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State Controller Cohen updates state retiree health care liability
The liability represents the present-day cost to provide health and dental benefits to state retirees and their dependents earned as of June 30, 2022 — one of the state’s largest long-term liabilities.
A year earlier, the state’s net liability for retiree health care, commonly known as Other Postemployment Benefits, or OPEB, was $95.51 billion.
California’s net OPEB liability decreased since the last valuation, decreasing by $13.10 billion.
By contrast, the net OPEB liability increased by $0.32 billion from the end of FY 2019-20 to the end of FY 2020-21 and by $3.26 billion from the end of FY 2018-19 to the end of FY 2019-20.
Demographic experience and changes to the discount rate had the most impact to the total OPEB liability.
CalPERS PPO health plans were consolidated from the PERS Choice, PERS Select, and PERSCare plans to the PERS Platinum and PERS Gold plans.
Demographic experience losses, mainly due to more plan members selecting the more expensive PERS Platinum plan, caused the total OPEB liability to increase by $3.46 billion.
The blended discount rate was significantly impacted by the increase in the 20-year municipal bond index which changed from 1.92% in fiscal year 2021 to 3.69% in fiscal year 2022.
The impact of the blended discount rate led to a decrease of $21.50 billion in the Total OPEB Liability.
“While the volatility of the blended discount rate created a favorable swing in net liability this year, rising healthcare costs remain a concern,” said Controller Cohen, the state’s chief fiscal officer and board member of CalPERS and CalSTRS. “We will continue to develop effective strategies to curb future costs and keep California on track for full funding by 2046.”
In January 2010, California began entering into collective bargaining agreements to prefund retiree health care benefits. Prior to this, California covered retiree health care benefits strictly as costs came due.
With all but California State University now contributing to the California Employer’s Retiree Benefit Trust, or CERBT, analysts expect to see acceleration of the funded rate.
The state has set a policy goal of full funding by 2046. CERBT funds cannot be used to pay OPEB benefits until the state has fully funded the legacy liability, or 2046, whichever comes first.
As the chief fiscal officer of California, Controller Cohen is responsible for accountability and disbursement of the state’s financial resources. The controller has independent auditing authority over government agencies that spend state funds.
