We, at Ryan ALM, don’t just focus on DB pension systems, as any entity with a liability is fair game, such as OPEB, E&Fs, Nuclear Decommissioning Trusts, etc. What is important to note, is that we focus all of our energy on modeling that liability and managing to it so as to reduce the cost to the greatest extent possible. Because we believe securing theses benefits in a cost efficient manner and not generating the highest return is the primary goal in managing these programs.
We’ve reported often on the solvency of DB plans, whether they be public, private, or multiemployer. We’ve even reported on OPEBs occasionally, but not nearly to the extent that we should have, as many states are facing growing OPEB liabilities that may just dwarf the pension obligation.
For instance, New York is reported to have a $313.9 billion OPEB liability that equates to more than $16,000 for every man, woman, and child living within its borders. Those of us living in NJ shouldn’t snicker too much, as our OPEB obligation on a per capita basis is the second worst at $11,425 / individual. Delaware, Hawaii, Connecticut, Massachusetts, Maryland, Illinois, and Louisiana all have per capita exposure greater than $5,000 per resident. Kudos to North and South Dakota that have OPEB obligations that are <$100/resident.
What is frightening about OPEB obligations is the fact that they are mostly related to healthcare programs, which carry greater inflationary concerns than pension plans. Many of these states are meeting this obligation on a pay-as-you-go-basis, which is truly disconcerting. Prefunding this obligation could save these entities >30% depending on how far out in maturity a cash flow matching program can be funded.
Although many of these OPEB programs aren’t guaranteed, there is an expectation on the part of public fund workers that the promise made many years ago will be met. Failure to do so could lead to many issues, including retention and recruiting issues. Give us a chance to explain to you how our approach could secure those “other” benefits before it is too late.