of future costs resulting in $700 billion of liabilities that most taxpayer likely didn’t even know existed.

As a study from Pew Charitable Trusts points out today, the average OPEB plan in the U.S. today is only 6.7% funded (and that’s if you believe their discount rates…so probably figure about half that amount in reality) and many states around the country are even worse.

States paid a total of $20.8 billion in 2015 for non-pension worker retirement benefits, known as other post-employment benefits (OPEB). Almost all of this money was spent on retiree health care. The aggregate figure for 2015, the most recent year for which complete data are available, represents an increase of $1.2 billion, or 6 percent, over the previous year. The 2015 payments covered the cost of current-year benefits and in some states included funding to address OPEB liabilities. These liabilities—the cost of benefits, in today’s dollars, to be paid in future years—totaled $692 billion in 2015, a 5 percent increase over 2014.

In 2015, states had $46 billion in assets to meet $692 billion in OPEB liabilities, yielding a funded ratio of 6.7 percent. The total amount of assets was slightly higher than the reported $44 billion in 2014, though the funding ratio did not change. The average state OPEB funded ratio is low because most states pay for retiree health care benefits on a pay-as-you-go basis, appropriating revenue annually to pay retiree health care costs for that year rather than pre-funding liabilities by setting aside assets to cover the state’s share of future retiree health benefit costs.

State OPEB funded ratios vary widely, from less than 1 percent in 19 states to 92 percent in Arizona. As Figure 1 shows, only eight have funded ratios over 30 percent. These states typically follow pre-funding policies spelled out in state law. Many of them also make use of the expertise of staff from the state pension system to invest and manage plan assets.

Looking at the problem on a relative basis, you find that several states have accrued net OPEB liabilities totaling in excess of 10% of the personal income generated within their borders.

Pew compared states 2015 OPEB liabilities with 2015 state personal income to show these liabilities in relation to the potential resources that states could draw on to cover the liabilities. The major ratings agencies and other financial research organizations commonly use personal income as a metric to illustrate untapped revenue sources and as an indicator of how flexible states can be in meeting their obligations under changing budget conditions. The research shows significant overall reported OPEB liabilities, but the relative size varies widely. (See Figure 2).

The primary driver for the variation in OPEB liabilities is the difference in how states structure health care benefits for retirees. As a percentage of personal income, the liabilities range from less than 1 percent in 16 states to 16 percent in New Jersey.  Alaska, which has the highest ratio of liabilities to personal income at 42 percent, is a clear outlier among the 50 states because of generous benefit levels that can reach up to 90 percent of premiums for some retired workers. States that provide eligible retirees a monthly contribution equal to a flat percentage of the health insurance coverage premium report the largest liabilities—and could face the greatest fiscal challenges because their costs automatically increase as plan premiums do.

Conversely, those states with fixed-dollar premium subsidies provide a smaller benefit and report lower liabilities. Their exposure to health care cost inflation is also lower, because a fixed-dollar subsidy does not rise with the plan premium. Lastly, the states that only provide access to a retiree health plan, with no subsidy, have the lowest liabilities as a percentage of personal income.  Although these plans do not make an explicit monthly premium contribution to retirees, many offer retirees a reduced premium through a group rate, which is an implicit subsidy. The Governmental Accounting Standards Board (GASB), the private, independent organization that sets accounting and financial reporting standards for U.S. state and local governments, requires plans to recognize these implicit subsidies in plan financial reporting.

Meanwhile, the cost increases of healthcare premiums seem to massively exceed inflation and/or wage growth year after year.

In contrast, a number of states with higher premium contributions—including California and New Jersey—reported significantly greater liabilities beginning in 2014, reflecting increases in assumed future costs. California’s plan actuary attributed $7.1 billion of the state’s $7.9 billion liability increase to changing demographic assumptions to account for longer retiree life expectancy in that year. New Jersey’s 2014 hike included a 5 percent increase in liabilities caused by changes in its mortality assumptions and a 9 percent jump linked to changes in health care cost assumptions. For states with the largest year-over-year change in OPEB liabilities, changes in assumptions were the largest driver in increasing costs.

But we’re sure it’s OK, it’s not as if there is a massive wave of baby boomers that are about to retire and ask for these benefits to be paid anytime in the near future…

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  • SP_88

    Wages are stagnant at best, and going down at worst. And when people earn less money, they pay less in taxes. It doesn’t help when many states are losing businesses that have a lot of employees.
    Another issue is the unemployment figure. They report unemployment at around 5%, but we know that it’s much higher. When they calculate the amount of income from people who are working, they will have no choice but to use actual employment numbers.
    Many states have done a terrible job of keeping a budget and living within their means. Most states habitually spend more than they take in. The federal government is no better. Tax and spend, tax and spend, borrow, borrow, borrow, repeat as necessary. This method of squandering our tax dollars is unsustainable. And they never seem to bother actually solving these spending problems and budget shortfalls. They slap a band-aid on it, and kick the can down the road as if it will somehow end up being someone else’s problem. And they never, ever consider the obvious solution, which is to cut spending. And not just cut spending increases, but really, actually cut spending. And it’s not like they don’t have plenty of fat to trim off the budget. They spend money on so much unnecessary shit to the tune of hundreds of millions of dollars that could be better used to pay for things like this.
    They give huge grants to study things like shrimp running on a treadmill or duck penises, and many other ridiculous nonsense studies, and it’s such a waste of money. And I know, those are federal grants, but the states waste a lot of money too.
    But I doubt they will ever learn.

    • P0shzZ0la

      Well…don’t worry because now the US will be FORCED to trim their budget as more countries day-by-day are dropping the dollar.

    • P0shzZ0la

      Well…don’t worry because now the US will be FORCED to trim their budget as more countries day-by-day are dropping the dollar.
      https://uploads.disquscdn.com/images/fdba77307523001db46167e18a6ab6f4e405a22efff8fb4ec39531840c70d7cb.jpg

      • SP_88

        And that’s the sad part. These stubborn old men aren’t going to voluntarily cut spending. They will continue to kick the can down the road until they are forced to stop wasting money.
        And it not just wasting money, it’s the fraud and theft of our tax dollars. These people will use our money to cash in on lucrative investments, and when they do really well, they pocket the profits. But when they lose their shirts, we are on the hook for it. It’s like, “Heads I win, tails you lose.” They end up ahead either way. And we get screwed either way.
        These people vote themselves raises, promotions and bonuses, and they all voted to be exempt from the Obamacare mandate because it’s “too expensive”. These people are unbelievable.
        And they have no intention of doing the right thing. Only when they are forced to stop spending will they reluctantly stop this pattern of tax and spend and borrow so they can tax and spend some more.
        And, as I’m sure you’re aware, a lot of this missing money and unaccounted for revenue is being funneled right into their pockets.

        • P0shzZ0la

          EXACTLY!!!!

        • Things are going to get interesting when the government becomes unable to make the interest payment on the debt, when it reaches about $24,000,000,000,000 on-budget.

          • Laurence Almand

            The current interest on our national debt is now $434 BILLION a year – that’s almost as much as the Pentagon’s entire budget. Where will all this end? Another Great Depression, no doubt – or else China will take over the USA and put a stop to all welfare, immigration, and government pensions.

          • If China took over the US, we’d become part of the BRICS, which would return us to a level of world-leading growth that they have had for some time. Plus, it would put us under a soon to be gold-backed currency. The primary reason why our government has been so nasty to theirs is the instability of our economy relative to theirs. Saddam and Gaddafi were murdered and their countries routed because they were both considering switching to gold-backed currencies. The reason why Iran is demonized is because they will no longer accept dollars for their oil. The trillion dollars of debt that they hold is enough to buy every Chinaman a nice garden plot in this country. They aren’t interested in nuking what we may wind up selling to them, that we haven’t already. The Chinese are becoming capitalists faster than we are becoming communists. They learned it from Hong Kong.

          • amongoose

            You need to look at that BRICS growth model a little closer. It is built on low wages, no environmental controls, and massive debt. The Chinese government is in a bigger debt hole than we are.

          • Where did your statistics come from? The BRICS currency is based on gold backing, which limits the level of debt to the metal on hand. shadowstats probably says different.

          • amongoose

            Not yet it isn’t, China is moving towards it but hasn’t done it yet.
            They are more interested in SDR access and influence.
            Their govt., industrial, and consumer debt are all up massively and exports are falling without enough consumer money to make up the difference which we have, so far, been able to do.
            .
            “The BRICS currency is based on gold backing, which limits the level of debt to the metal on hand”.
            What are your sources on that?
            .
            My statistics, various sources.
            Debt
            https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-percent-of-gdp-iif-says-raising-doubts-over-yellens-crisis-remarks.html
            http://fingfx.thomsonreuters.com/gfx/rngs/CHINA-DEBT-GRAPHIC/0100315H2LG/
            https://www.cnbc.com/2017/08/18/chinas-new-problem-frenzy-of-consumer-lending-creates-debt-explosion.html
            Falling Exports
            https://www.reuters.com/article/us-china-economy-trade/china-posts-worst-export-fall-since-2009-as-fears-of-u-s-trade-war-loom-idUSKBN14X0FD
            http://money.cnn.com/2017/01/13/news/economy/china-exports-trade-trump/index.html

          • All of your sources are confirmed sources of fake news?

          • amongoose

            Then give me some “True news” links to refute them.

          • I’m not aware of any uncontrolled opposition to source such.

          • amongoose

            Then your posts are pure opinion if there is no back up available.

          • OK they are opinions, but so are yours, if they are all based on fake news.

          • amongoose

            What did you type into the search box at shadow stats to find Chinese debt. Nothing comes up for me.
            Did you use a source you didn’t check?

          • It is a subscription site. Do you have a subscription?

          • amongoose

            And debt ratio is figured on GDP, not govt. income (taxes), using their income to figure debt as we all do the federal debt to income ratio including future payments (SS and pensions) is around 80:1. Insolvent by any means of accounting except governments.

          • Insolvency is impossible when funds are available via a keyboard.

          • amongoose

            Technically, but the effects of doing so would be economic implosion and hyper inflation.
            At least that’s the lesson of Wiemar, and Zimbabwe Economics.

          • In the Weimar Republic and Zimbabwe, the volume of currency was increased as well as the denominations.
            The Federal Reserve Board just buys Treasury paper online without releasing any new Federal Reserve Notes, providing liquidity to the banks electronically. If solvency is based on the amount of currency in circulation, the US government has been decreasingly solvent for decades, because the majority of American currency is hoarded offshore.

          • amongoose

            And just who would buy the amount of Treasury Bills (debt) needed to cover all those costs?

          • The Federal Reserve has been buying the majority of Treasury paper since the previous buyers stopped. They don’t have a fiduciary brake.

          • amongoose
          • “To monetize is to convert an asset or any object into money or legal tender.” investopedia.com/terms/m/monetize.asp
            The Federal Reserve doesn’t convert the Treasury paper into money or legal tender, loaning it electronically to the buyers, preventing any creation of inflation until it is monetized.

          • amongoose

            So flooding the market with digital dollars isn’t monetization,
            It’s only if they are printed ones?

          • Precisely. Is that news to you? They aren’t flooding the market, they are transferring into stock certificates.

          • amongoose

            It is still dollars introduced into the system either way.
            Those stock market value increases are inflation.
            And seeing as their P&E ratios are now skyhigh they are toxic in that they cannot in a reasonable amount of time return the investment nor service the debt used to create their value.

          • How many kinds of inflation are you aware of?

          • amongoose

            That’s a ponzi scheme not sound economics.
            Loaning money to produce products is. That’s fake wealth.

          • “Economics is ‘a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services’.” wikipedia.org/wiki/Economics
            “Ponzi scheme
            ˈnoun
            a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.”
            There is no similarity between them.

          • amongoose

            If we have to use reputable sources an editable dictionary won’t qualify.
            .
            Ponzi scheme as in money from the bottom of the pyramid (taxpayer guaranteed fiat money) to enrich those at the top of the pyramid – Banksters and wall street.

          • Are your self-created facts more reputable than an editable dictionary? If you want facts about the Chinese economy, what source is more reputable than the People’s Bank of China?

          • amongoose

            Sources please.
            Still haven’t proved your statement that China and the BRICS have gold based currencies.
            If you want to have a discussion with sources to back up your opinions I will be glad to oblige.
            Otherwise have a nice day.

          • Opinions don’t require sources. You don’t have any better ones to support yours than the ones that don’t support mine.
            Your television is calling you with more propaganda. Make it happy and believe everything it has made up to tell you.

          • amongoose

            Have a nice day,
            bye

      • The budget isn’t based on what it used to be.

    • Income has been falling in real terms since the 60’s.

    • Laurence Almand

      They will learn when the stupid taxpayers finally come to their senses and stop electing jerks like Brown and Feinstein, after their taxes become so high they can no longer live on their incomes.

  • Gil Favor

    If the USPS was a citizen or public employer. Instead of Federal, They would have closed the doors decades ago. And another outfit would have come in and took over. But no. Tax payers are on the hook till hellfreezesover.
    I can’t remember ‘who’, but story was, an outfit was going to take over, but wasn’t going to buy out the existing employee / pensioners ‘liability’. The deal fell through.

    • Disqus-helpsGOVTbreaklaws&kill

      head of post office land leasing Richard Charles Blum (born July 31,
      1935) is an American investment banker. He is the husband of United
      States Senator from California Dianne Feinstein. Latest reports indicate he’s worth well over $1 billion.
      Dianne
      Goldman Sachs Berman Feinstein is the senior United States Senator from
      California. ….. By 2005 her net worth had increased to US $99
      million on a $174,000 a year annual salary .
      Making her one of the 10 richest members of Congress.
      http://www.dcclothesline.co
      Here are the state Senators who are costing taxpayers the most money …
      https://www.washingtonpost….
      5, – We took the Sunlight data and flagged salary spending, transportation
      ………………………… and Dianne Feinstein was the most expensive ..

      • Laurence Almand

        Two-Faced Feinstein did not earn her money – she married it. She is a classic example of a worthless Socialist politician who wastes taxpayers money while enriching herself all the while.

        • Disqus-helpsGOVTbreaklaws&kill

          why are the American people renting land under post offices from the feinsteins ?

  • Disqus-helpsGOVTbreaklaws&kill

    $41 trillion
    in taxpayer funded unaccountable govt employee labor union pension debt
    …. needs a bail out right now.

    .

  • Disqus-helpsGOVTbreaklaws&kill

    Eisenhower urged the public
    …to “guard against the acquisition of
    unwarranted influence,
    whether sought or unsought,
    ……by the military-industrial complex govt employee labor unions .”

  • Disqus-helpsGOVTbreaklaws&kill

    Obamacare tax Architect:

    Yeah, We Lied to The “Stupid” American People & they believed us

  • Disqus-helpsGOVTbreaklaws&kill

    US Published National Debt..$19,846,205,419,111

    The Truth….$101,800,291,866,096

    Your Share of odious debt : $313,000

    • Laurence Almand

      The voters are responsible because they elect people like Hillary and Obama, not to mention Bungling Brown and Two-Faced Feinstein in CA.

  • Disqus-helpsGOVTbreaklaws&kill

    Clinton’s HSBC & Barclays join in project to build new profits for banks

    Aug
    31, 2017 – Called Utility Settlement Coin (USC), the banks new cashless
    society invention project is designed to help prepare the way for banks
    to make it easier for Americans to digitally pay their utility bills
    .. for a small fee of course

  • Disqus-helpsGOVTbreaklaws&kill

    The Pentagon govt employee labor unions budget is around $700 billion..
    …..
    The Pentagon’s
    own auditors found they cannot account for 25 percent of their daily
    expenditures.That means Monday through Friday, 8 a.m. to 5 p.m., the
    Pentagon loses around $86 million tax dollars an hour. The Pentagon
    loses more of your tax dollar money before lunch each day than
    Americans will see in their entire life times.

    • Laurence Almand

      With modern computers they could account for every penny spent, but the lazy bureaucrats can’t operate the machines. The reason the Pentagon wastes so much money is because Congress just keeps giving them more.l

      • Disqus-helpsGOVTbreaklaws&kill

        see where your money really goes to.
        and the govt labor union complex has become the real govt

  • Disqus-helpsGOVTbreaklaws&kill

    taxpayer funded IRS employees were fired and began collecting taxpayer funded retirement pensions..
    then were rehired back for a second taxpayer funded salary and pension.

  • Disqus-helpsGOVTbreaklaws&kill

    American taxpayers still trying to figure out why they are funding the
    entire cost to build multi billion dollar sports stadiums for privately
    owned wealthy pro sports teams..

    • Laurence Almand

      Because the pro sports teams give the politicos kickbacks in the form of donations. Modern commercialized sports has become a national scandal, but the stupid people continue to support it. Paying $200 for a ticket to watch stupid, overpaid players throw a ball around is the depth of stupidity.

  • Disqus-helpsGOVTbreaklaws&kill

    .
    TOO MANY HOMELESS AMERICANS
    ……

    .
    ..
    instead of caring for dying disabled veterans
    Obama’s VA spent nearly $40 million dollars of taxpayer money
    on artwork & sculptures to decorate VA lobbies
    .

  • Disqus-helpsGOVTbreaklaws&kill

    .
    insolvent.

    California’s liabilities vastly exceed its incoming tax dollar assets… A State cannot declare bankruptcy
    because they are always allowed to borrow more taxpayer funded debt
    .

  • Disqus-helpsGOVTbreaklaws&kill

    Nancy Pelosi has a $196 million net worth on a $193,000 washington dc salary..

  • Disqus-helpsGOVTbreaklaws&kill

    California gas tax was for roads but was looted to fund govt employee pensions

    • Laurence Almand

      Not to mention huge welfare payments to illegals, drug addicts, etc.

  • Disqus-helpsGOVTbreaklaws&kill

    Taxpayers Now Face Postal Union’s $100 Billion in Unfunded Liabilities.
    The postal labor union insists that nothing is wrong —
    nothing a taxpayer funded postage $tamp fee increase bailout wouldn’t solve..

    • Laurence Almand

      The Postal Service is a classic example of bureaucratic bungling and mismanagement – an inefficient monopoly staffed by incompetent people who were hired because of Affirmative Action. Anyone who has dealt with the Postal Service knows that they hire the most stupid people they can find, and then overpay them at the expense of the taxpayers.
      How can the Postal Service have a monopoly and still rack up giant deficits?

  • Disqus-helpsGOVTbreaklaws&kill

    Executive Order 10988…. created this 4th branch of unaccountable govt..

  • Disqus-helpsGOVTbreaklaws&kill

    shadow party..
    name soros gave to his taxpayer funded unaccountable govt employee labor unions.

  • Roy Hobs

    Eustice Mullins tried to warn us — “Secrets of the Federal Reserve”.
    So did Henry Ford — “The International Jew”.
    But we just won’t listen.

  • Laurence Almand

    In the USA today, local, state and Federal governments are grossly over-staffed with overpaid, non-productive people. I worked for the government for 22 years and I never saw so many do-nothing people!
    Affirmative Action is often to blame. As a result of AA, the governments have three or four incompetent people doing a job one competent White male could do easily. All this over-hiring will sooner or later cause an economic collapse worse than the Great Depression.