CalPERS Approves Plan for Pre-funding Health Benefits

October 19, 2006 ( - The California Public Employees' Retirement System (CalPERS) announced that it has approved regulations that would authorize the system to develop a pre-funding plan for retiree health care coverage.

In a press release, CalPERS said the new plan provides for the system to develop a new investment option for employers that participate in the CalPERS Health Benefits Program, allowing them to bank money to pre-fund future health care benefits for their retirees.

Pre-funding offers a lower cost option for government employers, as earnings on assets could reduce employer contributions significantly, CalPERS said. “By drawing on the same expertise that has given us returns on our investment fund, we can help mitigate some of the burden of funding retiree health benefits,” said Rob Feckner, CalPERS Board President, in the news release. “This would allow our member agencies to better manage future health costs.”

In February, California’s Legislative Analyst’s Office (LAO) issued a report on the state’s retiree health care funding crisis, suggesting pre-funding as an answer (See CA Accountability Group Suggests Pre-funding Retiree Health Care ). The LAO’s report said that, under the new Government Accounting Standards Board (GASB) Statement 45 accounting rule, government retiree health liabilities are likely to be in the range of $40 billion to $70 billion. The LAO’s rough guess of the state’s cost for full pre-funding under GASB 45 is around $6 billion annually.

Beginning in 2008, GASB 45 will require large governments to book the long-term cost of employee health retirement benefits on their balance sheets and disclose the amount needed each year to fund the entire obligation (See GASB Issues New Standards for Post-Retirement Benefits ).

According to the press release, this spring CalPERS obtained authorization from the California Department of Finance to spend up to $2.9 million on a program to assist contracting public agencies in pre-funding future health care benefits. CalPERS made a proposal for the new investment fund to pre-fund retiree benefits in July (See Proposal Would Create CalPERS Retiree Health Care Liabilities Fund ).