Vermont Employee Retirement Benefits: 4. Vermont’s Pension and Other Post-Employment Benefit Liabilities 2018


The Vermont state government’s largest set of liabilities relate to pensions and other post-employment benefits.  Over the last two years, these liabilities and their annual costs have increased sharply. This article will outline the extent of these liabilities and the reason they continue to grow.

There are four major state sponsored programs that will be discussed below, as follows:

  1. Vermont State Retirement System
  2. State Teachers Retirement System
  3. Vermont State Post-Employment Benefits Trust Fund (“VTOPEB”)
  4. Retired Teachers Post-Employment Benefits Trust Fund (“RTOPEB”)

The Vermont State government is fully responsible as the “employer” for all of the above programs.  The state government also manages the Municipal Employees Retirement System, but the underlying financial obligations lie with the various participating municipalities.

Growing Liabilities

The Vermont State Retirement system and the State Teachers Retirement System are both defined benefit pension plans with very large dedicated investment funds.  The two Other Post Employment Benefit programs have only small investment funds and are basically pay-as-you-go schemes providing retiree health insurance.  The chart below shows the net liability of these programs: the amount by which total estimated liabilities exceed any investment funds.

Net Retirement and Post-Employment Benefit Liabilities ($ millions)

Plan Fiscal Year 2016 Fiscal Year 2018 Change
Vermont State Employees Retirement System 661.9 767.1 105.2
State Teachers Retirement System 1309.5 1510.7 201.2
VTOPEB 1,144.5 1,218.5 74.0
RTOPEB 677.9 954.3 276.4
TOTAL 3,793.8 4,450.6 656.8

Source: Vermont Comprehensive Annual Financial Report Fiscal Year 2016 and 2018

As outlined above, the total liabilities of these four programs have increased by $656.8 million in just two years. The increase alone almost equals Vermont’s total direct state debt.

The annual cost to Vermont is also increasing, as follows:

Annual State Government Contributions to Retirement and Post-Employment Benefits ($millions)

Plan Fiscal Year 2016 Fiscal Year 2018 Change
Vermont State Employees Retirement System 54.3 64.6 10.3
State Teachers Retirement System 73.2 110.4 37.2
VTOBEB 32.5 33.0 0.5
RTOBEB 16.4 29.8 13.4
TOTAL 176.4 237.8 61.4

Source: Vermont Comprehensive Annual Financial Report Fiscal Year 2016 and 2018

Why Are the Liabilities Increasing?

Over the last two fiscal years, the actual cash inflows into the two pension funds were positive.  The sum of employer contributions, employee contributions and investment returns exceeded the total benefits paid out.  All things being equal, this would have the effect of reducing the pension liability.

With respect to the two OPEB programs, these are largely pay-as-you-go schemes and the state government simply pays out the exact annual costs. Benefit payments over the last few years have been quite stable.  Again, there would appear to be no reason to increase the underlying OPEB liabilities.

In fact, the pension and OPEB liabilities are determined by actuaries using a wide variety of assumptions to make 25-30 year forecasts (mortality rates, inflation rates, discount rates, cost of living index rates, health care costs, pay increases….).  Every new forecast comes with a new set of assumptions and these changes in assumptions are causing the increase in estimated liabilities.

The financial reports actually keep tabs on the impact of i) changed assumptions, and ii) the difference between expected results and actual results (i.e., wrong assumptions). In the Vermont State Employees Retirement System, changes in assumptions since 2016 added $42.7 million to the liability and the difference between expected and actual results added a further $102.6 million. There are similar outcomes in all the other programs.

Impact on State Payments

In all of these retirement programs, a Board of Trustees is granted the authority, based on the actuaries’ estimated annual state government contribution, to make a recommendation to the Governor that “preserves the financial integrity of the program”.  Guess what? As the actuaries’ estimated total liability increases, the amount of the recommended annual state government contribution increases as well.

Key Observations

The Assumptions Are Wrong: The only certain thing about pension and OPEB liabilities is that the assumptions used to calculate them are wrong.  Therefore, the actual liabilities are either too high or too low. Only time will tell.

The Annual State Payments are Also Wrong: Just like the underlying liabilities, the amount of money the state pays into these programs each year is either too high or too low.  Given the size of the current net liability, historic state payments appear to have been too low.

The Retirees Will Get Their Money: As a retired employee of Vermont, you have nothing to worry about.  You are contractually entitled to your benefits.  No matter how accurate the estimates of the state’s total liability, you will get paid.

Related Articles

  1. Vermont Employee Retirement Benefits: Pensions
  2. Vermont Employee Retirement Benefits: Health Insurance and Vermont’sTotal Benefit Cost:











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