Journal of Pension Economics and Finance

Articles

The funding status of retiree health plans in the public sector

ROBERT L. CLARKa1 and MELINDA SANDLER MORRILLa1*

a1 College of Management, North Carolina State University (e-mail: robert_clark@ncsu.edu)

Abstract

While no longer common in the private sector, most public sector employers offer retiree health insurance (RHI) as a retirement benefit to their employees. While these plans are thought to be an important tool for employers to attract, retain, motivate, and ultimately retire workers, they represent a large and growing cost. This paper reviews what is currently known about RHI in the public sector, while highlighting many important unanswered questions. The analysis is informed by data produced in accordance with the 2004 Government Accounting Standards Board Rule 45 (GASB 45). We consider the extent of the unfunded liabilities states face and explore what factors may explain the variation in liabilities across states. The importance and sustainability of RHI plans in the public sector ultimately depend on how workers view and value this post-retirement benefit, yet little is known about how RHI directly impacts the public sector labor market. We conclude with a discussion of the future of RHI plans in the public sector.

JEL CODES

  • H72;
  • H75;
  • J32;
  • J45

Key Words:

  • Retiree health insurance;
  • public employees;
  • other post employment benefits;
  • state budgets and medical costs

Footnotes

* Funding for this research was provided by the Center for State and Local Government Excellence. We would like to thank Christina Robinson for her research assistance on this project. Helpful comments and suggestions on an earlier draft were provided by Jerrell Coggburn, Dennis Daley, Rick Kearney, Kitty McCollum, Olivia Mitchell, Philip Peterson, and Andrew Stratton. In addition, we would like to thank two anonymous referees, Joseph Newhouse and seminar participants at the NBER State and Local Pensions Conference for helpful comments.