opeb 101 & next steps in retirement report

OPEB 101 &Next Steps in Retirement Report

David S. T. Matkin, PhDAssistant Professor of Public Administration

Florida State University

Research Fellow, LeRoy Collins Institute

LeRoy Collins Institute Board Meeting

September 12th, 2012

Overview

• Reports in Print/Press– Trouble Ahead: Florida Local Governments and Retirement

Obligations (February 2011)– Report Card: Florida Municipal Pension Plans (November 2011)– Years in the Making: Florida’s Under-Funded Municipal Pension

Plans (September 2012)

• Retirement Topics in Development– OPEB 101– Investment Returns– Benefit Levels

OPEB 101

OPEB 101 Outline

• What is it?– Retirement Obligations (Healthcare Insurance Subsidies)– New Accounting Standard (Nos. 43 & 45)– Implicit & Explicit Benefits

• Where do we stand?– Size of liabilities– Funding status– Size of annual contributions– Relationship to general debt

• What should be done? – Board Recommendations?

Size of the OPEB Liability

Size of the OPEB Liability

Franklin CountyHollywoodMiami PoliceSanford

Size of the OPEB Liability

Funding the OPEB Liability

• Fund the Liability

– Explicit Benefits (n=67)• Pay-as-you-go = 45• Prefund (Non-GAAP qualified) = 4• Prefund (GAAP qualified) = 18

– Percent Funded (median) = 12%

– Implicit Benefits (n=83)• Pay-as-you-go = 76• Prefund (Non-GAAP qualified) = 2• Prefund (GAAP qualified) = 5

– Percent Funded (median) = 30%

Size of the Annual Required Contribution

Size of the Annual Required Contribution

Miami PoliceFranklin County

Size of the Annual Required Contribution

Funding the ARC

Relationship to Other Long-term Debts

Relationship to Other Long-term Debt

Previous OPEB Recommendations

Trouble Ahead Report:

1. Among other options, Florida lawmakers should give much consideration to repealing current Florida law requiring the implicit subsidization of healthcare benefits for Florida local governmental retirees.

2. State oversight by a relevant state agency should be provided in statute to manage local retiree health benefit obligations. This agency should establish standards and provide technical assistance, if desired, to local government staff and local officials.

INVESTMENT RETURNS

Actual Returns

Allocation in Equities

Actual Returns Over Time

Actual Return - Return Assumption

BENEFIT LEVELS

Average Benefits Per Retiree

Years of Benefits on Hand

Years of Benefits on Hand

Funding Level Obs. Years on Hand

Less than 60% 46 10.3

60 to 70 % 81 13.3

70 to 80 % 73 14.9

80 to 90 % 65 16.8

Greater than 90% 61 20.8

Total 326 15.6

Discussion and Questions