County is Making Progress
Auburn Sentinel, February 1, 2008
By Jim Holmes, 2008 Chairman, Placer County Supervisor
Placer County is making significant progress in its efforts to close the gap between projected costs and funding for retiree benefits other than pensions.
The issue has been making headlines because many state and local governments across the country are facing huge financial challenges as they try to bring funding into line with projected costs.
Closing the gap will be a challenge for Placer County, but I'm pleased to report that we appear to be in much better shape than most government agencies. We already have a workable plan in place that offers us a long-term solution.
The issue is getting close scrutiny because of standards established by the Government Accounting Standards Board for measuring and displaying on financial statements the cost of many retiree benefits other than pensions.
The standards cover what are known as "other post-employment benefits" or OPEB for short. Medical, dental and vision benefits are included in OPEB.
In the past, OPEB obligations were paid for out of current revenue on a pay-as-you-go basis. In the future, they will be recognized similar to pensions, with outstanding liabilities recognized on the county's balance sheet.
The new standards do not require government agencies to fund OPEB obligations, but the alternative is a growing unfunded liability year-by-year.
Efforts to address the unfunded liability are important not only as a sound financial practice in general, but to maintain the quality of Placer County's credit and resulting bond rating, which is among the highest in the region.
The Board has approved a plan and taken several actions over the last several years to reduce Placer County's unfunded OPEB liability:
-Over the last three budget cycles, the county has placed $25 million in general fund revenue into an interest-bearing, restricted-use trust account to help cover future costs.
-The county has started placing in the trust fund a specified percentage of each dollar spent on employee salaries and will increase the percentage each budget cycle until the OPEB obligation is fully funded. The plan calls for fully funding our annual obligation within the next five to eight years.
-The county has entered into agreements with labor groups to share health-insurance costs, which will also help reduce the county liability.
On December 11, 2007, the Board of Supervisors took another critical step: authorizing the county to join the California Employer's Retiree Benefit Trust Program operated by CalPERS.
Joining the program allows Placer County to help pay for future OPEB costs through investment earnings generated by CalPERS, with a higher interest rate (7.75 percent) than would otherwise be earned.
Our progress is reflected in a 2007 actuarial report that places the county's unfunded liability at $231 million. That's down dramatically from the $328 million estimated in 2005.
The Placer County Board of Supervisors is pleased with the proactive approach the county is taking on this issue.