Industry News

On February 26, 2019, the National Conference of Public Employee Retirement Systems (NCPERS) published its report, Financing Retiree Health Strategies in the Public Sector.  The research paper discusses prefunding retiree health care coverage as well as various funding vehicles available in the public sector.  It also provides an overview of the current retiree health care environment and presents other strategies for offering alternative or enhanced retiree health care financing arrangements.

According to NCPERS, retiree health care costs are increasing at compounding rates due to:   increasing numbers of retirees; increasing longevity; general medical inflation; and prescription drugs.  To manage these escalating costs, the advantages of prefunding retiree health care include:

• Spreading the cost more evenly from a cash flow perspective;
• Reducing future liabilities through the realization of investment returns on assets set aside;
• Maintaining or enhancing financial ratings; and
• Securing funding and assets through formally designed structures and trust vehicles.

The report concludes, “Retiree health costs continue to be on the minds of elected leaders, governmental management personnel, finance officials, unions, employees, and retirees. Further, public entities are entering an environment where recruiting and retention needs will require creative yet budget-conscious solutions as they compete for talent with the private sector.  Prefunding retiree health care is one strategy that could help some entities address these challenges.”

The report is available here.