Proposal Would Create CalPERS Retiree Health Care Liabilities Fund

July 10, 2006 ( - Facing a new accounting standard governing the booking of their retiree health care liabilities, the nation's largest public pension plan proposed a new investment fund into which governments would invest dollars to cover those benefit costs.

Coupled with about $205 billion in pension assets that the California Public Employees’ Retirement System (CalPERS) already manages, the new fund would give it even more clout on Wall Street and financial markets worldwide, the Sacramento Bee reported.

Beginning in 2008, the Government Accounting Standards Board’s Statement 45 will require large governments to apply the same accounting standards used for pension liabilities to payments and services provided for retirees other than pensions (See GASB Issues New Standards for Post-Retirement Benefits ). Under the GASB rule, officials must 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.

According to the Bee report, the California State Association of Counties and League of California Cities are lobbying for the CalPERS bill, Senate Bill 1729, by state Senator Nell Soto. The measure is scheduled for an August 9 hearing in the Assembly Appropriations Committee.

The expectation is that even though government agencies won’t be required to set aside assets to pay the retiree benefit liabilities, many will want to pay that expense for fear that it would otherwise not look good to their credit rating agencies, the Bee said.

The CalPERS bill allows any public agency, from large counties to small fire districts, to invest money in a plan the fund administers. CalPERS trustees are weighing the issue and considering options ranging from providing actuarial consulting to creating a dedicated retiree health benefits investment fund. Increasingly, public agencies have urged CalPERS officials to set up a full-service program.

Advocates say it would be a natural fit for CalPERS, which administers pension benefits for the state and 1,142 public agencies, including 29 counties and 304 cities. It also is the nation’s third-largest purchaser of health care, buying more than $4 billion in coverage a year for 1.2 million state and local government workers.

Ohio’s government is one of a few that have built up a sizable fund. With current state employees contributing 4% of their salary, the Ohio Public Employees Retirement System has amassed about $12 billion in a retiree health trust.