Liability for retiree benefits other than pensions
Auburn, Calif.- Placer County is making progress in a drive to reduce its unfunded liability for retiree benefits other than pensions.
The latest evidence is a report that pegs this year’s unfunded liability at $192 million. That is down $20 million, or more than 9 percent, from the $212 million recorded for 2009.
This year”s unfunded liability is down about 17 percent from the $232 million reported in 2007.
In 2006, the Placer County Board of Supervisors approved a plan for reducing the county’s unfunded liability for medical, dental, vision and other benefits that generally are known as other post-employment benefits, or OPEB for short.
The reductions over the last two years are particularly noteworthy because they came at a time when health insurance premiums and other OPEB costs continued to increase.
Placer County’s unfunded liability is the difference between OPEB benefits already earned by its current workforce and retirees that the county expects to pay over the years and the money the county has set aside to cover OPEB costs. It does not take into account OPEB benefits that will be earned in the future by county employees.
The Board of Supervisors reviewed the OPEB report at its March 22 meeting.
‘I think we’re making great strides,’ Supervisor Jim Holmes said.
Unfunded OPEB liabilities have made headlines nationwide because many local governments are facing growing gaps between projected costs and revenue and are struggling to develop long-term OPEB funding plans at a time they already are having a hard time keeping budgets balanced.
In the past, local governments generally covered OPEB obligations on a pay-as-you-go basis each year.
In 2004, the Government Accounting Standards Board began requiring local governments to report unfunded OPEB obligations on annual financial statements.
The standard does not require government agencies to forgo the pay-as-you-go approach, but Placer County and many other local governments have moved to establish interest-earning trust funds so OPEB costs are funded similar to pension obligations.
Under the plan approved by the board in 2006, Placer County has:
- Over three budget cycles, placed $25 million in general fund revenue into a interest-earning trust account;
- Set aside funds when new employees are hired to cover part of their projected OPEB costs;
- Moved to have employees pick up a larger share of their health insurance costs;
- Joined the California Employer’s Retiree Benefit Trust Fund operated by CalPERS.
Placer County expects to receive higher investment earnings through the CalPERS program than it could by managing trust funds on its own.