Retiree benefits in state are at the crossroads

last updated: January 14, 2008 02:48:21 AM

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Anyone paying attention already knew that school districts and state and local governments are on the hook for billions of dollars in health benefits for their retired workers. The Public Employee Post-Employment Benefits Commission appointed by the governor last year to assess retiree benefits recently attached a specific number to that liability: $118.1 billion over the next 30 years.

While that's a monumental number, it probably understates the price tag. It assumes health care costs will rise only 4 percent a year. But health costs lately have risen at a much steeper rate -- for University of California retirees, 12 percent annually -- according to one government report.

Whatever the number, commissioners are right to call upon state and local governments and school districts to start saving money now to pay for the cost. Any money invested today will help reduce the future tab and the unfairness of dumping the burden on our children.

Currently, the state and most local governments pay retiree health costs on a pay-as-you-go basis. The state spent $1.36 billion last year alone. If no money is set aside to invest in retiree health care, state retiree costs will balloon to more than $5 billion annually over the next 30 years. That's money that won't be available to spend on improving transportation systems, schools, public safety or other government programs.

While commissioners have pushed prefunding, they've said nothing about levels of post-employment compensation. Commission Chairman Gerald Parsky said that issue was not part of the commission's charge. Too bad. It should have been.

By any measure, public employee pension and retiree health care benefits in California are excessive. Driven by politically powerful public employee unions, the state, local governments, schools and special districts have larded up their benefits packages to levels that are unsustainable.

Many workers retire from state and local government service at a little older than 55 with 90 percent of their pay, plus generous lifetime health, vision and dental benefits. Public safety workers can collect full benefits as young as age 50. In the state's biggest counties, some retirees collect more in retirement than they earned on the job.

Like the commission, the nonpartisan Legislative Analyst's Office has called on state and local governments to prefund retiree health benefits, an obvious and prudent reform. But the analyst also has suggested that legislators consider reducing the most generous health benefits, at least for future hires. In a 2005 report on pensions, the analyst suggested that legislators severely restrict retroactive benefit increases, reduce pension formulas for new hires and base all future retirement pay on the last three years of employment, a reform designed to stop pension spiking. None of those common sense recommendations appear in the commission's report.

It's only sensible to ask government leaders to address a growing retiree cost crisis -- demand sacrifice from powerful public employee unions to protect government budgets, the public and taxpayers. They've been asked time and again. One day perhaps that plea won't be ignored.

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