Vermont’s long-term obligations for retiree health care benefits remain a major financial burden, even as the state has begun setting aside more money to address them.

A Fiscal Year 2025 update from the Vermont Joint Fiscal Office outlines the status of the Other Post-Employment Benefits (OPEB) systems tied to the Vermont State Employees’ Retirement System (VSERS) and the Vermont State Teachers’ Retirement System (VSTRS). OPEB refers primarily to subsidized health care benefits promised to retirees, separate from pension payments.

The numbers show that while the state has accumulated some assets in these trust funds since prefunding began in 2023, the liabilities remain far larger than the amount saved.

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Funded ratios remain low

As of FY2025, the VSERS OPEB system is reported at 16.6% funded. The VSTRS OPEB system is reported at 13.6% funded.

A funded ratio compares the assets held in the trust fund to the total projected liability for promised benefits. In both cases, Vermont has set aside less than one-fifth of the amount actuarially projected to be owed over time.

State law calls for reaching 100% funding by FY2048 through a closed amortization schedule, meaning the unfunded liability is intended to be paid down over a fixed period.

Total liabilities exceed $2.5 billion

The largest issue described in the report is the scale of the unfunded liability.

For FY2025:

• VSERS ended the year with a total OPEB liability of approximately $1.35 billion.
• VSTRS ended the year with a total OPEB liability of approximately $1.20 billion.

Against those totals, the systems held:

• $223 million in assets for VSERS
• $163 million in assets for VSTRS

That leaves unfunded liabilities of:

• $1.12 billion for VSERS
• $1.04 billion for VSTRS

Combined, Vermont faces more than $2.1 billion in unfunded retiree health care obligations across these two systems.

These liabilities represent benefits already promised under current plan structures. They are not optional forecasts; they are actuarial estimates of what will need to be paid over time for retiree health subsidies.

Annual required contributions are rising

Because the liabilities are large and the funded ratios remain low, the required employer contributions are increasing.

The report provides Actuarially Determined Employer Contribution (ADEC) projections — the amount the employer must contribute each year to cover both:

• the normal cost of benefits being earned now, and
• an amortization payment toward the unfunded liability.

For FY2027, the projected required contributions are:

• $105.4 million for VSERS OPEB, an increase of about 12% from FY2026
• $99.8 million for VSTRS OPEB, an increase of about 25% from FY2026

Combined, that is roughly $205 million per year that must be budgeted for retiree health benefit funding.

These contributions are paid by the state as employer — meaning they ultimately come from taxpayers through state revenues.

Health care assumptions increased liabilities

The report notes that both systems saw their liabilities rise during FY2025 even though funded ratios improved slightly.

The main driver was a revision upward in health care cost trend assumptions. In plain terms, actuaries now project retiree health care costs will grow faster than previously expected, increasing the estimated amount Vermont will owe in the future.

For FY2025, changes in actuarial assumptions added:

• $64.8 million to the VSERS liability
• $183.2 million to the VSTRS liability

This illustrates that liability growth is not solely tied to benefit payments or investment performance, but also to the underlying cost trajectory of health care.

Investment returns exceeded assumptions

The trust funds generated net investment income in FY2025, and returns exceeded the assumed 7% rate for the third year in a row.

In FY2025:

• VSERS generated about $20.95 million in net investment income
• VSTRS generated about $16.53 million

Combined investment income totaled approximately $37.5 million.

Investment gains will become a larger factor over time as assets grow, but at current funding levels the systems remain dominated by the size of the unfunded liability rather than investment earnings.

Taxpayer exposure remains the central issue

The central financial question raised by the update is not whether assets are increasing — they are — but the scale of the remaining obligation.

With more than $2 billion still unfunded, Vermont taxpayers remain responsible for making up the difference over the coming decades through annual budget appropriations.

Before FY2023, Vermont did not prefund OPEB on an actuarial basis. Instead, the state largely paid only the cost of benefits for current retirees each year, with occasional one-time funding from General Fund surpluses.

The shift toward actuarial prefunding increases transparency but also formalizes the size of the required payments.

As annual required contributions rise, they will continue competing with other budget priorities, including education spending, health care programs, transportation, and general government services.

Long-term payoff schedule extends to 2048

Under current policy, Vermont intends to reach full funding by FY2048. That timeline assumes contributions are made as required and actuarial assumptions hold.

However, the systems remain early in the amortization period. The report notes that current contribution levels are not yet sufficient to fully offset the service cost and interest accruing each year, meaning the unfunded balance is not yet being paid down substantially.

The FY2025 update makes clear that Vermont’s retiree health care obligations remain a large, long-term liability with increasing required payments — and that the ultimate cost will continue to fall on future state budgets and Vermont taxpayers.

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Dave Soulia | FYIVT

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