California: Total liability unclear

Bakersfield Californian 1/28/07

By Vic Pollard

The giant pension fund for most California government employees still has no clear idea of what its future costs for health insurance for retirees will be, but Gov. Arnold Schwarzenegger has launched an effort to find out.

In late December, the governor created the Public Employee Post-Employment Benefits Commission to study the issue of unfunded liabilities for both pensions and future retiree health costs and recommend steps to address the issue.

"We must seek ways to meet these obligations while not harming other government programs and taxpayers or handing invoices to future generations," Schwarzenegger said.

Estimating future retiree health insurance costs, which must be accounted for beginning next year, will be the knottiest problem.

The Legislative Analyst's office has estimated the unfunded liability for health benefits for retired state employees at $40 billion to $70 billion, and some estimates put it as high at $100 billion, almost equal to the state's total annual budget.

Experts say those figures could be doubled when they include the future retiree health benefit costs for local government agencies that participate in the California Public Employees Retirement System, such as the City of Bakersfield.

Officials do know that current spending for health benefits for retired state employees alone has soared to more than $1 billion this year. That comes directly out of taxpayers' pockets. Unlike pension plans, it is not prefunded with employee and employer contributions.

Unfunded pension liabilities for both retired state workers and teachers, who belong to the California State Teachers Retirement System are no mystery -- but they remain an ominous burden for both taxpayers and the members of the two systems.

That figure amounts to about $27 billion for the $230 billion CalPERS fund and $20 billion for the $156 billion CalSTRS program.