Retirement Funds Liability

September 27, 2018

by John McClaughry

Before long the State Treasurer will receive the 2018 report of the auditors of the state’s two retirement funds – the state employees and teachers – including the Other Post Employment Benefits, mainly health insurance, for retired workers and teachers.

This is going to be a very rude shock for the Treasurer, Governor, and legislature. The Government Accounting Standards Board, called GASB, has toughened the rules for fiscal soundness, and Vermont, and probably almost all other states, will find itself even deeper in liability.

As of a year ago, the two pension funds were $2.2 billion in the hole. The two health care funds are another $2.3 billion in the hole. Together, the state is on the hook for $4.5 billion dollars over the next thirty years. That’s $7,300 for every person in Vermont, and the amount is increasing every year. In fact, it increased by 25 percent over 2016.

The actuary finds that amortizing the unfunded liability in 2019 will require an appropriation of $177 million, up from the $130 million predicted for next year back in 2016. The two pension funds, leaving aside the health care promises, are 65% funded, and 35% not funded.

How will this enormous liability ever be paid off, when we’re getting in deeper every year? That’s the four and a half billion dollar question.

There are ways to tackle this, but they are not popular with politicians who created the problem starting decades ago.

John McClaughry is vice president of the Ethan Allen Institute

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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