05/23/2008 GAAS:284:08 FOR IMMEDIATE RELEASE Print Version |
Governor Endorses Bipartisan Public Employee Post-Employment Benefits Commission Recommendations
Calls for Proposals to be Made Law, Urges Public Employers Statewide to Prefund Retiree Health Care Obligations
Today, Governor Arnold Schwarzenegger endorsed the comprehensive recommendations made by the bipartisan Public Employee Post-Employment Benefits Commission. The recommendations were issued by the 12 member commission, which was established by the Governor and legislative leaders to propose best ways to fund the post-employment retirement benefits promised to our state's public workforce.
Post-employment benefits largely consist of lifetime pension and health care benefits. These promises will require substantial payments that are spread over many decades.
"I am grateful to the Commission for their hard work and dedication to this effort," Governor Schwarzenegger said. "As I have said, retirement benefits that have been promised to our valued public workforce must be provided, and in a way that will not negatively impact funding for other state services or pass the burden on to future generations. I believe these recommendations provide a roadmap to accomplish these goals. I look forward to working with the Legislature, local government leaders, labor, the benefits providers and others to get these common sense solutions implemented for the benefit of the state's fiscal health and the wellbeing of our workforce."
The Governor specifically endorsed the Commission's primary recommendation to prefund retiree health care benefits like we already do for pensions and indicated he will work with the legislature to begin prefunding newly-created liabilities for the state's retiree health care benefits starting in fiscal year 2009-10. According to the Commission the existing liability for retiree health care benefits totals $118 billion. Governor Schwarzenegger has directed the Department of Finance (DOF) and the Department of Personnel Administration (DPA) to report back to him by September 30, 2008 with options to pay down the state's $48 billion obligation that do not include raising taxes or dipping into the state's general fund. He also urged local governments to undertake a similar process with respect to their $70 billion obligation.
"In 1947, the state made the right decision to start prefunding the pensions promised to government employees. Had it not done so, governments today would be facing a debt of nearly a half trillion dollars of unfunded liabilities arising from those promises. Instead, because of prefunding, we are protected by trust funds at CalPERS and CalSTRS that will meet most of those costs," said Gov. Schwarzenegger.
"Now we need to do the same thing to meet health care promises that have already grown to $118 billion and will continue to grow unless addressed. If we prefund and invest wisely as we do with pensions, those promises can also be secured without harming future government services and, as both the Commission and Controller have pointed out, at a dramatically lower cost to ourselves and future generations than if not prefunded. It will not be an easy task to finance this existing liability but it is a step we must take to protect future general funds and generations."
The Governor also endorsed two pieces of legislation that would put several of the recommendations into law; SB 1123 by Senator Patricia Wiggins (D-Santa Rosa) and AB 1844 by Assemblymember Dr. Ed Hernandez (D-West Covina). Both bills call for more transparency and accountability in the benefits process and are taken directly from the Commission report and recommendations.
In response to recommendations regarding benefit design and communications with employees, the Governor directed the DPA to develop a plan to provide tax advantage supplemental retirement savings plans to state employees on an "opt out" basis. He also directed DPA to provide regular updates to employees concerning their pension and retiree health care plans rules and terms. Consistent with the recommendations, the Governor determined that employees and retirees should be alerted when changes to benefits are proposed or made, and the notification should be provided in a time frame that allows affected employees and retirees to understand the impacts, review other options and comment on the changes.
The Governor also endorsed the Commission's recommendations that request certain changes by the Internal Revenue Service (IRS) pertaining to retiree benefits tax law. The Governor directed his staff to follow-up with the IRS on the specific appeals that have been made by the Commission.
In addition, the Governor reached out to local governments throughout the state to urge them to move forward with recommendations made by the Commission. In a letter sent to local governments statewide, the Governor urged local leaders to begin, or to continue prefunding retirement health care benefits that have been promised to their employees and retirees. In addition, he called on local policy makers to implement Commission recommendations calling for increased public notice and accountability in the benefits process; improved benefits plan design and better communication with active and retired employees.
"I strongly encourage all local public employers to follow these recommendations. They are clearly in the best interest of their and their employee's fiscal health," Gov. Schwarzenegger said.
In response to the recommendations that pertain to the state's public retirement systems, the Governor sent a letter to CalPERS and CalSTRS urging them to consider the recommendations in the areas of plan design, board governance, training, conflict-of-interest and abuse prevention.
