The next big blow to already-fragile local pension plans could come from retiree health benefits. That’s a according to the latest report on pensions from the public-policy driven, LeRoy Collins Institute.
A study from the institute found retiree benefits could become a problem in the future. LeRoy Collins Institute director Carol Weissert says retiree health benefits are not the major driver behind the current local pension plan woes, but if they’re not addressed—they could begin piling on.
“I think this issue is overshadowed by the pension issue that people are really concerned about," says Weissert. "I think part of it is, there’s no room on the agenda right now, but one of our ideas is, this is a long-term issue and really should be on the agenda.”
The institute's David Matkin wrote the study. He says local governments have $8.4 in unfunded liability with healthcare benefits for retirees. Most governments just pay for the benefits as they go, but Matkin says that’s not a good strategy for long-term sustainable financing.
“The number of retirees is greatly increasing, and the pay-as-you-go strategy is going to get more expensive," he says. "Healthcare costs are going up, and so, if we have—especially these kind of retirement health benefits that are paid as a proportion of costs, we’re going to see those costs rising.”
According to the study, more than half of local governments examined would have to increase their funding of the health benefits between two, and 10 percent in order to keep up with the cost.
The LeRoy Collins Institute, housed at Florida State University, considers health benefits a "hidden" pension cost, because they're not documented by state agencies. It supports more transparency in reporting and recommends the legislature repeal a law allowing retirees to continue paying the same for health insurance as they would have if they were still employed.