Press Releases

SACRAMENTO — Today, State Controller Malia M. Cohen published a report showing the state’s net liability for retiree health and dental benefits – also known as other post-employment benefits (OPEB) – increased to $91.5 billion. The liability represents the present-day cost to provide health and dental benefits to state retirees and their dependents earned as of June 30, 2024, and is an estimate developed by actuaries in consideration of current and future economic, demographic, and health care-related assumptions that are subject to change on an annual basis.

California’s net OPEB liability increased by $6.3 billion since the prior year’s valuation of $85.2 billion. In comparison, the net OPEB liability increased by $2.8 billion from the end of fiscal year 2021-22 to the end of fiscal year 2022-23 and decreased by $13.1 billion from the end of fiscal year 2020-21 to the end of fiscal year 2021-22.

Health care claims experience, plan design, trend rates, demographic experience, and changes to the blended discount rate affected the total OPEB liability estimate. A significant driver behind the total OPEB liability increase includes higher than average per member healthcare claim costs and plan design changes that increased the expected total OPEB liability by $4.9 billion. Changes in the health care trend rate assumptions, including adjustments to reflect the potential impact of the Inflation Reduction Act on Medicare prescription drug benefits, increased the total OPEB liability by nearly $2.5 billion. The blended discount rate is based on the combination of the full funding discount rate of 6.00 percent and the 20-year municipal bond index which increased from 3.86 percent at the end of fiscal year 2022-23 to 3.97 percent at the end of fiscal year 2023-24. The change to the blended discount rate decreased the total OPEB liability by $1.6 billion.

“The estimated liability for retiree health and dental benefits is a significant long-term cost facing California, which is why the state set a responsible goal to fully fund these benefits over the long-term by 2046,” said Controller Cohen. “Since 2010, the state and public employees through collective bargaining have contributed to the prefunding of these benefits, which allows investment income to relieve the future financial burden that would otherwise fall to employees and taxpayers. Given the current climate of economic uncertainty and looming budget shortfalls, the state’s current actions to pause prefunding contributions will save General Fund dollars. However, the most fiscally prudent plan for fully funding these promised health and dental benefits includes a return to prefunding when feasible, as well as remaining vigilant in our efforts to contain health care costs.”

Beginning in January 2010, California entered into collective bargaining agreements to prefund retiree health and dental benefits. Contributions were deposited into the California Employers’ Retiree Benefit Trust to generate investment income. The trust funds cannot be used to pay the retiree health benefits until the state has fully funded the legacy liability, or until 2046, whichever comes first. Prior to these prefunding efforts, the state paid for the benefits on a pay-as-you-go basis, covering only the minimum amount needed to fund the costs as they were due. With all

bargaining units, except for those under the California State University, contributing to the trust, analysts expected to see acceleration of the funded ratio.

However, several current bargaining agreements reached with state public employee unions beginning in fiscal year 2025-26 suspend state and/or employee prefunding contributions toward future benefits for two years.

The California Public Employees Retirement System (CalPERS) is the state’s largest purchaser of public employee health benefits, and the Controller serves as a voting member of its Pension & Health Benefits Committee. CalPERS uses its market position to contain rising health care costs for its members and retirees by providing choices for affordable health plans, negotiating for lower premiums, encouraging prevention, and stabilizing and lowering the costs of prescription drugs where feasible.

As the chief fiscal officer of California, Controller Cohen independently oversees and manages California’s financial resources with integrity and transparency to build trust. The Controller is responsible for accountability and disbursement of the state’s financial resources. The Controller has independent auditing authority over government agencies that spend state funds. She is a member of numerous financing authorities, and fiscal and financial oversight entities including the Franchise Tax Board. She also serves on the boards for the nation’s two largest public pension funds. Follow the Controller on X at @CAController and on Facebook at California State Controller’s Office.

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