LAO Suggests Something for Nothing (& Something More Attractive)

Have I got a deal for you!

We have noted that the governor has proposed pre-funding of non-UC state employees' retiree health care in a manner similar to the way pension benefits are pre-funded. Currently, retiree health care for most non-UC state employees are on a pay-as-you-go basis, not pre-funded. (The same is true for UC employees.) We remarked on this blog that if you ask employees to pre-fund a benefit, some kind of legal obligation to deliver those benefits would likely result. This supposition gets support from a recent report by the Legislative Analyst's Office (LAO).

From the LAO's Report on Retiree Health Care (for non-UC state employees):

"If state employees are required to prefund retiree health benefits based on the current benefit design, these payments could be viewed as increasing employees’ contractual rights to receive these same benefits when they retire. If so, the state would have less flexibility to redesign state health plans in the future to reduce costs—for example, modifying state health plans to offer less coverage for particular procedures or to require higher copays or deductibles. To maintain legislative flexibility, there would need to be laws or agreements providing explicit disclaimers preserving the state’s legal interests in this regard."

Page 15 of http://www.lao.ca.gov/reports/2015/budget/retiree-health/retiree-health-benefits-031615.pdf

The LAO doesn't indicate how the state would go about requiring contributions by employees to retiree health plans which guaranteed them nothing. We often warn folks to be cautious and skeptical if some scheme seems to offer something for nothing.  Even more caution would be advised about paying something for nothing.

On the same page, however, is a much more attractive deal suggested by LAO that relates to the "rainy day fund" created by voters last November under Prop 2:

"We recommend that the Legislature invite the California Public Employees’Retirement System, California State Teachers’ Retirement System, University of California, and others to respond with proposals for using Proposition 2 funds to address one or more of the state’s large retirement-related debts over the next 15 years. One viable option for the Legislature to consider is to use Proposition 2 money to start paying down the $72 billion unfunded liability for retiree health benefits..."