State Retiree Health Care Liabilities: Multiple Factors Contribute to Improving Picture in Many States

States paid $18.4 billion in 2013 for worker retirement benefits other than pensions, which are known as other post-employment benefits (OPEB). Almost all of this total was spent on retiree health care.1 The payments covered the cost of current-year benefits and, in some states, included funding to address OPEB liabilities—the cost in today's dollars of benefits to be paid in future years. These liabilities for covered workers totaled$627 billion in 2013. On aggregate, states had enough assets set aside to fund 6 percent of these liabilities, although there are large variations in both funded status and liabilities. Setting funds aside for future benefits can both make costs more predictable for taxpayers and make benefits more secure for retirees. This may be particularly important for states with higher levels of benefits and liabilities. The aggregate OPEB liabilities reported by states nationwide declined by 10 percent between 2010 and 2013, adjusted for inflation. This brief provides an analysis by The Pew Charitable Trusts indicating that changes in state health plan provisions and funding policies, along with lower than expected health care inflation, drove this reduction in liabilities. It also includes an examination of state OPEB assets and liabilities. The research is part of a larger look at how states handle OPEB costs. State Retiree Health Spending: An Examination of Funding Trends and Plan Provisions, a joint report released by Pew's State Health Care Spending and Public Sector Retirement Systems projects, explores the issues more broadly. Future analyses will provide recommendations on pre-funding strategies, consider the current and projected costs of workers' benefits, and examine the goal of ensuring that the cost of benefits is sustainable over the long term

The Effects of Short-Term Liabilities on Profitability: The Case of Germany

Using data from Germany this paper examines the direct effect of non-financial firms' use of short-term versus long-term liabilities. We develop a structural model of a firm's value maximization problem that predicts that profitability of the firm will change if firms alter their use of short-term versus long-term liabilities. We find that firms that rely more heavily on short-term liabilities are likely to be more profitableprofitability, short-term liabilities, maturity structure, capital structure

Fiscal adjustment and contingent government liabilities : case studies of the Czech Republic and Macedonia

To control the expansion of government contingent liabilities and reduce fiscal vulnerability, one must be able to identify and measure them. The authors discuss how this may be done and demonstrate how the assessment of fiscal adjustment may change substantially when a broader picture of government liabilities is included. They base their analysis on experience in analyzing fiscal adjustment in the Czech Republic and Macedonia. Their work demonstrates the importance of including contingent liabilities when analyzing fiscal sustainability. To the extent that explicit expenditures are shifted off-budget or replaced by guarantees, the achieved improvement in fiscal balances is overstated. For the Czech Republic, adjustment may have been overstated by some 3 to 4 percent of annual GDP. A stabilization program accompanied by a build-up of contingent liabilities, particularly state guarantees and obligations to cover liabilities emerging from directed credit, may not be sustainable. In Macedonia, the present fiscal equilibrium may be temporary because the stock of existing contingent liabilities could add 2 to 4 percent of GDP to future deficits. And methods used to reduce the"traditional"deficit are unlikely to be sustainable without further modification. The authors conclude that governments: 1) must find better ways to identify and evaluate contingent liabilities arising from the banking system, nonbanking financial institutions, public enterprises, or the contingent and direct liabilities of subnational governments; 2) need to better manage their risks--for example, building adequate reserve funds and hedging risk, where possible; and 3) should examine the implications of the bias toward adding contingent liabilities and develop administrative reform as part of analyzing budget management.Banks&Banking Reform,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Insurance&Risk Mitigation,Environmental Economics&Policies,Banks&Banking Reform,Insurance&Risk Mitigation,National Governance,Environmental Economics&Policies,Financial Crisis Management&Restructuring

Corporate Pension Policy and the Value of PBGC Insurance

This paper derives the value of PBGC pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Optimal pension funding strategy under each scenario is examined. Finally,empirical estimates of PBGC liabilities are calculated. These show that a small number of funds account for a large fraction of total prospective PBGC liabilities, that those total liabilities greatly exceed current PBGC reserves for plan terminations, and that PBGC liabilities could be substantially reduced by the prohibition of voluntary termination.

Pension Liabilities and Generational Relations: The Case of Vietnam

In the next fifty years, according to the United Nations Population Prospect (2004), an aging population is expected in Vietnam. The operation of a pay-as-you-go defined benefit pension scheme will inevitably elevate pension liabilities. These liabilities, in turn, threaten the financial sustainability of the scheme, and affect generational relations. This paper estimates the size of pension liabilities of the current pension scheme in Vietnam, and analyzes generational relations under various economic scenarios. Pension liabilities are considered by a closed-group approach. The estimated results show that pension liabilities account for a small part of 2002 GDP, and this is partially explained by two primary factors: (i) the method of estimation currently employed by the scheme, and (ii) the fact that currently the scheme covers only a small portion of the total population and labour force. It is, however, obvious that the government will have to pay existing pension liabilities, which will affect generational relations in the longer term, particularly from an economic point of view. Whether the impacts on generational relations will be serious or not depends upon payment settings and reforms of the scheme.aging; inter (intra)generational relations; pension liabilities/debts; Vietnam

Population Aging and Fiscal Policy in Europe and the United States

In this paper, we compare the total size of intertemporal public liabilities (IPLs) of several European countries and the United States. We utilize the machinery of generational accounting in order to calculate the composition of the countries IPLs, that is the sum of the explicit and implicit liabilities embedded in the respective fiscal policies. The findings suggest that present fiscal policies of all countries with the exception of Ireland have positive intertemporal liabilities and, hence, are unsustainable over the long-term. The study also confirms the claim made by advocates of generational accounting that explicit debt is a poor indicator of long-term fiscal sustainability. Among all EMU participants, those with the highest implicit liabilities report the lowest explicit debt. However, countries with the smallest or negative implicit liabilities have rather high explicit debt levels in the base year of the calculations reported here - 1995.

The value of inside and outside money

We study dynamic economies in which agents may have incentives to hold both privately-issued (a.k.a. inside) and publicly-issued (a.k.a. outside) circulating liabilities as part of an equilibrium. Our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange. We isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first-best allocation of resources. We also study the extent to which the use of private circulating liabilities alone, or the use of public circulating liabilities alone, can address the frictions that lead to monetary exchange. We identify conditions under which both types of liabilities are essential to efficiency. However, even when these conditions are satisfied, we show that political economy considerations may lead to a prohibition against private circulating liabilities. Finally, we analyze the consequences of such a prohibition for the determinacy of equilibrium, and for endogenously arising volatility.Money ; Money theory

Hungary’s external liabilities in international comparison

Hungary’s net external liabilities have increased significantly in recent years and its external liabilities-to-GDP ratio currently stands at a very high level by international standards. As the credit market crisis emanating from the Unites States has put renewed emphasis on the vulnerability of emerging economies, it may be useful to look more closely at the factors shaping developments in a country’s external liabilities in general, and those specific for the Hungarian economy in particular. A review of the academic literature sheds light on the fact that in emerging economies the increase in external debt due mainly to the gradual easing in liquidity constraints and increasing financial integration is a natural process. International comparisons appear to reinforce this view. Accordingly, similar developments have taken place in recent years in each of the newly joined EU Member States and Hungary. However, these comparisons also reveal that Hungary’s external liabilities are higher than those of countries at a comparable stage of economic development. It is also important to note that the stock of external liabilities was higher in Hungary than in other countries even in the period prior to EU accession. This implies that the outflow of income related to a country’s high external debt can by itself keep debt at a high level. Consequently, further substantial improvement in external balance and faster economic growth are required in order to reduce the external liabilities-to-GDP ratio.external liabilities, Hungary, external debt.

The value of inside and outside money: expanded version

We study dynamic economies in which agents may have incentives to hold both privately-issued (a.k.a. inside) and publicly-issued (a.k.a. outside) circulating liabilities as part of an equilibrium. Our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange. We isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first-best allocation of resources. We also study the extent to which the use of private circulating liabilities alone, or the use of public circulating liabilities alone, can address the frictions that lead to monetary exchange. We identify conditions under which both types of liabilities are essential to efficiency. However, even when these conditions are satisfied, we show that political economy considerations may lead to a prohibition against private circulating liabilities. Finally, we analyze the consequences of such a prohibition for the determinacy of equilibrium, and for endogenously arising volatility.Money ; Money theory