State Retiree Health Care Liability Decreases
May 16, 2019
The state’s net liability for retiree health and dental benefits has gone down to $85.59 billion, according to a report published yesterday by State Controller Betty T. Yee. The liability, often referred to as the Other Post-Employment Benefits (OPEB) liability represents the present-day cost to provide health and dental benefits to state retirees and their dependents earned as of June 30, 2018.
A year earlier, the state’s OPEB liability was $91.01 billion. Factors that have contributed to the $5.42 billion decrease in California’s OPEB liability include changes in the discount rate, which is based on a municipal bond index and the state’s prefunding policy; increased favorable experiences with health care claims; and plan design changes implemented by CalPERS. The report cautions that while a decline in OPEB liability is a step in the right direction, long-term sustainability will require continued vigilance as the state experiences a significant increase in new retirees that will challenge cost controls.
In January 2010, California began entering into collective bargaining agreements with the state to prefund retiree health care benefits. Prior to this, California covered retiree health care benefits strictly as costs came due. As of June 2018, 22 out of 25 membership groups, or approximately 78 percent of active covered members, had entered into prefunding agreements. If the increase in prefunding health care continues, by 2046, it is estimated the state will be 100 percent caught up in funding the pay-as-you-go “legacy liability” and retiree benefit claims will begin to be paid from the California Employers’ Retiree Benefit Trust Fund rather than the General Fund.