W.Va. cutting benefits shortfall faster than other states
CHARLESTON, W.Va. -- West Virginia's unfunded retiree benefits liabilities are falling at a much faster pace than many other states, according to a new report from Standard & Poor's Rating Services.
Taken together, all states have shaved 3 percent from their total unfunded liabilities. Meanwhile, West Virginia has used structure changes and reforms passed by lawmakers in 2012 to halve its total.
The Standard & Poor's report analyzed looming state liabilities for "other post-employment benefits," generally referred to as OPEB. The benefits consist mainly of retiree health insurance costs, though they can also include life insurance or other benefits offered to retirees.
It wasn't until 2008 that governments had to begin reporting their OPEB liabilities. Since that time, states have focused more efforts on containing these future costs.
The Standard & Poor's report was a follow-up to a similar study in 2011. That report estimated total unfunded state OPEB liabilities at $545 billion at the close of the 2010 fiscal year.
The report released Monday found the national total fell just $16 billion, or roughly 3 percent, to $529 billion by the end of states' 2012 fiscal year.
Analysts said the fact that the number fell at all was a sign states were taking action.
"The relative stability of current OPEB liabilities results from the actions states have taken to address projected postretirement health care costs," credit analyst David Hitchcock said.
The report said the declines in most states were driven by marginal cost-containment moves or changes in actuarial assumptions. A handful of states also made changes to boost funding to help cover the future costs.
West Virginia was one such state. In late 2011 and early 2012, policy makers approved a series of reforms to rein in the liabilities.
As a result, while most states saw only marginal moves, West Virginia saw a substantial improvement in its statistics.
The 2011 report pegged the state's unfunded OPEB liability at $7.43 billion. The latest report showed that number had fallen by nearly half to $3.75 billion-a 49 percent decline.
On a per capita basis, the state's unfunded OPEB liability was also cut in half from $4,083 per resident in 2011 to $2,023.
On a national level, total per capita unfunded OPEB liabilities declined 13 percent from $1,884 in the 2011 report to $1,632 now.
West Virginia now has the 11th-highest OPEB funding ratio in the country, according to S&P. The state has so far covered 11.7 percent of its projected future obligations, up from just 5.4 percent in the 2011 report.
West Virginia leaders had been grappling over how to reform the state's highly subsidized health insurance program for retirees for years, prior to passing reforms in 2012.
In 2006, the Legislature created the state Retiree Health Benefits Trust Fund, administered by the Public Employees Insurance Agency, to collect revenue for future benefit payments.
But the liabilities continued to grow.
While the initial S&P report pegged the state's unfunded OPEB liabilities at $7.4 billion by the end of the 2010 fiscal year, PEIA officials were saying by the end of 2011 that the liability had ballooned to $10.3 billion.
In mid-December of that year, the PEIA Finance Board put in place a cap on retiree premium subsidies and voted that the subsidy would increase by no more than 3 percent each year.
That move alone wiped out an estimated $5 billion in projected liabilities.
Gov. Earl Ray Tomblin, who saw his first attempt at an OPEB reform package in 2011 die over last-minute legislative squabbling, spearheaded a second reform package in 2012 that put the state on track to fund its remaining liabilities by 2037.
Department of Administration Secretary Ross Taylor, who serves as chairman of the PEIA Finance Board, said Monday the Standard & Poor's report showed the state was on the right track and reiterated the administration's commitment to seeing its long-term plan carried out.
"I believe it is obvious the actions, taken by the state to reduce our unfunded OPEB liability, are working as intended," Taylor said. "We have a plan in place to be completely funded by 2040 and are committed to that plan."
The reform measure put into law that only employees hired before June 1, 2010, can receive subsidies for retiree health benefits. That codified a reform the PEIA board had previously approved.
The bill also diverts a $30 million annual personal income tax revenue stream currently being used to pay off the workers' compensation debt to OPEB beginning in 2016.
According to S&P, West Virginia is currently one of just 30 states that has set up some type of trust fund for its OPEB liabilities and is currently funding it.
An additional $5 million in tax revenue will also be set aside for a trust fund designed to assist those state employees hired after June 1, 2010.
PEIA Executive Director Ted Cheatham told the Daily Mail in March 2012 that if future lawmakers leave the reforms in place, the state's remaining $3.75 billion OPEB liability will pay itself off over time.
"If the plan that's all in place today continues for the next 20 years, we have solved the OPEB issue," Cheatham said at the time.
Contact writer Jared Hunt at email@example.com or 304-348-4836.