SAN FRANCISCO — California public employers reported at least $118 billion of unfunded liability for retiree benefits other than pensions, according to a report issued Monday by a state government commission.

The state itself reported about 41% of that liability for other post-employment benefits, according to the report from the Public Employee Post-Employment Benefits Commission.

Gov. Arnold Schwarzenegger established the commission in December 2006 with an executive order; it was tasked with offering proposals to address the pension and retiree health care obligations of governments in California.

The Republican governor appointed six of the 12 commissioners, with the balance appointed by the Democratic leaders of the Assembly and Senate.

Governmental Accounting Standards Board Rule 45 requires governments to conduct actuarial valuations of their non-pension post-employment benefits, primarily health insurance; the rule is being phased in, starting with the largest governments.

The California state government reported its unfunded liability of $47.88 billion in May, but many other governmental bodies in the state haven’t reached that point, according to the commission’s report.

“Given the limited number of agencies that provided the results of their OPEB actuarial studies, it is difficult to project those findings with accuracy in order to determine the unfunded actuarial accrued liability (UAAL) for all public agencies within California,” the report said. “Based on responses received, the UAAL will be at least $118 million pursuant to the reporting rules adopted by GASB.”

The final report contains 35 recommendations, which include:

• Pre-funding OPEB liabilities, rather than using the pay-as-you-go method that most governments currently use.

• That any employer considering OPEB bonds “fully understand, and make public, the potential risks,” which include cost-shifting to future generations and converting an estimated liability to a fixed debt.

• That, for future hires, OPEB benefits be proportionate to years of service and provided only to employees who have recently worked for a government or agency.

• And that the state lobby for federal tax law changes that, among other things, would make it easier to pre-fund benefits.

Schwarzenegger issued a statement thanking the commission for its work and promising he will submit a formal plan to address the issue within 30 days.

State Controller John Chiang issued a statement endorsing the recommendation to pre-fund OPEB benefits, adding that California will release its next actuarial evaluation in the fall.

“Pre-funding health benefits for current and retired state employees needs to be part of any responsible plan,” Chiang said.


Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.