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Employee benefits are certainly a hot topic – whether in
government circles, employee groups or general business
planning sessions. Recent disclosure requirements adopted by
the Government Accounting Standards Board (GASB) are shining
a spotlight on the obligations state and local governments have
to their retired employees. These obligations come in the form of
pension benefits as well as what are called “Other Post-
Employment Benefits,” or OPEB. The largest category of OPEB is
health care.
Many jurisdictions in California as well as around the country do
not have budgeted funds sufficient to meet their long-term retiree
obligations. What that means is that there is a difference between
the amount of money in retirement fund investment pools and the
amount of money that would be needed to meet
government circles, employee groups or general business
planning sessions. Recent disclosure requirements adopted by
the Government Accounting Standards Board (GASB) are shining
a spotlight on the obligations state and local governments have
to their retired employees. These obligations come in the form of
pension benefits as well as what are called “Other Post-
Employment Benefits,” or OPEB. The largest category of OPEB is
health care.
Many jurisdictions in California as well as around the country do
not have budgeted funds sufficient to meet their long-term retiree
obligations. What that means is that there is a difference between
the amount of money in retirement fund investment pools and the
amount of money that would be needed to meet
care cost obligations and the amount of money required for these obligations to be fully
funded.
These differences are called “unfunded liabilities” and the term is often used negatively when
addressing the issue of public employee benefits. Editorials speak forebodingly of the “ticking
financial time bomb,” the “fiscal horror show” and the “pending fiscal train wreck” of
“unfunded liabilities” and “runaway pension costs.” However, let’s look more closely at what
this actually means.
Indeed, some of the reported unfunded liability estimates in California appear to be staggering,
although all should be read with caution. There are only a few definitive reports on this subject
and most use out-of-date information. Some even combine pension and health care
obligations while others do not. The new GASB disclosure requirements for most jurisdictions
do not take effect until June, so authoritative numbers are months away. Some of the
unfunded liability estimates reported in the press include: CalPERS at $29 billion; the Los
Angeles Unified School District at more than $10 billion; Los Angeles County at $9 billion;
Orange County at $2.3 billion; the City of Los Angeles at $2.1 billion and the City of San Diego
at $1.4 billion. In January, the State Teachers Retirement System (STRS) formally announced
its unfunded liability at $20.3 billion. A recent and widely disputed report by the Center for
Government Analysis put the statewide liability on the pension side at $50.9 billion. It did not
estimate the health care side.
None of these numbers mean anything without some measurement of a retirement system’s
assets that are available to pay benefits. So “unfunded liability” is often expressed in terms of
percentages and, expressed that way, the numbers for many jurisdictions do not appear so
dire. With over $225 billion in assets, for example, CalPERS is more than 90% funded on the
pension side and generally speaking, any retirement system with that level of funded liability is
considered to be in very good shape. The City of Long Beach, by the way, which is a PERS
member agency, is at 98.2% funded for miscellaneous employees and at 103% funded for
safety employees.
funded.
These differences are called “unfunded liabilities” and the term is often used negatively when
addressing the issue of public employee benefits. Editorials speak forebodingly of the “ticking
financial time bomb,” the “fiscal horror show” and the “pending fiscal train wreck” of
“unfunded liabilities” and “runaway pension costs.” However, let’s look more closely at what
this actually means.
Indeed, some of the reported unfunded liability estimates in California appear to be staggering,
although all should be read with caution. There are only a few definitive reports on this subject
and most use out-of-date information. Some even combine pension and health care
obligations while others do not. The new GASB disclosure requirements for most jurisdictions
do not take effect until June, so authoritative numbers are months away. Some of the
unfunded liability estimates reported in the press include: CalPERS at $29 billion; the Los
Angeles Unified School District at more than $10 billion; Los Angeles County at $9 billion;
Orange County at $2.3 billion; the City of Los Angeles at $2.1 billion and the City of San Diego
at $1.4 billion. In January, the State Teachers Retirement System (STRS) formally announced
its unfunded liability at $20.3 billion. A recent and widely disputed report by the Center for
Government Analysis put the statewide liability on the pension side at $50.9 billion. It did not
estimate the health care side.
None of these numbers mean anything without some measurement of a retirement system’s
assets that are available to pay benefits. So “unfunded liability” is often expressed in terms of
percentages and, expressed that way, the numbers for many jurisdictions do not appear so
dire. With over $225 billion in assets, for example, CalPERS is more than 90% funded on the
pension side and generally speaking, any retirement system with that level of funded liability is
considered to be in very good shape. The City of Long Beach, by the way, which is a PERS
member agency, is at 98.2% funded for miscellaneous employees and at 103% funded for
safety employees.
| Pension and Health Care Costs for Public Retirees Crisis or Challenge? By Laura Doud City Auditor, City of Long Beach |