6-8-07 Governor's Commission on Public Employee Postemployment Benefits Holds Second Meeting

Volume 20 For Publication Date: June 8, 2007 No. 13

Governor’s Commission on Public Employee
Postemployment Benefits Holds Second Meeting

The Governor’s Commission on Public Employee Postemployment Benefits (OPEB) held its second meeting on May 31, 2007, in Rancho Cucamonga in San Bernardino County. The focus of this hearing was health care.

At the outset, it was announced the next Commission hearing would be in Burlingame on July 12. In addition, Commission hearings are now available via webcast at pebc.ca.gov.

During public comment, the vice president of the California State Employees Association described the recent $48 million OPEB valuation for the state released by the Controller as no cause for panic and an obligation that can and should be paid over time, much like pension obligations.

A representative from the California Retired County Employees Association (CRCEA) also spoke and highlighted AB 552, the two-year bill that requires counties to provide retiree health insurance at no more than 102% of the cost for actives.

Individual testimony was taken and a number of folks pointed out that some employees otherwise eligible to retire cannot do so because of the lack of health insurance after retirement needed for themselves or family members.

The State Controller’s Office (SCO) representatives made a presentation on the state OPEB valuation and stated the valuation had several discount rate options, but said if a trust fund with a discount rate of 7.75% were used, the valuation drops to $31 billion. The actuarial assumptions used were best-estimate assumptions, as used by the Public Employees’ Retirement System (PERS). Specifically, the SCO looked at average retiree health costs, health plan provisions, and participation in healthcare programs, which is about 90% for the state. A current healthcare inflation rate of 10% was assumed, but the assumption includes a decline in the rate of cost increases to 4.5% over the next ten years.

The 2007-08 budget year OPEB cost for the state is $3.6 billion, of which only $1.4 billion is expected to be appropriated in the Budget Act. The SCO also stated it has formed a guidance committee, but did not address its membership. Finally, the SCO made the suggestion that California must pre-fund retirement as a fiscally prudent policy and that collective bargaining must also play a role in forming solutions to the healthcare problem.

The California Legislative Analyst’s Office (LAO) read from a 1929 report that led to the authorization to pay retirement benefits to state employees. The report cited that a policy for retirement benefits that employs a pay-as-you-go philosophy invites disaster. The LAO estimates retirement benefits may be only one-fourth of today’s levels if the guidance of the 1929 report had not been followed by the Legislature. Thus, the LAO expressed that a similar approach for retiree healthcare should be considered.

The LAO went on to state the overall UAAL for healthcare for PERS, the State Teachers’ Retirement System (STRS), the University of California, and the California State University is $101.7 billion. The LAO also informed the Commission that retiree health expenditures will grow faster than state revenues and other expenditure programs and possible new state revenues will be required. Otherwise, the general strategy suggestions were to pre-fund or change benefits in the future.

Lastly, the LAO said $1.2 billion is the amount needed annually to be put into a trust over 30 years to lower state OPEB liability to zero.

Both PERS and STRS gave overviews of their healthcare programs. To view the PowerPoint presentations, Go to http://www.pebc.ca.gov/images/files/JarvioGrevious.pdf and http://www.pebc.ca.gov/images/files/JackEhnes.pdf

All meeting materials and additional information can be found at http://www.pebc.ca.gov/.

—Jamillah Moore, Ed.D.