Paying Retiree Health Costs: CalPERS Invites Local and State Agencies to Join a Benefit Trust.
By Gilbert Chan, The Sacramento Bee, Calif.
Jul. 26–The city of Thousand Oaks invested $6 million. Milpitas deposited $12.3 million. And the Sacramento City Unified School District may add $1 million.
In the coming months, cities, schools, public hospitals, colleges and other government agencies could be putting millions more into a fledgling retiree health benefit trust managed by the nation’s largest public pension fund. The goal is to generate hefty investment returns to help the state and local agencies pay the burgeoning costs to cover retiree health benefits in the decades ahead.
The 5-month-old trust has the potential to grow by billions and further boost the financial clout of the $249 billion California Public Employees’ Retirement System.
So far, four cities have signed up and deposited nearly $24 million, according to a report presented Wednesday to CalPERS trustees during the fund’s summer retreat in Sonoma County.
The city of Palo Alto and five other agencies have agreed to join but haven’t contributed yet. They are expected to bring in more than $30 million when they do. CalPERS officials say the Sacramento city schools is considering the trust and an initial $1 million deposit.
Across California, policymakers are grappling with ways to pay for billions in medical and dental benefits promised to retired employees. The state alone will have to pay $48 billion for retiree health over the next 30 years, according to California Controller John Chiang. The future bill for thousands of cities, counties, schools and special districts could top $100 billion.
Most agencies budget for the current year’s cost of retiree health benefits, leaving a huge unfunded liability because of more employees retiring and rising medical inflation. New government accounting standards require agencies to list the obligation on their balance sheets.
Agencies are looking to set aside funds to reduce the future liability. Chiang, for instance, is calling for the state to put in $2.3 billion a year.
The CalPERS retiree health benefit trust will tap the expertise of the fund’s investment staff and money managers. Officials point to an average annual return of 10 percent in the past 20 years. This past fiscal year, the fund posted a 19.1 percent gain.
About 1,100 local agencies and the state can voluntarily sign up with the new trust fund. CalPERS is pushing legislation that would allow any of California’s more than 6,000 public agencies to participate.
Government agencies aren’t obligated to invest with Cal-PERS. The fund competes with private investment firms. But officials say they are marketing the CalPERS name and track record and point out it already manages health plans for 1.2 million members.
“We see this as a three-year window of opportunity to enroll as many agencies in the state,” Ken Marzion, assistant executive, told trustees Wednesday. “It (the trust) will definitely grow.”
In addition, officials are studying a similar trust to help employees save for out-of-pocket retiree health costs. A handful of states such as Michigan offer retiree health savings plans.
CalPERS trustee Tony Olive-ira, a Kings County supervisor, pointed out his county could benefit from such a program. “We don’t offer any post-retirement health. One of the ways to keep employees at local agencies is to have some kind of post-retirement health benefit,” he said.
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Copyright (c) 2007, The Sacramento Bee, Calif.
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