OPEB: Another Hole and a Proof of Problem

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This Patrick Anderson article about Rhode Island’s liability for other post-employment benefits (OPEB) for employees shouldn’t slip by without notice for two reasons.  First, OPEB is another drain on the budget, which already limps along from year to year in structural deficit:

Rhode Island needs to contribute $60.7 million toward non-pension retiree benefits, primarily health insurance, in the budget year starting in July 2017, the state’s actuary said Friday.

That FY2018 contribution was approved Friday by the Other Post Employment Benefit Board, the panel that oversees health insurance liabilities for retired state employees, teachers, judges and state police officers.

Perhaps more significant, though, is the teachable moment arising from the math involved:

The OPEB trust fund assumes a 5-percent annual investment rate of return and made 9.2 percent in 2014, then 7.8 percent in 2015, the report said.

Why should the OPEB trust fund assume a 5% return when the pension fund assumes 7.5%?  To be more clear-eyed than cynical, the reason seems likely to be that 5% is more realistic (although still at least one percentage point too high for an assumption that’s supposed to be a sure thing), but the state’s politicians and other insiders simply couldn’t withstand the reality of a more responsible investment plan.

Then-Treasurer Gina Raimondo kicked off her pension reform initiative with the “crisis” created by lowering the return assumption by just half a percentage point.  Lowering it another 2.5 percentage points (let alone 3.5) would make it absolutely plain that the state government has been hoodwinking the public (and its employees) and faces either a huge tax increase, a huge benefit reduction, or a huge elimination of other services.

We shouldn’t delude ourselves.  The bill is coming due, and the longer we allow the state government to put off acknowledging it and addressing it, the more painful it’s going to be.  Unfortunately, the people whose elected or appointed jobs are to keep the state running smoothly are almost certain to let the irresponsibility drag on in the hopes of either a miracle or a path to quietly impose higher taxes on us, either through our state taxes or our federal taxes.



  • Raymond Carter

    “huge tax increase, a huge benefit reduction, or a huge elimination of other services”

    Not huge, but some combination of the three. In fact we have already seen it with 4 pension “reforms”, the end of COLA’s in Providence, full reinstatement of the car tax, tolls on trucks soon to be bicycles and tricycles, $65 for a drivers licence and significant Medicaid cuts mostly by quietly rationing care.

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