News Column

Fitch: Focus on OPEB Expected to Increase

June 11, 2014



NEW YORK--(BUSINESS WIRE)-- Other post-employment benefit (OPEB) liabilities will receive more focus in light of the expected changes in GASB reporting requirements and the stabilization of other state financial concerns, according to a new Fitch Ratings report.

'Despite the impediments presented by the recession and historically slow recovery, significant reforms have been undertaken. We expect this trend to continue post-recession. OPEBs are generally more flexible than pensions and their legal protection appears to be more limited, which helps to foster change,' said Laura Porter, Managing Director in Fitch's state ratings group.

'GASB is expected to revise their OPEB standards in line with revised pension reporting requirements, which could provide greater consistency in available information. The changes could also increase focus on the issue and prompt more OPEB reform.'

States with above-average OPEB liabilities often have above-average liabilities for debt and pensions as well, which is not unexpected, since the same institutional infrastructure is making decisions regarding all three. Comparatively high OPEB liabilities are also seen in states that play an above-average role in relation to local government, like Delaware, Hawaii, and Connecticut.

Fitch believes that OPEB obligations are manageable for states. The median reported state OPEB liability is 1.8% of personal income, with a range of 0%-13.8%. However, healthcare has been among the biggest drivers of state spending over time.

Fitch notes that if states pay only the annual OPEB costs they could be saddled with ballooning payments as a result of rising retirements and medical costs over time. This concern can be offset by a demonstrated ability and willingness to make changes as needed.

For more information, a special report titled 'U.S. State OPEB Liabilities' is available on the Fitch Ratings web site at www.fitchratings.com or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: U.S. State OPEB Liabilities (Liability Limited for Most; Uncertain Assumptions Drive Calculations)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749317

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Laura Porter

Managing Director

+1-212-908-0575

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Douglas Offerman

Senior Director

+1-212-908-0889

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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