Blogging Employee Benefits

February 19, 2006

Retiree Health Liabilities for California Public Employees

Filed under: OPEBs, PERS — Fuguerre @ 10:18 am

Recognizing the state’s current fiscal condition, we recommend that the state ramp up to an increased level of contributions over a period of several years. The near-term target should be the state’s normal cost level under GASB 45–the amount estimated to cover the cost of future retiree health benefits earned each year by current employees. This amount might be in the range of about $1 billion above what the state spends under the current pay-as-you-go approach.

Retiree health liabilities for California public service retirees under new accounting standards is likely to range from $40 billion to $70 billion, according to a report prepared by the state’s Legislative Analyst’s Office. The state pays an amount that covers all of the retiree health premium for some of its members, funding the state’s costs on a pay-as-you-go basis. Since 2000, retiree health expenditures by California for its public employees have increased 17 percent annually and are expected to exceed $1 billion in the 2006-07 fiscal year (about half of the estimated normal cost for the program). The report suggests action that could be taken to address the state’s retiree health liabilities and costs. [Retiree Health Care: A Growing Cost for Government, Hill, 2/17/06]

  • Greater Disclosure and Planning – The report recommends actions to make information on retiree health liabilities more accessible to state policy makers, researchers, and the public, including Internet posting of actuarial valuations and creation of a working group on state retiree health funding.
  • Funding of Retiree Health Benefits – The report recommends that the state begin to partially pre-fund retiree health benefits for public employees. Initial state costs for retiree health would double under the report’s suggestion.
  • Reduction of Future Retiree Health Costs – The report suggests consideration of options for reducing the state’s retiree health costs for future employees, including raising the number of years required to vest in retiree health benefits, shifting a greater share of the premium to employees or retirees, and establishment of a defined contribution program.

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