Daunting outlooks, diverse actions

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.”

Solutions: The county sets aside $3.5 million annually to partially fund the management plan. No other action is planned, but supervisors say they can cancel retirees’ ability to buy into the county’s insurance pool if the subsidy becomes too costly. Overall, the county is in good shape to handle obligations.

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San Diego County;On the hook for: $1 billion

Percent of annual budget going to pay retiree healthcare tab:

2007: 1.0%

2027:4.2%

Benefits offered: Retirees with at least 20 years of service, including those on Medicare, are eligible for up to $400 a month to offset medical expenses and health insurance costs. The amount can be increased to keep pace with rising healthcare costs.

History: The county granted thousands of employees big pension increases in 2002. A retiree earning $80,000 can collect a pension of as much as $70,000. County supervisors now argue that retirees receiving the largest pensions can afford to pay for their own healthcare coverage. But the county’s labor-controlled retirement board is resisting efforts to take the coverage away from that group.

Solutions: The supervisors cannot force the retirement board to go along with their plan to take away benefits from retirees collecting large pensions. But a provision in the county charter allows them to eliminate healthcare for all county retirees. The supervisors are threatening to do so, saying the current payouts are unsustainable. Labor groups have vowed to oppose taking away benefits from any retiree.

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Contra Costa County; On the hook for: $2.57 billion

Percent of annual budget going to pay retiree healthcare tab:

2007: 2.5%

2027: 11.2%

Benefits offered: Retirees over 65 pay as little as 1 cent a month for full health coverage. Those under 65 get up to 80% of their health insurance bill covered. Most employees are eligible for lifetime health coverage after 10 years in government.

History: County supervisors voted for generous increases in retirement packages for employees in 2002 -- but failed to rein in healthcare costs. Three years later, a grand jury warned that the costs were unsustainable. Supervisors resisted making changes, saying that because the county is such an expensive place to live, it would be impossible to attract top talent without excellent benefits. Another factor is a surge of retirees expected in coming years.

Solutions: The situation has been studied exhaustively, with one task force concluding: “The county cannot afford [to pay] future costs of current benefit plans and maintain service levels.”

Options proposed so far include freezing spending on healthcare at the current dollar level, ending health coverage when Medicare kicks in, and eliminating coverage for employees under 40 -- all unpopular with labor. The supervisors plan further study.

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Riverside County; On the hook for: $70 million

Percent of annual budget going to pay retiree healthcare tab:

2007: 0.8%

2027: 0.9%

Benefits offered: The county contributes $25 to $256 a month toward premium costs, depending on a person’s job at the time of retirement. Employees who take early retirement can buy into the county-sponsored health plan at “subsidized” rates until age 65. The cost is lower because the county’s plan blends the rates of active and retired workers.

History: Retirement healthcare costs became a hot issue for the Board of Supervisors last year, when a report revealed $237 million in long-term debt. Supervisors reasoned that retirees --who qualify for pensions as high as 90% of their working pay -- should pay for more of their healthcare. Unions and retired workers fought change, but the board forged ahead anyway.

Solutions: In September, the Board of Supervisors voted to phase out early retirees’ ability to buy into the county’s health plan beginning in 2009. That change alone is expected to reduce the county’s long-term liability by 70%, to about $70 million. The board also agreed to establish a trust to pre-fund retirement healthcare costs and set aside $10 million as an initial deposit. The county has left the core of its program intact.

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L.A. Unified School District;On the hook for: $10 billion

Percent of annual budget going to pay retiree healthcare tab:

2007: 4.1%

2027: 17.6%

Benefits offered: Up to full health coverage for retirees, as well as spouse and dependent coverage. Dental, vision and life insurance are also provided.

History: Most school systems offer retiree healthcare packages not nearly as generous as those of L.A. Unified, and some offer none at all. The district says good benefits are crucial to recruiting and retaining teachers willing to work in its troubled schools. The $10-billion tab ranks among the biggest financial challenges faced by any California agency. Declining enrollment could further sink the district into the red, making less cash available.

Solutions: Officials have produced detailed studies but haven’t taken action. There are some complicating factors: Many L.A. Unified retirees are ineligible for Social Security (those who do get such payments might have earned them on previous jobs or be the survivor of a spouse who earned them). There is also a group hired long ago that opted out of Medicare when the law allowed it. The district will probably need to offer less generous packages to new employees, but the creation of a two-tiered system could trigger morale problems and make recruitment more difficult.

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*The government’s or district’s estimate of its 30-year liability for retiree healthcare costs.

** Projections assume that retiree healthcare costs will increase 11.8% annually -- the average rate at which they have risen in the state budget over the last 20 years -- unless the government or district has taken action to curb costs. The general-fund rate of growth is assumed to be 6.6% for the state, 4% for school districts and 3.9% for counties, reflecting statewide averages over the last decade or more.

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(BEGIN TEXT OF INFOBOX)

MECHANICS

Radford Jackson, 45

Senior mechanic, Fleet Services,

Ventura County

Years on job: 25

Expected age of retirement: 50

Expected retirement income: Jackson, who makes $50,000 a year, will draw an annual pension of about $20,000. He plans to live off that, and possibly work part time, until he can begin drawing from two other county-sponsored plans, similar to 401(k)s, at 59 1/2 . At 67, he will qualify for $20,400 a year in Social Security. He and his wife own a rental condo that would bring in about $1,500 a month once it’s paid off.

Retiree health benefits: Ventura County does not pay for retiree healthcare. Jackson plans to buy into the county’s insurance pool, at a rate lower than what he would pay on his own, until he qualifies for Medicare.

Retirement plans: Jackson and his wife intend to travel once their four children are grown. They hope to stay in their Oxnard home.

“Why am I retiring early? Do you know any old mechanics? A lot of these petroleum products cause cancer, and I don’t want to be around them for too long.”

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Marco Hernandez, 37

Mechanic, Jesse’s Radiator, Ventura

Years on job: 20

Expected retirement date: Unknown. Hernandez says he will probably need to work until he is physically unable to do so.

Expected retirement income: Unknown. The Oxnard resident has worked for several employers and has never been offered a retirement plan. He earns about $20,000 a year and hasn’t set aside any savings for retirement. His Social Security payments would begin at age 67, but Hernandez is unsure how much they would be.

Retiree health benefits: His employer does not provide medical benefits for active or retired employees. When Hernandez reaches the age of eligibility, he will be covered by Medicare.

Retirement plans: Hernandez said he and his wife don’t give much thought to retirement -- they are too busy trying to raise their two children and pay bills.

“When you work with a big company, there are benefits. But when you work for a small shop, you just don’t talk about that stuff. You don’t expect it.”

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APPRAISERS

Bob Baker, 59

Supervising appraiser, San Diego County tax assessor’s office

Years on job: 22

Expected age of retirement: 60

Expected retirement income: Baker earns $82,000 annually and will receive $60,000 as a lifetime pension, plus cost-of-living increases, when he retires next year. At 66, he will also be eligible for $13,200 in annual Social Security income.

Retiree health benefits: The county pays a $400 monthly subsidy to partly offset premiums; he will qualify for Medicare at 65.

Retirement plans: Baker and his wife, who also works for San Diego County, intend to sell their home near San Diego and move to Huntsville, Ala. There, Baker plans to enroll at the university and study physics, a lifelong passion. He has no plans to work.

“You’re a government employee dealing with taxes. People call you up, give you all kinds of hell. They threaten you.... It’s the price you pay for this [retirement package].”

Mike Boyd, 71

Self-employed appraiser, Santa Rosa

Years on job: 25

Expected age of retirement: No plans to retire

Expected retirement income: After two decades of full-time work as an appraiser, Boyd says he has to work part time to make ends meet. At age 65, he began receiving Social Security payments, now totaling $17,160 a year. He has no pension or 401(k) plan. He currently earns less than $40,000 a year doing appraisals.

Retiree health benefits: Medicare since age 65. He pays $42 a month for a “bare bones” Medicare supplemental policy.

Retirement plans: Boyd had rental properties but lost them in a divorce. With no investment income, he plans to continue working, at least part time, to supplement his Social Security check. Now single, he rents an apartment in a Santa Rosa seniors community and spends time with his three sons and their families.

“In the back of my mind, I worry about what happens if my brain goes and I can’t work. But that’s what kids are for.”