The Bay State's comptroller's office announced that the state faces a potential $13.3 billion shortfall for the retirement benefits it has already promised, the Boston Globe reported. State officials had to calculate where they stood with funding the future retiree benefits by a new national accounting rule aimed at making cities and states acknowledge the true cost of paying and giving benefits to their retirees (See GASB Issues New Standards for Post-Retirement Benefits).

Once the retiree benefit liability figures are made public, cities and states will effectively be forced to fund them or face possibly being downgraded by credit reporting agencies, according to the news report.

"This is a number that really creates a sobering effect in terms of future collective bargaining agreements and decisions regarding the extent to which the state and cities and towns would continue to provide the same level of health insurance for retirees," Sam Tyler, the president of the Boston Municipal Research Bureau, a nonpartisan fiscal watchdog group, told the group.

While the official disclosure deadline is at least 18 months away, Massachusetts chose to disclose early because "we wanted to understand what the ramifications were and start thinking about options," state comptroller Martin Benison told the newspaper. "The Commonwealth is on the front edge of this, and in the next couple of years we need to have dialogues about what we want to do about it."

For their part, municipal credit rating agencies want cities and states to create "prudent, practical, reasonable, coherent plans to deal with this issue," although it is unlikely that downgrades are imminent, Parry Young, an analyst at Standard & Poor's, told the Globe. "From our standpoint we would like governments to jump on this problem, especially if it's a significant one, and start developing plans for how they're going to deal with it."

About a dozen other states have reported their unfunded retirement benefit liabilities so far, including California ($40 billion to $70 billion), Michigan ($25 billion to $30 billion), Maryland ($20 billion) and Utah($500 million), Young said.

Fred Schneyer
editors@plansponsor.com