Human Capital & Careers

OPEB Shortfall Exceeds That of Pensions

''Other post employment benefits'' aren't backstopped by any legal requirement to create a trust entity to fund current or future OPEB costs.
Stephen TaubDecember 19, 2005

Overshadowed by all the worries about underfunded corporate pension plans, there’s another category of implicit promises that are even less adequately funded, according to Standard & Poor’s.

Other post employment benefits (OPEB) mostly entail medical costs paid to retired workers. According to S&P, these benefits may be contractual or implied, and they usually require retiree contributions in the form of monthly premiums and direct co-payments for services and products rendered.

For the S&P 500, the ratings agency reported, the underfunded OPEB liability totals $292 billion, compared with $150 billion for those companies’ underfunded pensions.

“The state of OPEB is extremely unsettling,” wrote S&P analyst Howard Silverblatt, in a press release. Unlike pensions, which are regulated, there exists no legal requirement to create a trust entity to fund current or future OPEB costs, S&P pointed out. The ratings agency also observed that tax treatments and credits set up specifically to encourage pension funding do not exist for OPEB costs. S&P further noted that 88 percent of pension obligations are set aside in trusts, compared with only 22 percent for OPEB obligations.

Ford Motor Co. and General Motors Corp. account for 32 percent of the unfunded OPEB amount in the S&P 500, compared with 13 percent of the pension underfunding. All in all, the two automakers are a combined $20 billion underfunded in pensions and $94 billion underfunded for OPEB, according to S&P.

The telecommunications industry’s OPEB is also significantly underfunded, the rating agency noted.