Concerns Growing Over State’s Obligations for Retiree Health Benefits
California officials have signaled concern that the state's pension costs might be unsustainable in the coming years, partially because of the state's unfunded liability for public worker health benefits, Capitol Weekly reports.
A Government Accountability Office study released in November suggested that health care costs will contribute to state and local government budget problems over the next 10 years. The report also estimated that the cost of retiree health benefits would grow by 6.7% over the next four decades.
In addition, California Controller John Chiang (D) recently announced that the state's unfunded liability for health care benefits for retired public workers had increased to $51.8 billion, up $3.6 billion from a year earlier (Mendel, Capitol Weekly, 2/18).
California is not the only state struggling with a growing problem of pension obligations, according to a new report released Thursday by the Pew Center on the States.
The report found that state governments across the country currently face nearly $1 trillion in combined pension obligations for public workers.
In total, states have promised about $3.4 trillion worth of health, pension and other retirement benefits to public employees, but have allocated only $2.4 trillion to pay for the benefits. The report also notes that the gap might be larger than projections because the study did not consider the full impact of investment losses in 2008 or different state accounting practices.
Pew calculated a national cost of $587 billion for non-pension public retirement benefits -- including health care benefits -- with only 5% of that obligation funded as of 2008 (Scolforo, AP/Miami Herald, 2/18).
In California, CalPERS and the California State Teachers' Retirement System have set aside less than 1% of the $62 billion necessary to cover lifetime health insurance benefits for retirees, the report noted (Lifsher, Los Angeles Times, 2/17).
Gov. Arnold Schwarzenegger's (R) Public Employee Post-Employment Benefits Commission and Chiang have recommended changing the pay-as-you-go system for retiree health care benefits and prefunding the costs through annual contributions that could generate investment earnings (Capitol Weekly, 2/18).Â
The Pew report recommends curbing future state pension costs by:
- Boosting employee contributions;
- Improving pension fund management;
- Reducing benefits for future employees; and
- Raising retirement ages (Los Angeles Times, 2/17).
"[A]t some point California has to get serious about its long-term fiscal obligations," a San Diego Union-Tribune editorial states, adding, "Each time retiree medical benefits aren't fully funded in the annual state budget, that increases the overall long-term liability and makes the shortfall more costly to address in the following budget."
The editorial suggests that lawmakers "can start to address the unfunded liability problem in two ways: by increasing what current state workers have to pay toward their retirement benefits and by ending retirement medical benefits for all new hires" (San Diego Union-Tribune, 2/15).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.