Governor Signs Executive Order Creating Commission to Address Unfunded Health Care and Pension Liabilities
Governor Schwarzenegger is working to protect government programs and ensure a balanced state budget by addressing the skyrocketing and largely unknown costs of governments' retirement benefits liabilities.
By Executive Order, the Governor established an Employee Retirement Benefits Funding Commission to:
- Identify the full amount of retirement health and dental benefits for which California governments are liable but which remain unfunded.
- Evaluate and compare the various approaches for addressing governments' unfunded retirement health care and pension obligations, and propose a plan to do so.
The Commission will be made up of 12 members, six of whom will be appointed by the Governor. Three of the members will be appointed by the Speaker of the Assembly and three will be appointed by the Senate President Pro Tempore. The Governor will appoint a chairperson.
Just like many private employers, governments often provide retirement benefits to their employees.
- Retirement benefits help attract and retain a quality workforce.
- In California, the two principal retirement benefits provided to employees are:
- Post-employment health benefits, and
- Pensions.
Pension funding remains one of the biggest problems facing governments everywhere.
- In California, the annual cost to the state budget for pensions rose from $160 million in 2001 to almost $2.6 billion in 2006.
- The Economist magazine estimated California's total unfunded pension liability at $49 million this year.
- 72 percent of Californians believe public employee pensions and retirement systems pose a problem to state and local governments, according to a 2005 public opinion survey conducted by the Public Policy Institute of California.
Up until now, retirement health care benefits have been funded on a "pay-as-you-go" basis and the totally liability has gone unaccounted for.
- The Legislative Analyst's Office pegged California's retirement health care liabilities at $40-$70 billion.
- The LAO said the liabilities of local governments, law enforcement agencies, and school districts throughout the state could exceed even that of the state.
- JP Morgan put the state's liabilities - local governments included - at $70-$200 billion.
- Governments have never before had to account for the total cost of retirement health care benefits.
- New government accounting rules will require that governments begin reporting the costs on their books.
- In California, health care retirement benefits costs have increased five times faster than other state spending.
Ideally, employers put money away during an employee's working tenure to pay for their retirement benefits later, but in practice, this rarely happens.
- As a result, current budgets are forced to meet the benefit obligations of the past.
- Lawmakers would be derelict in their duties if they did not address both retirement health care and pension liabilities.
The Governor will protect the death and disability benefits of law enforcement officers, firefighters, and others public employees.
- During the gubernatorial debate in October, the Governor said it clearly: "I think it is also important to note that I did not try to take anything away from any police officer or firefighter. As a matter of fact, I can say right now I will never take away the pension or the disability or the death benefit from anyone - the firefighters, the police officers or anyone else as far as that goes, so you can stop that hype right there."
The Governor is not advocating for defined contribution plans.
- Governor Schwarzenegger is not proposing to change the state's defined benefit plans to defined contribution plans.
