OPEB Liability

Many financially strapped organizations across the U.S. are aiming to reduce their other post-employment benefits (OPEB) liability, with retiree medical a primary target. Options include shifting to a Medicare Exchange benefit structure, or even bankruptcy, the most extreme course of action for all involved stakeholders. Both may spark significant legal challenges, depending on the extent to which collectively bargained entities are willing to fight for their members’ rights. It’s worth noting that the size of an unfunded OPEB liability is a function of its funding strategy, the generosity of the benefit and demographics.

Here’s why OPEB is such a concern: The Federal and Governmental Accounting Standards Boards (FASB and GASB) requires that organizations calculate the annual amount an employer is required to contribute to fund benefits accrued in the current year. The calculation also involves an amount to amortize the unfunded liabilities over a specified timeframe that’s no more than 30 years.

Ultimately, the liability cannot be reduced through thirdparty funding vehicles such as Health Reimbursement Accounts and annuities. Regardless of the funding vehicle, OPEB liability is mostly tied to the amount each organization is contributing to benefits.

Sweeping program changes serve only to unnecessarily stew the ire of retirees and their union representatives who are eager to retain existing benefits, while also incurring substantial legal costs.

A Retiree Benefit Choice defined contribution model solves these issues. In a nutshell, fixed costs control OPEB liability. Administration is outsourced. Unions and retirees are satisfied with a program that allows them to maintain a custom plan with comprehensive coverage, while also having the flexibility to access a Medicare Exchange. Everyone wins.