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BENEFITS BIND

Daunting outlooks, diverse actions

June 10, 2007|CATHERINE SAILLANT AND EVAN HALPER

New rules require local governments, school districts and other public agencies to calculate and disclose the tab for retirement healthcare benefits promised to workers. In many cases, the costs have proved staggering, spurring some government entities to cut benefits or begin setting aside funding. Others have taken little or no action. Here's the outlook for some entities. The totals at the top are aggregate amounts over 30 years. The budget percentages are for a 20-year span.

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State of California; On the hook for:* $48 billion

Percent of annual budget going to pay retiree healthcare tab:**

2007: 1%

2027: 2.9%

Benefits offered: Up to 100% coverage for retirees. Up to 90% coverage for spouses and dependents. Retirees have more coverage paid for than active employees, giving state workers an incentive to retire as early as age 50.

History: Lawmakers have been increasing benefits packages to curry favor with public employee unions, as well as to put off providing raises amid the state's cash crunch. The Legislature missed an opportunity to confront the problem in the late 1990s when market returns sent the pension fund soaring. Instead of investing that money to cover health costs, legislators boosted cash payments to retirees.

Solutions: Gov. Arnold Schwarzenegger has launched a commission to study the problem, but no action is planned until next year at the earliest. Sacramento has shown little interest in confronting retirement costs since Schwarzenegger's attempt to move state workers into a 401(k)-style system flopped in 2005. Most analysts agree that a solution will involve a combination of reducing benefits, raising taxes and cutting services, as well as establishing a trust fund to cover future obligations.

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Los Angeles County;On the hook for: $20 billion

Percentage of annual budget going to pay retiree healthcare tab:

2007: 1.9%

2027: 5.9%

Benefits offered: Retirees who work for the county 25 years or more get health insurance that includes full dental and a vision plan, with up to 100% of the cost paid by the county. Those employed for fewer years receive smaller subsidies.

History: The county is in a bind. In the early 1980s, it promised to provide retirees health benefits at least as good as those received by active employees. The county government made the deal with the board of its employee pension fund in exchange for help out of a budget jam. A state law was passed to make the agreement binding.

Solutions: Without state legislation rolling back the law protecting benefits, the county's options are limited. The county has deposited several hundred million dollars into a trust fund to help cover future healthcare costs. But it will need to find a lot more cash -- or start offering a less generous retirement package to new hires -- to bring the problem under control. "This puts pressure on the state government to do something about the cost of healthcare," said David Janssen, L.A. County's chief administrative officer.

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Orange County; On the hook for: $598 million

Percent of annual budget going to pay retiree healthcare tab:

2007: 1.4%

2027: 1.3%

Benefits offered: Retirees get a $255 monthly grant to help pay for medical expenses or insurance. Early retirees and those on Medicare get reduced grants.

History: Facing $1.4 billion in debt, the Board of Supervisors demanded concessions. Public employee unions agreed to accept reduced grant amounts, and the county created a trust fund to guarantee future payments. Wall Street analysts are enthusiastic about the plan, saying the county is moving in the right direction. But retirees have complained that insurance will quickly become unaffordable. Regardless how expensive health insurance gets, grants will go up only a modest amount each year.

Solutions: Orange County has largely solved its problem -- but at what cost? Labor leaders and retirees complain of an overzealous approach that could leave thousands without insurance. Also, the union that represents sheriff's deputies did not agree to the new medical plan, so that will remain a labor issue.

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Ventura County; On the hook for: $41 million

Percent of annual budget going to pay retiree healthcare tab:

2007: 0.3%

2027: 0.2%

Benefits offered: Most retirees get nothing, other than the option to buy into the county's health plan with their own money. A small group of retired managers gets up to five years of health insurance covered.

History: Ventura County has never provided retiree health benefits for its general workforce. However, in 1999 county supervisors approved a health retirement plan for managers, covering premiums for up to five years depending on length of service. The managers' benefit was repealed in 2005. "Unions have pushed for retiree health coverage over the years. But we just told them it was not in the cards," said Ventura County Chief Executive Johnny Johnston. "Now that the tide has turned for so many governments, [the unions] don't even bring it up."

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