The Utah Legislature should require higher education to:

* Assess the liability of the state's 10 public colleges and universities by having actuarial studies of post-retirement benefits completed by 2007.

l Standardize assessments used in assumptions for medical inflation rate.

l Modify or eliminate benefits to a level that is affordable.

l Make needed changes to benefit plans instead of asking the Legislature or students to fund obligations.

l Consider fiscal sanctions if progress reported by higher education institutions during the 2007 session is unsatisfactory. Utah public colleges and universities likely will have a shortfall in covering future retirees' benefits, according to a report by the legislative auditor general.

Based on an evaluation, the auditor general estimates that higher education could have a potential liability of $979 million in retirement benefits, increasing the risk of being unable to pay its future obligations.

Higher education officials question the report's estimates and responded that the shortfall is projected over 35 years, and should not be construed as a current liability.

About $633 million of the $979 million is committed to current employees with years of service and is, for the most part, unfunded, the report estimates. The remaining $346 million represents the additional costs if the benefit plans are allowed to continue without changes.

"Our estimates show that higher education's liability appears greater than the state's [public employee retirement system] because it offers post-retirement salary stipends not available to other employees," Audit Supervisor Janice Coleman told the Legislative Audit Subcommittee on Thursday. "It's a benefit-cost issue."

The University of Utah is in the process of terminating its 35 percent contribution to Medicare-eligible retirees, effective Dec. 31, she added.

Much of the liability is from "post-retirement health insurance," Coleman said. Colleges and universities also offer additional benefits beyond those offered by the state.

But higher education officials dispute the report. There are too many dissimilarities, they say, between post-retirement benefits for public employees and higher education early retirement plans to compare the two, as the report does.

Mark Spencer, higher education's finance boss, told the committee a financial study of the benefit plans will be made over the next six months. "We want to know these benefits are covered," he said.

Spencer pointed to the response - included with the 35-page bound report - from Higher Education Commissioner Richard Kendell. The commissioner said the report was "designed to estimate a potential need" but it is not an actuarial study based on statistical insurance risks.

The report, Kendell wrote, is "based on the assumption that behaviors and policies regarding post-retirement benefits in a public school district provide a reasonable basis for estimating early-retirement benefits" in Utah higher education. This assumption "may or may not be supported by an actual investigation" of higher education's benefit plan, he said.

"The report infers that in a single year, a $979 million charge is dangling over higher education. The $979 million calculation, even if it were accurate, is the total cost of the benefits spread over 35 years," Kendell noted. "It's highly unlikely that such a liability would come due in the lump sum as implied."

Like many private corporations, the state is taking steps to control retirees' benefits costs. Legislators passed House Bill 213 during the 2005 session that reduces future benefits for current state employees while honoring the benefits they have already earned, the report said. That legislative action allows the state to avoid an estimated $374 million in future costs.

The Legislative Audit Subcommittee, consisting of Senate President John Valentine, House Speaker Greg Curtis and Democrats Sen. Mike Dmitrich and Rep. Ralph Becker, didn't raise any questions.

Dmitrich moved to send the report to the several legislative committees, among them, the Executive Appropriations and Higher Education standing committees.

sykes@sltrib.com