The U.S. Postal Service has made the headlines in recent years with stories about the difficulty of complying with a federal law that requires the service to pre-fund the retiree health benefits it has promised.
Now California Controller John Chiang is saying that public employers in his state are also accumulating huge amounts of retiree health benefit liability.
Projections show major state public employers will face retiree health benefits promises with a total actuarial value of about $90 billion over the next 30 years, and about $64 billion in unfunded accrued retiree health benefits liability, Chiang said.
Public employees should start setting aside assets to back those benefits obligations now rather than operating on a “pay as you go” basis, Chiang said in a statement.
California has provided about $1.8 billion in the 2012-2013 budget for current retiree health and benefit costs, but it really should pay about $4.9 billion, to help pay for future state retiree benefits as well as current benefits, Chiang said.
Shifting to pre-funding would cut the total accrued liability to $42 billion, from $64 billion, Chiang said.
If the state shifted entirely to pre-funding, it could set the 2012-2013 contribution to $3.5 billion, rather than $4.9 billion, Chiang said.
Chiang also presented a state retiree health benefits analysis prepared by actuaries at Gabriel Roeder Smith & Company. The actuaries found that none of the 10 major California state employee groups has a significant amount of assets backing its retiree health benefits obligations.
The Governmental Accounting Standards Board tried to promote clarity in retiree health benefits finances by adopting “other post-employment benefits” (PEB) accounting standards in 2007. California adopted the standards in July 2007