LOS ANGELES — California has made significant progress towards the security and sustainability of retiree health benefits by including gradual prefunding in collective bargaining agreements with state employees, according to State Controller Betty Yee.
But the state is still decades away from hitting its goal of 100% prefunding the massive liability, according to a report Yee released Wednesday.
The state’s cost for retiree health benefits, commonly known as other post-employment benefits, or OPEB, has grown to $91.5 billion under the new accounting standards created by the Governmental Accounting Standards Board.
“While the accounting changes rightly increase transparency and encompass the full picture of the state’s liabilities for retiree health care, the OPEB liability will be unpredictable and will remain a paramount fiscal challenge over the next three decades,” Yee said.
GASB Statement No. 75 is expected to increase the balance sheet liability, because the entire unfunded actuarial liability is recognized on the balance sheet, according to the report.
“In addition, the balance sheet liability is projected to be more volatile, because the unfunded actuarial liability will be based on a blended discount rate that changes at each measure date as the 20-year general obligation bond index changes,” the report said.
The state will not reach its goal of prefunding 100% of the liability and paying claim benefits through the California Employers’ Retiree Trust Fund, rather than the state’s general fund, until 2048, Yee said.
The new GASB standards required state and local governments to report their entire OPEB liabilities on financial statements beginning in fiscal 2017-18.
California began entering into collective bargaining agreements to prefund retiree health care benefits in January 2010. Prior to this, California paid for retiree health care benefits on a pay-as-you-go basis, covering costs as they came due.
California Gov. Jerry Brown reached agreements in December with judicial branch employees and 21 state employee unions to move the state into prefunding the cost with increasing contributions from employees and the state over the next few years.
“These incremental steps meaningfully reduce the state’s liability,” Yee said.