In this method of funding an OPEB plan, plan contributions are generally made at the same time and in the same amount as retiree benefit payments and expenses coming due. Employers that finance OPEB on a pay-as-you-go basis typically make payments directly to an insurance provider, and usually do not have an established plan entity such as a trust.

With pay-as-you-go funding, plan contributions are made as benefit payments become due and funds necessary for future liability are not accumulated. That is, contributions made are for current retirees only, causing the majority of retiree health benefits liability to be considered unfunded.