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The California Public Employees’ Retirement System (CalPERS) today praised the findings of a new report by the U.S. Government Accountability Office (GAO) entitled, “State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs.”
The GAO found that most state and local government pension plans are well-funded and on track for full funding in the near future.
“This should put to rest the myth regarding the financial soundness of public pension funds. CalPERS is a good example of a fully funded system with most of our plans at 100 percent funding level,” said Rob Feckner, President of the CalPERS Board of Administration.
The GAO report also correctly noted that public employers are beginning to analyze and address the option of prefunding retiree health care benefits, to use investment returns to fund the lion’s share of that cost in the future.
“CalPERS is taking a leadership role in California to provide appropriate prefunding vehicles of investments for every government entity interested in prefunding,” said Ron Seeling, CalPERS Chief Actuary.
Earlier this year, CalPERS established the California Employers’ Retiree Benefit Trust Fund to help California public employers prefund their other post-employment benefits (OPEB), such as retiree health insurance.
Participants in the trust fund make regular contributions into the fund. The contributions are invested and grow so that in the future, employers will be using investment earnings to pay for retiree health benefits similar to way CalPERS pensions are funded. Over the past 10 years, three out of four dollars paid in CalPERS pension benefits came from investment earnings, not from employer or employee contributions.
In addition to reducing future costs for employers, prefunding of OPEB costs reduces the unfunded liability that employers have to report on their financial statements. Lower unfunded liabilities can improve bond ratings, reducing borrowing costs.
Currently, employers who contract with CalPERS for health benefit administration for active workers are eligible to join the trust fund. Under a new law (AB 554) that goes into effect on January 1, 2008, all California public employers will be able to participate in the trust fund.
CalPERS, with more than $250 billion in assets, is the largest public pension fund in the U.S. It administers retirement and health benefits for 1.5 million active and retired California public employees and their families.
For more information about CalPERS and the California Employers’ Retiree Benefit Trust Fund, visit www.calpers.ca.gov.
