Connecticut’s unfunded debt for retiree healthcare and other benefits, known as Other Postemployment Benefits (OPEB), has decreased by $4 billion over the past year, according to a recently released actuarial report. The state’s unfunded liabilities for OPEB were previously valued at $19.5 billion in June 2022 but have now dropped to $15.5 billion due to a change in the discount rate.
The discount rate is used to estimate the expected return on the fund’s assets invested in the market. Changing the rate can significantly impact the net liabilities for a pension or OPEB fund, as well as the amount the state is required to save to cover its obligations. In this case, Connecticut adjusted its OPEB fund discount rate from 2.31 percent to 3.9 percent, resulting in a decrease in the state’s annual required contribution.
The change in the discount rate has led to a decrease in Connecticut’s OPEB fund service cost from $1.2 billion to $906 million per year, saving the state approximately $300 million. Additionally, the trust fund’s position has improved from being 10.12 percent funded to 12.63 percent funded.
This marks the second consecutive year of significant decreases in Connecticut’s OPEB debt by more than $4 billion. The recent decrease is mainly attributed to securing new Medicare Advantage rates by the Comptroller’s Office, resulting in a reduction of OPEB liabilities by $4.9 billion.
Connecticut’s OPEB debt has been a longstanding issue, as the state had saved nothing for retirement health benefits prior to 2009. However, recent efforts to save and pay down the debt have shown positive results. In addition to the decrease in OPEB debt, the state has also paid down a substantial amount of its pension debt, resulting in overall yearly savings for government operations.
While the new actuarial reports for Connecticut’s pension funds are not yet publicly available, the state’s total OPEB liabilities have decreased from $21.7 billion in 2022 to $17.7 billion in 2023. The OPEB trust fund covers 130,170 members, including active and retired state employees.
Source: Actuarial report on Connecticut’s OPEB fund and pension funds.